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What are statement of work contracts?

November 30, 2020

Whether you are a large business or not, you can keep your business and your contractors on the right side of the forthcoming IR35 reforms by having the right IR35 mitigation strategy in place.

And many workplaces are adapting working practices and adopting Statement of Work contracts.  

The Statement of Work is a document used to deliver a project.  It sets out project-specific activities, deliverables and milestones. It lists all the work that a contractor will carry out during the duration of a project usually with payments made on completion of milestones as opposed to payments made on a time and materials basis.  It covers the working agreement between the client and the contractor (the amount of work, the expected outcomes, the expected quality of job performance, and the timeframe for completion), allowing both to understand the parameters of a successful project.

In the simplest of terms, a Statement of Work says ‘in exchange for delivering X, you will be paid Y.’

The upcoming IR35 private sector reforms are designed to crack down on disguised employment and this means a straightforward provision of labour arrangement may fall within IR35.

However, services that are genuinely contracted out to a third party are exempt from IR35 – which means, if a Statement of Work demonstrates that a service is fully contracted out, then IR35 won’t apply.

The fact that IR35 doesn’t apply to genuine Statement of Work agreements is the main advantage– potentially saving contractors, recruitment companies and private sector employers a huge IR35 burden.  

It’s a win-win for both the contractor and the business as the contractor is financially rewarded for doing the best work possible in the fastest time frame. For the business, using these correctly means that every penny spent is a penny invested as they only pay for work signed off.

Used properly, a Statement of Work is a great way to ensure you don’t fall foul of IR35 rules.  However, contractors and the private sector companies hiring them must make sure the Statement of Work is a true reflection of the actual contract work being done.