When it comes to the public vs private sectors, there are several key differences that can have a direct impact on your contract work. From the types of contracts you will work on to whether you fall under IR35, every contractor should understand how the two sectors differ in order to be fully prepared and make the right decision when it comes to public vs private sector.
To help, Umbrella Broker has compiled this handy guide. Here, we will outline the differences between both the public and private sectors, how this impacts a contractor’s everyday life and how it influences whether they will be caught out by IR35 legislation.
Public sector vs Private sector: What’s the difference?
First, let’s outline the differences between the public and private sector.
The main difference between the two is who they are governed by.
Whereas the public sector comes under the control of the government and other bodies, whether on a local, national or international level, the private sector is run by businesses, corporations and individuals.
This fundamental difference between who runs each sector leads to several key differences between how each sector operates.
These include:
- Revenue and spending: public sector organisations are accountable to a range of people and parties who are interested in how they are spending their money. Typically, public sector organisations must disclose details such as spending to these parties. On the other hand, private sector companies aren’t subjected to this level of accountability because they are private companies and businesses.
- Motivations: again, the motivations between both the public and private sector differ. The public sector’s motivations are driven by compulsory regulations from local, national or international bodies. However, the private sector generally has more freedom and flexibility in how they operate, being free to set their own goals as they are not held accountable to public bodies. In turn, this usually means that private companies are profit-driven first and foremost.
- Transparency: as the public sector lies under the control of the government, they are required to be open and transparent with what they are spending and what they are achieving. On the other hand, private sector bodies do not need to disclose such information and can hold this back if they wish to do so.
These key differences between the private and public sector inevitably impact the work that contractors do and the way they work.
For instance, a public-sector contractor may face much higher levels of accountability than a private-sector contractor will.
Likewise, the daily rate a contractor can charge may vary from sector to sector. After all, as private sector companies are profit-driven, they may have more fee for the contractor.
There is another key difference that will have a significant impact on whether a contractor will choose public vs private sector: IR35.
IR35 Explained
IR35 legislation is currently exclusively applicable to the public sector. It was introduced in 2017 to stop workers like contractors from operating as ‘disguised employees.’ This set out to target workers that operated as employees but claimed to be contractors in order to pay less tax and National Insurance.
Under IR35, it is the client, and not the contractor, that is responsible for deducting tax and National Insurance from the contractor’s fee before it is paid for them.
Although that sounds well and fair, it has in fact led to thousands of public sector contractors being wrongly classified under the legislation, regardless of their actual circumstances. This has meant that many contractors have paid PAYE tax and National Insurance contributions unnecessarily, meaning they have lost out.
Understandably, since IR35 came into play in the public sector, this has influenced many contractor’s decision to steer clear of the sector and instead work in the private sector where IR35 does not apply.
However, it is important to bear in mind that as of April 2021, IR35 is set to be rolled out to the private sector too.
IR35 in the private sector
Proposed changes to IR35 legislation will have a huge impact on private-sector contractors and the way they work.
After all, it will become the responsibility of the client, and not the contractor, to determine the contractor’s IR35 status. This is forecast to negatively impact the 170,000 private sector contractors, many of whom will lose out.
Is there a way to ensure IR35 compliance?
For contractors that want the freedom to choose between public and private sectors without having to worry about IR35 legislation, there is a way to ensure IR35 compliance.
By working through an umbrella company, contractors no longer have to worry about dreaded IR35 legislation.
The umbrella company employs the contractor, who is still free to carry out contracts of their choice in the public or private sector, but as they are employees, they are automatically exempt from IR35.
That’s why utilising the services of an umbrella company is a massively popular route for contractors. Not only does it take away any worries surrounding IR35, but it also offers a level of security and ease to contractors who are subsequently paid a salary, offered statutory benefits such as sick leave and holiday pay, and don’t have to worry about invoicing clients.
If this sounds like the right path for you, next you will need to find an umbrella company that’s the best match for your needs.
