Not very sporting

Lenny readied himself as the pitcher performed his pre-throw ritual. His team was 1-0 down.

The ball streaked in from the mound like a thunderbolt sent down by a vengeful god. An illegal pitch, aimed at Lenny’s body rather than the strike zone.

Not very sporting. Sometimes people feel compelled to show an opponent who is boss.

The pitch narrowly missed, passing behind Lenny’s back. Close enough to ruffle the fabric of his jersey before thudding into the waiting catcher’s mitt.

Unimpressed, Lenny readied himself again.

Bat poised.

Knees bent.

Ready to take an almighty swing.

The pitcher launched once again, a slower delivery this time, right over the plate.

In a single fluid movement, Lenny stepped inside the pitch and gently bunted the ball between the pitcher’s mound and first base. Dropping his bat, Lenny charged down the baseline.

Darting forward, the pitcher anticipated easily gathering the ball and tagging Lenny out.

The pitcher didn’t realise it yet, but he had just made three strategic errors.

His first mistake was aiming at Lenny’s body and missing. If you’re going to hit somebody, then you make damned sure they stay hit. You may not get a second chance.

His second mistake was not knowing that Lenny had represented his college in both baseball and football. Lenny may not have been the most gifted wide receiver to have ever played the game, but he had been tough enough to survive playing college football.

His third mistake was pissing Lenny off.

As he stooped to field the ball, a stampeding Lenny veered off the baseline, dropped his shoulder, and cannoned into the pitcher’s chest!

The pitcher was flattened like he had been hit by a runaway train. The impact sent hats and helmets flying.

Not very sporting. Sometimes people play the man, not the ball.

Lenny sprinted towards first base.

An outraged first baseman tackled him to the ground. The rest of the fielding team quickly piled on.

The pitcher sprang to his feet and dashed towards the melee. He had the presence of mind to show the umpire that he still controlled the ball, before tagging Lenny out and joining the fight.

Both dugouts emptied.

An all-in brawl ensued.

Lenny’s team had been under pressure and the game was getting away from them. He had taken a chance and done the unexpected. Unsettling his opponents. Changing the momentum of the game.

Not very sporting. Sometimes people swim against the tide, knowing they will be roughed up in the process.

Eventually, the umpires managed to restore order. A now closely contested game continued.

That night a local brewery had been running a 10 cent beer promotion at the stadium. It was a publicity stunt. The fans embraced the idea with an unexpected degree of enthusiasm.

With scores were tied 5-5 in the 9th inning, there was everything to play for. Rather than risk an adverse outcome, the local fans rioted.

Away team players were attacked with chairs and metalwork torn from the grandstands.

Home team players used baseball bats to defend their opponents from their own fans.

The umpire ruled the game forfeit to the away team. He was brained with a chair for his trouble.

Having achieved the sort of publicity that money simply cannot buy, the brewery opted to continue the 10 cent beer promotion at the next home game. The only concession made to the dangers of posed by a marauding mob of drunken fans was to impose an unenforceable four drink limit.

And to station a squad of riot police in the stadium car park. Just in case.

Not very sporting. Sometimes people make the wrong decisions and learn the wrong lessons.

Here be dragons

In the late 1990s, the world was in the midst of a panic about the looming threat of the “Y2K bug”.

Doomsayers, politicians, pundits, and technology consultants loudly and regularly proclaimed that the end of the world was nigh.

At the turn of the century command and control systems were predicted to fail. Electricity and gas supplies would cease. Floodgates would open. Planes would fall out of the sky.

For decades, programmers had cut corners by storing four-digit years in two digits worth of space.

Y2K marked the point where those two digits looped, making it impossible to tell whether the year 00 represented 1900 or 2000.

Not very sporting. Short-sighted decision-making by the few are often paid for by the many.

Fearful about business continuity and legal liability, firms collectively opened their wallets to the tune of billions of pounds. Vast armies of consultants gleefully lined up to help them spend it.

Testing, and occasionally fixing, computer systems against Y2K vulnerabilities. Systems that in many cases those same consultants had designed and built in the first place.

History tells us that Y2K turned out to be one of the largest boondoggles of all time.

The forecast cataclysm did not eventuate. The predicted long term hangover failed to appear.

The consultants profited handsomely from all the headlines, mayhem, and misdirection. Much as the brewery behind the 10 cent beer promotion had done.

Those CEOs who invested heavily in preparations where punished for needlessly wasting shareholder funds.

While those who pretended the whole thing wasn’t happening, ostrich-like, were often rewarded for their apathy.

The line between bravery and stupidity can only be drawn in hindsight, determined by the outcome.

Lenny steamrolling the pitcher might have been seen as inspirational standing up to a bully, had he made it to first base. Instead, he got tagged out and found himself on the bottom of an all-in brawl.

Not very sporting. Sometimes those who stand up for themselves or do the right thing get punished.

For the insiders, the only ones qualified to know the truth, Y2K represented a massive gravy train.

Y2K defined a pattern that had been successfully repeated for every large regulatory change that has followed. Basel. FATCA. GDPR. MiFID. Sarbox. Solvency. The list is long and oh so expensive.

An immovable deadline.

A severe imbalance between supply and demand.

Impossible to replicate specialist skills and knowledge.

A textbook seller’s market. Firms having little choice but to pay what it cost. And pay they did!

Not very sporting. If you follow the money, you could be forgiven for wondering if policy and regulation are actually written by lobbyists and consultants working on behalf of those who will ultimately profit from the changes.

Deemed employment

I can’t help but observe many similarities between Y2K and the ongoing palaver that is the United Kingdom’s “deemed employment” tax rules.

An idealistic principle underpinning society is that a fair day’s work deserves a fair day’s pay.

Governments then siphon off a fair amount of tax to pay for those foundation services upon which a smoothly functioning society depends. Education. Emergency services. Healthcare. Police. Roads. Social security.

Civil rights campaigners have fought to universally apply that principle, correctly observing that equal work deserves equal pay.

Like many things in British society, the tax system is seldom fair and rarely equal.

Today, there could be two people sitting side by side in an office, performing identical roles.

The first is a permanent employee. They receive a net salary after income tax (PAYE) and social security contributions (Employee’s national insurance) have been deducted. Their employer will have also had to pay the government a payroll tax (Employer’s national insurance) for the privilege of employing the staff member.

The second is a freelance contractor, working through a limited company. Their company invoices the client on a time and materials basis. Eventually, that invoice payment gets distributed to the contractor in the form of dividends.

In the general case, the contractor then (probably) pays income tax on those dividend payments. However, the contractor probably won’t pay need to any social security contributions. Nor will their limited company be charged payroll tax.

These interchangeable providers of professional services receive very different disposable incomes for their efforts.

Same location. Same role performed. Same working hours.

Not very sporting. Most taxes are optional, the system offering arbitrage opportunities to those who seek them out.

On the face of it, this arrangement seems inequitable. Unfair. Unjust.

As is often the case, there is more to this story than there first appears.

The permanent employee receives a benefits package on top of their salary. Paid holidays and sick leave. Pension contribution matches. Health insurance. Training and professional development.

Benefits packages vary based on market conditions, the generosity of the employer, and the negotiating skills of the potential employee. If you don’t ask, you don’t get.

Meanwhile, the contractor receives none of those things. If they want them, they have to buy them. To make the comparison fair, the figures in the table above assume the contractor works only 45 weeks of the year. They take the same five weeks of annual vacation, plus bank holidays. In the contractor’s case, all unpaid.

Entrepreneurial

Next, consider entrepreneurial risk.

An employee takes very little. Their employer is likely owned and run by others. Somebody else worries about keeping the lights on and making the payroll each month.

The contractor takes on a lot. They own and operate a business. All the pressure, responsibility, and uncertainty belong to them alone.

They ride the rollercoaster that is the life of a business owner. Reaping the benefits of profitability during the good times. Warming the bench and earning nothing during the inevitable quiet times when the market is down or their skills are no longer in demand.

At the conclusion of the project, the permanent member of staff will be allocated their next assignment. No friction. No loss of earnings.

The contractor gets thanked for their efforts and shown the door. If they are both well organised and fortunate, they will have another client lined up. More often, they will find themselves on the bench. Earning nothing. Scrambling to find another client willing to pay for their services.

Not very sporting. Simple contract versus permie money comparisons are deceiving.

Recently the United Kingdom government decided that the contractor is a “deemed employee”.

What does this mean?

The tax authorities will pretend that the contractor’s limited company does not exist. They are said to fall “inside IR35“.

Instead, they rule that the contractor’s revenue should be taxed at source, consistent with the way the permanent employee is taxed. Now the contractor is both employer and employee, liable for both lots of tax.

On the face of it, the numbers now look much more equitable. The permanent employee and the contractor each receive approximately the same disposable income. While the tax authorities take roughly the same sized bite from each.

Sounds reasonable, no? Fair. Equitable. Arbitrage opportunities removed. Injustice redressed.

Except that the contractor still receives no benefits package. No healthcare. No pension. No paid vacation days.

They experience none of the certainty or risk avoidance enjoyed by the permanent employee.

They must still provide their own equipment and training.

Recalcitrant clients will still need chasing for payment.

Services need to be marketed.

Paying clients found.

To the contractor, this change feels as threatening as Lenny was when faced by a drunken mob armed with pipes and chairs torn from the grandstands.

Not very sporting. Sometimes it isn’t your imagination, the government really is out to get you.

To make matters worse, the tax authorities have decided that if the freelancer does not pay their taxes properly then it is their client who is liable.

Think about that for a second.

That is the equivalent of you being held liable for your plumber, housekeeper, or the mechanic who services your car not filing their taxes properly. You have no control over their financial affairs, yet you are exposed to considerable liability should they cut corners or not do the right thing.

Many clients took one look at the risk of potentially vast penalties blowing their budgets and understandably decided they no longer wanted to engage the services of freelancers any longer.

Instead, they would use consultancies.

Coincidentally those same consultancies are often performing working practice assessments for the clients. Advising them about their risks and exposures under the new rules, should they continue to engage freelancers as opposed to consultants.

Not very sporting. Sometimes conflicts of interest and misaligned commercials intersect in alarming and expensive ways.

Not very sporting

It will be interesting to watch how the “deemed employment” changes ripple throughout the employment market.

How adverse will their impact on projects and programmes prove to be?

What will former contractors do when they realise freelancing is no longer financially viable? Join a consultancy? As a permanent employee?

Contractors will see their day rates decrease by their additional tax burdens. Few will be able to pass those costs onto their clients in the form of higher day rates. In a competitive globalised skills marketplace, the work will simply flow to lower priced alternatives.

Clients will incur increased costs when sourcing interim staff from consultancies, rather than using freelancers. They will have little choice, given the alternative is recruiting ongoing permanent staff.

The government will almost certainly carry on acting like an unruly drunken mob. Making ill-conceived decisions. Giving little thought and even less care about the resulting consequences of their actions.

Meanwhile, the consultancies will do what they do best. Adapt. Evolve. Play the angles. Profit from the change and confusion. Work towards an end game that benefits themselves, often at the expense of their clients, subcontractors, and the government.

Not very sporting.

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References

• Baseball Reference (1974), ‘Texas Rangers at Cleveland Indians Box Score, June 4, 1974‘
• Bleacher Report (2009), ‘Cleveland Indians’ Ten Cent Beer Night: The Worst Idea Ever‘
• Contractor Calculator (2020), ‘Financial Profile – Contractor – Inside IR35‘
• Contractor Calculator (2020), ‘Financial Profile – Contractor – Outside IR35‘
• Contractor Calculator (2020), ‘Financial Profile – Permanent Employee‘
• HM Revenue & Customs (2020), ‘Off-payroll working (IR35)‘
• Meyer, R. (2013), ‘No Old Maps Actually Say “Here Be Dragons”‘, The Atlantic
• NC State University (2006), ‘A Brief History of Outsourcing‘
• SMU Jones Film (1974), ‘WFAA Film of A Great Baseball Fight – Rangers vs Indians 1974‘
• Sports Reference (2020), ‘Lenny Randle‘