Are you tracking your contractors effectively? A quick guide to contractor compliance and management for 2026 and beyond

Are you tracking your contractors effectively? A quick guide to contractor compliance and management for 2026 and beyond in summary:

IR35 is getting harder to ignore – the small business thresholds rose on 6 April 2026: turnover to £15 million, balance sheet total to £7.5 million. That shift moves IR35 status-determination responsibility onto more contractors’ own companies. It’s worth checking now whether your business counts as “small” under the new rules. Correctly classifying employees, workers and contractors, and keeping records centralised, helps you avoid HMRC penalties. Regular status reviews add another layer of protection against tribunal claims. This guide covers what’s changed, what to check, and includes a quick contractor compliance checklist for HR and finance.

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Contractors, freelancers and interns are a lifeline for a lot of UK businesses right now.

According to Malt’s 2026 UK Freelance Trends report, which draws on LinkedIn’s Future of Work data, over half of UK companies plan to increase their use of independent talent this year, and many are actively growing the number of specialist contractors they bring in. And, it’s not hard to see why: contractors let you flex quickly around a project, cover a skills gap, or bring in expertise you don’t need full-time.

All sounds great, doesn’t it? But, there’s a catch; and that’s managing contractors well has gotten a whole lot more complicated since we first wrote about this topic back in 2016.

The off-payroll working rules (better known as IR35) have been reformed twice, the small business thresholds have just changed again for 2026, and getting a worker’s employment status wrong can mean a real HMRC bill, not just an awkward conversation.

So, this is a good moment to revisit what “tracking your contractors effectively” actually means today, and how your HR system should be helping you do it.

What’s the difference between an employee, a worker and a contractor?

Employment status isn’t just a label. It determines tax treatment, employment rights, and who’s liable if something goes wrong. Broadly speaking, UK law recognises employees (with full employment rights), workers (a middle category with some rights, like holiday pay, but not full employment protections), and the genuinely self-employed, who typically contract through their own limited company or as a sole trader.

Where this gets tricky is that job titles don’t decide status – working practices do.

A “contractor” who works set hours, uses your equipment, and takes instructions from a line manager in the same way an employee would may, in reality, be a worker or even an employee in the eyes of HMRC or an employment tribunal, regardless of what the contract says.

Get that wrong, and you risk an HMRC investigation into unpaid tax and National Insurance, or a tribunal claim for unfair dismissal or discrimination from someone you believed was outside your employment obligations altogether.

Why do the off-payroll working (IR35) rules matter so much?

IR35, more formally the off-payroll working rules, exists to stop people supplying their labour through a personal service company (PSC) in a way that looks and functions like employment, purely to pay less tax. The rules apply to three groups: the worker’s intermediary (usually their own limited company), the client receiving the work, and any agency in the supply chain. GOV.UK’s guidance on off-payroll working sets out who’s responsible for what.

Who decides the worker’s status depends on the size of your business. Medium and large private sector clients (and all public sector bodies) are responsible for determining status themselves and must issue a Status Determination Statement to the worker. Small businesses are currently the exception: responsibility sits with the worker’s own intermediary instead.

HMRC provides the Check Employment Status for Tax (CEST) tool to help make that determination, and HMRC will stand by the result as long as the information you gave it was accurate. We covered how the determination and notification process works in practice in our earlier guide to managing the off-payroll rules, which is still a useful walkthrough of the mechanics.

What’s changing with the small business thresholds in 2026?

This is the bit that’s genuinely new, and worth flagging to your finance team as well as HR. From accounting periods beginning on or after 1 April 2025 (which started affecting IR35 responsibility from 6 April 2026 onwards), the small company exemption thresholds are rising.

According to Forvis Mazars’ analysis of the change, a business now qualifies as “small” if it meets at least two of the following for two consecutive financial years: annual turnover of £15 million or less (up from £10.2 million), a balance sheet total of £7.5 million or less (up from £5.1 million), and an average of 50 employees or fewer, which hasn’t changed.

In practice, this means a meaningful number of businesses that were previously classed as medium-sized, and therefore responsible for determining their contractors’ IR35 status themselves, will become “small” and see that responsibility shift onto the contractor’s own company instead. If that applies to you, you’ll need to notify your contractors of the change so they know the determination is now down to them.

Group companies and joint ventures aggregate their financials across all connected entities when working this out, so it’s worth checking with finance rather than assuming your standalone numbers apply.

Either way, this is a good prompt to revisit your contractor population as a whole. Even where responsibility technically sits with the contractor, most businesses still want to know their status determinations are sound, if only to avoid disruption if a contractor’s own assessment turns out to be wrong.

For the wider picture of what’s changing in UK employment law this year, our roundup of the key 2026 employment law changes covers the other reforms landing alongside this one.

How can your HR team keep contractor records organised and up to date?

First off, centralising contractor information the same way you would employee data solves most of the practical headaches. A single record for every worker, flagged clearly as an employee, contractor, freelancer or volunteer, means you can see at-a-glance who’s who, upload contracts and right-to-work documents so they’re easy to find, and set contract start and end dates with reminders before they expire.

Now, that last point matters more than you might think.

A contract that quietly rolls on past its agreed end date, with nobody deciding whether to renew it or the working arrangement drifting into something that looks more like employment, is exactly the kind of thing that catches HR out at an audit or tribunal.

Right-to-work checks apply to your contractor population just as they do to employees, and the rules there have their own compliance deadlines worth knowing. Our quick reference guide to right-to-work checks covers what you need to check and how often.

Status isn’t a one-off decision, either. Circumstances change: a visa expires, a remote contractor relocates, or a freelancer who started out working a few hours a week for several clients ends up working solely for you, on hours you effectively control. Regular status reviews, triggered by your HR system rather than relying on someone remembering, help you catch these shifts before HMRC or a tribunal does it for you.

How can self-service and portals cut down contractor admin?

Contractors are typically more expensive to engage than permanent staff, so it’s worth streamlining the admin around them wherever you safely can.

Letting contractors update their own contact details and personal information through self-service, with an approval workflow if you want oversight, cuts down on back-and-forth emails and keeps your records current without extra HR effort.

For example, the Form Builder tool in the Cezanne HR system lets you control exactly which screens and fields any group of users, including contractors, can see or edit, so you can open up self-service without giving contractors access to anything that isn’t relevant to them.

A dedicated HR portal helps too, particularly for knowledge-sharing. Including contractors in company-wide announcements keeps them in the loop, and a portal built specifically for contractors, with the documents, contacts and FAQs they need, means fewer “who do I ask?” messages landing in HR’s inbox. We’ve written more generally about what’s worth including on an HR portal if you’re thinking about setting one up.

It’s also worth using your reporting tools to keep contractor data properly separated from your core employee headcount, both for IR35 size calculations and for general workforce reporting, so contractor numbers don’t quietly skew figures they shouldn’t be influencing.

How do you manage training, health & safety and time tracking for contractors?

Contractors still need training, sometimes more than you’d expect: fire safety, data protection, how to represent your company to clients (if applicable), or industry-specific certifications. Recording that training as an activity against their record, with the outcome logged, gives you an evidential trail if you’re ever asked to demonstrate compliance with Health and Safety law or a client’s own due diligence process.

Health and Safety obligations run both ways between employer and contractor, covering everything from making sure they’re qualified for the work to providing appropriate supervision. Document tracking – a standard feature within many HR systems, including Cezanne – helps here too: you can see what’s been sent, what’s been read and signed off, and log any Health and Safety incidents with follow-up actions attached, so nothing falls through the cracks.

For contractors working directly for you rather than through an agency that handles its own billing, integrated time tracking makes sense. It gives approving managers visibility of what contractors are actually spending their time on, and gives finance or HR the data they need for payment or for planning future resourcing.

If you’re still relying on spreadsheets or separate systems for that, it might be worth reading our piece on the signs your business needs proper time tracking software.

A quick contractor compliance checklist

If you want a practical starting point to tracking your contractors more effectively, run through this within your HR and finance teams:

• Pull a current list of everyone working for you who isn’t a direct employee, including contractors, freelancers, interns and volunteers.
• Check each one’s employment status classification against how they actually work day-to-day, not just what their contract says.
• Confirm whether your business now falls under the new “small” thresholds for 2026, and if so, notify affected contractors that status determination responsibility has moved to them.
• Make sure contract end dates, right-to-work documents and any CEST determinations are stored centrally and set to alert someone before they lapse.
• Set a cadence for reviewing contractor status, rather than only revisiting it when a contract is due to end.

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Frequently asked questions

What’s the difference between an employee, a worker and a contractor under UK law?

Employees have the fullest set of employment rights, workers sit in a middle category with rights like holiday pay but not full employment protection, and the genuinely self-employed are in business on their own account, usually invoicing through their own company. What matters for classification is how someone actually works, not the label in their contract.

Do the IR35 rules apply to small businesses?

The off-payroll rules still apply, but responsibility for determining status sits with the worker’s own intermediary rather than your business, provided you meet the small company thresholds. From 2026, those thresholds have increased, so more businesses will qualify as small than before.

What are the new IR35 small company thresholds from 2026?

A business is “small” if it meets at least two of these for two consecutive financial years: turnover of £15 million or less, a balance sheet total of £7.5 million or less, and an average of 50 employees or fewer. Source: Forvis Mazars

Who decides IR35 status, the business or the contractor?

For medium and large private sector businesses, and all public sector organisations, the client makes the determination and issues a Status Determination Statement. For small businesses, the contractor’s own intermediary makes the call.

What is the CEST tool and do we have to use it?

CEST (Check Employment Status for Tax) is HMRC’s free online tool for working out whether a role falls inside or outside IR35. It isn’t compulsory, but HMRC has confirmed it will stand by the result as long as the information entered is accurate, which makes it a useful starting point for most determinations.

What happens if we get a contractor’s employment status wrong?

The risks include an HMRC investigation into unpaid Income Tax and National Insurance (plus potential penalties and interest), and separately, the possibility of an employment tribunal claim for unfair dismissal, unpaid holiday pay or discrimination if the individual is later found to have been an employee or worker all along.

Do contractors count towards our headcount for IR35 size thresholds?

The employee threshold for the small business exemption is based on your own employee headcount, not the number of contractors you engage, but it’s worth checking the detail with your finance team as group structures and joint ventures aggregate figures across connected entities.

How often should we review a contractor’s employment status?

There’s no fixed legal interval, but reviewing status whenever a contract is renewed, a working arrangement changes materially (hours, exclusivity, location), or at a minimum annually for longer-running engagements, is a sensible default.

Can contractors use the same HR system as employees?

Yes. For example, the core People Management module in Cezanne HR system lets you record contractors on the same central platform as employees, flagged separately, with configurable permissions so they only see the screens and information relevant to them, and with reporting that keeps their data distinct from your core employee headcount.

Do contractors need right-to-work checks?

Yes, right-to-work checks apply regardless of employment status. See our guide to right-to-work checks for what to check and when.