Every contractor in the UK is regularly confronted with making a decision on whether or not to ‘opt in.’ Mostly, they decide to ‘opt out’, and there are significant advantages to doing to. But there are consequences a contractor should be aware of.
What the regulations are for?
In 2003, the Department of Trade and Industry (now BERR) adopted a code called “Conduct of Employment Agencies and Employment Business Regulations.” As the BERR Guidance explains, these were intended to govern the conduct of the private recruitment industry and establish a framework of minimum standards that clients, both work seekers and hirers, are entitled to expect.”
The purpose of these regulations was a noble one. They are intended to protect equal rights for all temporary and agency workers, and they are especially concerned with fly-by-night agencies and ‘gangmasters.’ The engineer, or IT contractor reading this is not too concerned with those kinds of issues, but the regulations apply equally to those kind of contractors as well.
In practice, compliance with the conduct of employment regulations means that agencies have to behave very much like employers. They have to verify much of the personal information and career references of the contractors.
Contractors don’t need them
Contractors find the regulations cumbersome as well. Contractors have many contracts over their life time and providing documentation on all of them for agencies, who then have to check them all would be costly and time consuming. It is just not practical in the fast moving contract industry.
“It all slows down the process for contractors seeking work, and raises costs for agencies,” says a spokesman for the Cambridge-based agency PCR. PCR believes that the Conduct Regulations are designed to protect workers at the lower end of the market (for example, low paid workers in the hotel and catering industries) to ensure that they are paid a living wage, are not exploited and are told in clear terms what services the staffing company will provide them with. These people should indeed have the protection that comes with opting in,” the spokesman says.
Opting in slows down the process for contractors seeking work and raises costs for agencies
PCR Agency
But such is not the case for IT and engineering company contractors and consultants. Says Mark Morris, sales director at the umbrella agency Parasol: “This kind of contractor is at the top end of the market, and among the most highly paid. They are very able at protecting themselves and controlling the conditions of their employment.”
Why Most Opt Out
Several surveys conducted since the adoption of the code of regulations have shown that most contractors at the higher end of the scale do opt out.
In fact, the most highly paid contractors are probably wise to opt out, to protect their status outside IR35. Says Barry Roback, principal of the JSA Group which specialises in contractor finance: “We advise that, given the Revenue’s increasingly stringent views on IR35, opting out is probably a wise decision. IT contractors should resist the temptation to work under contracts that protect their ’employment’ rights, even if it does give them an added sense of security. Contractors are increasingly having to justify their status to the Inland Revenue and they should use every device - including opting out of the agency regulations - to shore up their defences."
“Control” is the issue here, as the spokesman for PCR explains: “the Conduct Regulations state that the services provided by PCR are to find assignments where the contractor acts for and "under the control" of the client. The concept of "control" is an employment indicator.” This means that if the client has control, the contractor may be classified fairly as an employee by the Revenue, and this can adversely affect his tax status.”
Roback points out that there is one small advantage for contractors who opt in: under the regulations, it is easier to move from a temporary employee position to a permanent one. Roback notes, however, that the close relationship between agencies and their clients would make it difficult for a contractor to make such a move even for those who have opted in.
So is there ever a downside to ‘opting out’ of the code of regulations? Essentially, contractors needs to be their own business managers. They should check that the terms proposed by an agency are both reasonable and acceptable, and that there is nothing in the agency conditions which will prevent them from expanding their careers.
contractors needs to be their own business managers
Barry Roback - JSA
Published: Monday, February 05, 2007
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