Contractors have received confirmation in draft guidance from the Department of Business, Innovation and Skills (BIS) that limited company contractors in business on their own account are not affected by the Agency Workers Regulations (AWR), but umbrella company contractors are included. This is draft guidance, and those wishing provide feedback have only a few days to respond to BIS by Friday 15 April 2011 (contact details are given at the end).
Crucially for contractors, the draft guidance published by BIS points to employment status guidance on the Business Link website to determine whether or not workers are in business in their own account. This is the same guidance that underpins the determination of a contractor’s IR35 status and the implications are that, if a contractor is outside IR35, then they do not fall into the scope of the AWR.
The guidance to the AWR, which come into force in October 2011, potentially introduces a new dynamic to the contractor, client and agency relationship: it will now be in the client’s best interests to confirm working arrangements that clearly place contractors outside the scope of AWR, and therefore also outside IR35.
Furthermore, with limited company contractors effectively being excluded from the AWR, the pressure from clients and agencies will be on agency workers to incorporate and work to ‘contracts for service’, rather than employment contracts. Inevitably the very vulnerable workers the AWR was originally conceived to protect may find themselves forced into unsuitable trading vehicles to satisfy the new market dynamics the regulations will impose.
The guidance is unequivocal about umbrella company contractors being included in the scope of the AWR. Although the risk is small of an umbrella contractor claiming equal pay and conditions to their clients’ employees, as allowed by the AWR, is small umbrella companies may choose to use business models such as the so-called ‘Swedish Derogation’, to ensure that the key equal pay element of the regulations won’t apply.
It is important to note that the draft guidance is just that – a draft – and there is an opportunity for contractors and contracting services companies to provide feedback, as BIS explains on its website:
“BIS will consider your comments before finalising the guidance, due to be published on Business Link at the end of April or soon after, allowing the necessary time for all parties to prepare for the changes in advance of the regulations coming into force in October 2011.”
However, there is only a two-week window of opportunity to provide feedback and any comments must be with Lisa Moses [email: lisa.moses@bis.gsi.gov.uk] at BIS by Friday 15 April 2011.