IR35 and Off-Payroll Explained

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AWR guide revised: Swedish Derogation no ‘miracle solution’ for contractor umbrellas

Contractor umbrella companies may not be able to use the so-called ‘Swedish Derogation’ to put their contractors out of the scope of the Agency Workers Regulations (AWR), which come into force on 1st October 2011.

This latest information upsets the certainties held by many recruiters, and could cause problems if not responded to quickly. ContractorCalculator CEO Dave Chaplin, a former IT contractor, says: “The pressure is on for contractors, recruiters and contracting service providers to find workable solutions to AWR, as contracts are being signed now that will take contractors past the point when the legislation comes into force.”

Lewina Farrell, head of professional services at the Recruitment and Employment Confederation, has told Recruiter.co.uk that changes to the guidance offered by the Department for Business, Innovation and Skills (BIS) mean that umbrella company contractors, who are classed as agency workers under AWR, are entitled to more benefits than previously thought.

Farrell explains: “All agency workers, including those covered by this ‘pay between assignments exemption’ [the Swedish Derogation], are entitled to other new provisions under the regulations, in particular equal treatment in relation to the duration of working time, night work, rest periods and rest breaks, and annual leave after 12 weeks. This underlines the fact that the Swedish Derogation is not a ‘miracle solution’...”

The Swedish Derogation means the rights to equal pay that will normally exist under AWR won’t apply to workers who are employed on a permanent basis by an umbrella company or agency and who receive pay in-between assignments and other rights.

And recruiters who as an alternative to using the Swedish Derogation might wish to ‘encourage’ their contractors to form limited companies may also have to think again. That’s because the assumption of many that limited company contractors are automatically exempt from AWR has now been widely challenged, including at a recent REC Technology members meeting in Manchester.

There, employment law specialists Rehan Pasha of Squire Sanders Hammond, and Simon Bloch of Brabners Chaffe Street confirmed to recruiters that just because there was an assumption that AWR did not apply to limited company contractors, this is not necessarily the case.

After the meeting, REC Technology chairman Jeff Brooks said: “Many IT recruiters have assumed that, as their [contractor] candidates are self employed and better paid than their permanent equivalents, AWR would simply not affect them,” says Brooks. Echoing Dave Chaplin’s comments, he went on to urge recruiters to “talk to their clients well in advance and make the transition as smooth as possible”.

Published: 01 June 2011

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IR35 and Off-Payroll Explained