Contractors and the contracting sector have so far remained relatively unaffected by the Agency Workers Regulations since they came into force on 1 October 2011. But that could be about to change.
Until now, limited company contractors have not been turned away by clients and agencies fearing tribunals. Service providers anecdotally report that they have had few issues with migrating their contractors to a Swedish Derogation model.
Ironically, according to media reports, those workers currently suffering the most would appear to be the very low paid, low skilled temps that the legislation was originally designed to protect.
But the relative lack of impact of AWR on the contracting sector could be about to change, if the results of a recent survey by the Association of Professional Staffing Companies (APSCo) are to be believed.
Now that the first twelve-week qualifying period for equal pay has been reached, APSCo is warning that “thousands of temporary workers and contractors could find themselves laid off this January.”
Its survey of recruiters, which will include most of the major contractor agencies supplying IT and engineering contractors into the financial and other sectors, reveals that agents reckon a third of their clients “are likely to terminate contractors and temporary workers assignments prematurely because of the Agency Workers Regulations”. The contractors will most likely be terminated before the twelve-week qualifying period deadline is reached.
What is particularly worrying for contractors is that APSCo’s Chief Executive Ann Swain is warning that the “professional end of the market” is being affected by AWR. The only mitigating factor is that Swain admits that it is entry level contracting roles that are likely to be hit the hardest by terminations. So old contracting hands and new contractors with higher-level skills or experience are likely to remain relatively unscathed by AWR.
A further client reaction to AWR, reported by g2 Recruitment’s Phil Hutchinson, is that clients “are looking to ‘buy people out’ of contracts” to transfer them to fixed-term contracts or even full-time positions.
This scenario could directly threaten the livelihood of limited company contractors, particularly if the fixed-term contract model gains favour with clients. Contractors forced into fixed-term employment contracts would experience a greater fall in take-home pay than if they were inside IR35.
The next few weeks may well set the scene for the contracting sector going forward. If clients get cold feet and there are wholesale terminations of contractors before the twelve-week period is reached, contracting could be threatened with a higher degree of instability induced by client short-termism.
What is to be hoped is that clients, and the agencies who advise them, hold their nerve and recognise that the vast majority of limited company contractors are genuine small businesses not seeking rights under AWR. And if service providers continue to insulate clients from umbrella company contractor risk via models such as the Swedish Derogation, then there may be no ‘Y2K moment’, and business as usual will prevail.
Either way, the sad fact remains that the workers who almost certainly won’t benefit from AWR will be those it was introduced to protect.