IR35 and Off-Payroll Explained

The UK's leading contractor site. 200,000 average monthly visitors.

Contracting and AWR: formal guidance on the Agency Workers Regulations from BIS

ContractorCalculator and Parasol consider how the official Agency Workers Regulations guidance can be used to help contractors determine if the regulations apply. This is the fourth in a series of articles published by ContractorCalculator in association with Parasol, providing expert guidance for contractors on the Agency Workers Regulations.

Contractors can use the guidance for agencies and hirers published in May 2011 by the Department for Business Innovation and Skills (BIS) to help determine whether they are in the scope of the Agency Workers Regulations (AWR).

The guidance is valuable for contractors because it offers examples of individuals who are in AWR’s scope and includes detail of BIS’s interpretation of who is out of its scope.

However, until the regulations are in force and tested in employment tribunals and the courts, there is still room for further interpretation, and for some contractors this means ongoing uncertainty.

Guidance from BIS on who is in AWR’s scope

Whilst the legislation provides a definition of an agency worker, BIS goes one step further and offers examples of the kind of individuals it sees as falling within the scope of AWR. BIS says that, for an individual, such as a contractor, to be an agency worker:

  • There must be a contract between the contractor and the temporary work agency (BIS uses the abbreviation ‘TWA’ to describe contractor agencies)
  • The agency supplies the contractor on a temporary basis to the client
  • The contractor is under the ‘supervision and direction’ of the client. Note that this is not the same as ‘control’ in an IR35 context
  • The contractor is not in business on their own account.

The guidance goes on to warn, on page 9 in the ‘Out of scope’ section, that:

Simply putting earnings through a limited company would not in itself put individuals beyond the possible scope of the regulations.

So it would appear that a limited company contractor could still be considered to be in AWR’s scope if they fulfil the other ‘in-scope’ criteria. The key to being in scope is the tripartite relationship between agency, client and contractor – without it the regulations can’t apply.

Umbrella company contractors are automatically considered to be in the scope of AWR, as umbrella solutions providers are classed as ‘temporary work agencies’ (TWAs); no exceptions are given.

BIS definition of who is out of AWR’s scope

Genuine contractors supplying their services via a limited company, partnership or as a sole trader, and not through an umbrella company, are out of scope, as the definition from BIS suggests:

The definition of an agency worker excludes those who are in business on their own account where the status of the hirer is that of a client or customer of a “profession or business undertaking” (i.e. a genuine business to business relationship).

The Guidance warns that if there is a dispute over status:

The courts have devised a number of tests which examine the individual’s circumstances and consider all aspects of the relationship, including what a contract might say or what it does not say, the expectations of the parties and their conduct, to establish the reality of the relationship.

The definition of an agency worker excludes those who are in business on their own account

The Department for Business, Innovation and Skills

BIS provides an example on page 11 of an IT contractor working on a typical 12 month contract which suggests that, when finalising the Guidance, BIS understood the mainstream contracting model and that genuine contractors are not intended to be in AWR’s scope. The case study says:

Given the absence of personal service and mutuality of obligation, the [hirer/contractor client] company is a client or customer of the individual, therefore the individual is out of scope. This must be a true reflection of the reality of the relationships between the parties involved and not simply a reflection of the contractual terms.

According to BIS, genuine contractors should have few fears that AWR will apply to them. However, there is no definitive test for what constitutes ‘being in a business undertaking’ and until that is clarified by testing the legislation in tribunals and the courts, there remains some uncertainty for contractors.

Despite its comprehensive and useful nature, the guidance from BIS is just that – guidance. When ruling during tribunal or in higher courts, a judge will always seek out and apply the source legislation. And until the legislation has been tested in the courts, some of its provisions, such as the definition of a ‘business undertaking’, will remain uncertain.

The fifth part of this series will outline what trading models umbrella company contractors can adopt if they choose not to accept the employment rights offered by the Agency Workers Regulations, and the options available for those contractors who wish to trade as a genuine business undertaking.

Published: 03 August 2011

© 2020 All rights reserved. Reproduction in whole or in part without permission is prohibited. Please see our copyright notice.