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Contracting and AWR: who will be in AWR’s scope and what rights they will receive

ContractorCalculator and Parasol review the Agency Workers Regulations and assess who is likely to be excluded from its scope, who is likely to be in its scope and what rights they will receive as a result. This is the third in a series of articles published by ContractorCalculator in association with Parasol, providing expert guidance for contractors on the Agency Workers Regulations.

Contractors will be affected by the Agency Workers Regulations (AWR), either because they will need to demonstrate to agencies and clients that they are outside of its scope, or because they are in its scope.

Those who are in its scope can choose to claim a range of new employment rights on the day the regulations come into effect on 1 October 2011. They will also be able to claim additional rights after working on an assignment for 12 weeks.

Contrary to common belief, limited company contractors will not be automatically excluded from AWR’s scope – they may have to demonstrate to clients and agencies that they are genuine businesses and not agency workers. Limited company contractors have not been explicitly excluded to prevent unscrupulous agencies forcing lower skilled and potentially vulnerable workers to incorporate as an avoidance tactic.

Umbrella company contractors are considered to be in AWR’s scope, unless their solutions provider offers one of two solutions: either a full employment umbrella solution, with elements of what’s also known as the Swedish Derogation, or a matched permanent pay solution.

Key parties affected by the regulations

According to AWR, there are three parties affected:

  • The agency worker, for example a temp or, under certain circumstances, a contractor
  • The temporary work agency, for example a recruitment or staffing agency
  • The hirer, typically a contractor’s end-user client.

The definition of a temporary work agency provided in the regulations, and in the guidance for hirers and agencies supplied by the Department for Business Innovation and Skills (BIS), is very wide. The regulations state that a temporary work agency is “a person in business…involved in the supply of temporary agency workers”.

This means that, for example, a contractor’s limited company could be viewed as a temporary work agency, particularly if it subcontracts work to other contractors.

The ‘hirer’, or in contracting terms the ‘client’, is defined as:

... a person engaged in economic activity, public or private, whether or not operating for profit, to whom individuals are supplied, to work temporarily for and under the supervision and direction of that person.

This definition applies to all contractor clients, except in the unusual cases where the contractor is genuinely not supervised or directed by the client.

How to define an ‘agency worker’

In clause 3(1) of the regulations, an agency worker is defined as an individual who:

(a) is supplied by a temporary work agency to work temporarily for and under the supervision and direction of a hirer; and

(b) has a contract with the temporary work agency which is—

          i. a contract of employment with the agency, or

          ii. any other contract to perform work and services personally for the agency.

The key term in the definition is ‘supervision and direction’, because that basically means virtually any contractor irrespective of their trading vehicle could choose to be in AWR’s scope if they wanted to be. And that’s because very few contractors are not in some form or other under the ‘supervision and direction’ of their client.

For a contractor to be supervised and directed by a client, the client would merely need to ask the contractor to work on a specific project and periodically check how the contractor is progressing.

For a contractor to be supervised and directed by a client, the client would merely need to ask the contractor to work on a specific project and periodically check how the contractor is progressing

Note that ‘supervision and direction’ are not the same as ‘control’ in the context of IR35. As AWR is understood at present, a contractor could be quite happily directed and supervised by their client, and claim rights under AWR, but not be controlled by the client and be outside of IR35. Read more on AWR and IR35....

The guidance for clients and agencies specifically identifies contractors using umbrella solutions providers as being within the scope of the regulations. It also confirms that contractors trading via limited companies could still be covered by AWR.

When is a contractor not in the scope of AWR?

The regulations state that an individual is not an agency worker if:

a) the contract the individual has with the temporary work agency has the effect that the status of the agency is that of a client or customer of a profession or business undertaking carried on by the individual; or

b) there is a contract, by virtue of which the individual is available to work for the hirer, having the effect that the status of the hirer is that of a client or customer of a profession or business undertaking carried on by the individual.

Limited company contractors can demonstrate that they are outside of AWR if they are in a profession or business undertaking. Current thinking suggests that a contractor’s personal service company would qualify as a business undertaking, although there are currently no formal tests that can categorically define whether a contractor’s limited company is a ‘business undertaking’.

The tests of employment used to define whether a contractor is a disguised employee for the purposes of IR35 are not relevant to a contractor trying to prove their status under AWR. However, it is likely that if a contractor shows all the signs of being a disguised employee and not a genuine business, that same evidence would apply when considering AWR status.

Rights granted under AWR from day one

From 1 October 2011, contractors who are in the scope of AWR will qualify for a range of ‘day one’ rights. A further range of equal rights are granted after 12 weeks, which in practice will mean it will be 12 weeks from 1 October 2011 before anyone qualifies for ‘12 week rights’.

From October 2011, contractors in the scope of AWR will qualify for the following day one rights each time they start a new assignment with a client:

  • Access to shared facilities at their client’s site – eg canteens, crèches and transport services, such as a minibus from the nearest station or car park
  • Access to information about client vacancies.

A client that has many umbrella company contractors, or limited company contractors who decide to claim their rights, could suddenly find demand soaring for shared services from 1 October 2011.

Rights granted under AWR after 12 weeks

Once a contractor has been on assignment for 12 weeks, they can claim the same terms and conditions as a full time permanent employee performing the same role. These include:

  • Pay
  • Bonuses that are dependent solely on the contractor’s performance
  • Holidays and holiday pay
  • Working hours and rest breaks
  • Maternity benefits, such as paid time off for ante-natal appointments.

However, equal pay rights exclude company-wide bonuses, expenses, pensions and life assurance, share options, redundancy pay, sick pay and maternity/paternity pay if the client’s scheme is more generous than the statutory payments.

Technically, most contractors will be able to choose to claim these additional rights under AWR and remain outside IR35, because they are ‘supervised and directed’, but not controlled, by their clients.

Limited company contractors with a good understanding of AWR should be able to demonstrate that their limited company is a business undertaking, and that they won’t be responsible for increasing their client’s costs by trying to claim employment rights under AWR.

But until the regulations have been in force for a while and tested in tribunals and the courts, it won’t be possible to say with certainty exactly what a contractor’s individual status might be.

The fourth part of this series will offer an analysis of the official guidance to the Agency Workers Regulations for hirers and agencies published by the Department for Business, Innovation and Skills. It will highlight the areas relevant to contractors and confirm that IR35 is not relevant.

Published: 27 July 2011

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