Contractor Accountant

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

Quick Start Contracting Guide: The Agency Workers Regulations

ContractorCalculator’s Quick Start Guide about the Agency Workers Regulations answers your most common questions about the legislation that came into force on 1 October 2011.

1. Agency Workers Regulations – what are they?

The Agency Workers Regulations (AWR) form a piece of employment legislation designed to provide temporary workers supplied by recruitment agencies with additional rights and protection.

AWR is based on a European Union directive of the same name. The intention of the regulations is to protect vulnerable agency workers from exploitation by clients who are exploiting them as cheap labour in place of more expensive employees.

But the legislation does not fit the needs of some segments of the UK’s agency workforce, because it is designed to prevent vulnerable worker exploitation in European member states where the agency worker workforce is mostly very different from that in the UK.

2. Why are they relevant to me?

Chances are, the regulations may never affect you directly, but the problem is that some clients who hire contractors think they will. Ill-informed clients and agencies may assume that you qualify for the additional rights granted by AWR and that its going to cost them more to hire you.

But nothing could be further from the truth, and that’s why it’s good for you to understand what AWR means, so you can explain to prospective clients and their agencies why the regulations don’t apply in your case.

3. When did they come into force?

AWR came into force on 1 October 2011. That means if you qualify as an agency worker, there are additional rights you could start claiming from that day onwards (see questions 6 and 7).

4. Am I be affected?

AWR only applies to contractors working via agencies. Whether you are a limited company or umbrella contractor, or even trading via a partnership or as a sole trader, it is completely irrelevant if you are contracting direct with your client.

However, as the vast majority of contracts in some sectors, such as IT, are via agencies, there is a good chance you will qualify as an agency worker by virtue of the fact that a recruitment agency (known as a temporary work agency) finds you work with a client (the hirer).

You most likely won’t be affected if you are a limited company contractor, because you’ll be in a profession or business undertaking, ie running a business supplying your services to your clients. That said, there’s no formal test, yet, of what constitutes a business undertaking.

You will automatically be affected if you are an umbrella company contractor, unless your umbrella company offers a ‘matched permanent pay’ or ‘full employment’ model, also known as a ‘Swedish Derogation’ model.

And in some circumstances it is even possible that you might be affected if you are working as a subcontractor or substitute of another contractor, but this has yet to be tested by case law.

5. How can I avoid them?

You can avoid AWR by cutting out the agency and contracting direct. If you are a limited company contractor and contracting via an agency, then you can avoid them by behaving like a ‘business undertaking’.

It is not yet known what that phrase means, because AWR has not been tested in the courts, but chances are a similar set of ‘in-business’ tests, such as those used for IR35, may help put many limited company contractors outside of the scope of AWR.

Umbrella company contractors can avoid AWR by contracting direct or by using an umbrella offering a ‘matched permanent pay’ or ‘full employment’ model.

6. Do they affect my IR35 status?

Despite attempts by contracting sector stakeholders to link AWR and IR35, these are separate pieces of legislation that should be considered in total isolation.

However, if you are claiming rights under AWR, that rather suggests you want employment rights. And if you are behaving like an employee, then there is a good chance you are inside IR35.

So, although they are not formally linked, the evidence that puts you inside IR35 may well qualify you for rights under AWR, and vice versa.

7. When would I be eligible to claim any rights?

You can start claiming some rights on the first day you arrive on the client’s site. You can claim additional rights after 12 weeks.

8. What rights will I receive?

None, if AWR does not apply to you. If it does, then on the first day that you start the rights you can claim are:

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

The crucial deadline is 12 weeks after you start an assignment. That’s because rights to equal pay kick in, which is what has many clients and agencies scared about increased costs. Rights after 12 weeks include:

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

9. Can I opt out of them?

No. If you satisfy the definition of an agency worker, then that’s what you are. What you can do, though, is change the characteristics that put you in scope. That could mean contracting direct instead of via an agency, or perhaps incorporating a limited company and behaving like a genuine small service providing business.

10. Will I be paid more?

Possibly. But by claiming the right to equal pay after 12 weeks, you could ultimately end up losing out. That’s because, if you are a limited company contractor, claiming rights under AWR smacks of employee-like behaviours likely to put you inside IR35. And that could result in a drastic drop in take-home pay, plus potential unpaid tax, penalties and interest imposed by HMRC.

And if a substantial percentage of the UK’s temp and contractor workforce decides to opt for higher pay claims, thus significantly increasing the costs to clients, clients could simply switch to taking on permanent employees or offshoring temporary and contract roles to cheaper jurisdictions unaffected by AWR.

You can find out more about the Agency Workers Regulations by downloading our whitepaper Contracting and the Agency Workers Regulations.

Updated: 18 July 2017

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

MPU