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Contractors face mixed outlook as BIS proposes new Agency Workers Regulations

Despite last week’s announcement of a delay to the implementation of the Agency Workers Directive, which many feared would have a negative impact on contractors if it were rushed into law, contractors are not out of the woods yet.

They appear to be facing a mixed outlook, judging by the contents of a new consultation document published by the Department for Business, Innovation and Skills (BIS) Covering the draft Agency Workers Regulations 2010, which is the legislation that would be used to implement the Agency Workers Directive, the document does include some good news.

Firstly, it reveals that the legislation is now scheduled to come into force in October 2011. This contradicts Gordon Brown’s earlier statement to the TUC last month, in which the Prime Minister said it would ‘go live’ in the coming months.

Good news for some contractors

Limited company contractors will be delighted that, despite moves by the unions, BIS proposes that ‘those working through their own limited liability company’ will be excluded. That will ease the fears of many contractors who feared their livelihoods might be at risk.

For umbrella company contractors and those limited company contractors within IR35, the future in two years time is less certain. For example, the consultation says that the AWD will apply to “agency workers contracted to an ’umbrella company‘, or who operate a personal service company but are not genuinely self-employed”.

‘Disappointing’ measures proposed

Despite the uncertainty over the future of the AWD, response to the news and consultation from contracting organisations has been broadly positive, but with some disappointments. Derek Kelly, Legal and Technical Director of contractor umbrella Parasol Group, explains: “Given that the Agency Workers Directive will impact on the whole of UK PLC, the government has made absolutely the right decision by listening and delaying implementation.”

But it is not all good news, says Kelly: “Although the ethos of the directive – protecting vulnerable workers from exploitation – is to be supported, the consultation proposes a number of very disappointing measures.”

Kelly, who is responsible for the smooth running of the employment status of almost 10,000 contractors on Parasol’s books at any one time, cites the proposed changes to give agency workers full rights to holiday pay as one example, which he maintains will complicate already complex calculations.

“BIS has missed a massive point: that vulnerable agency workers, who fully deserve protection, are very much in the minority, and there is a massive amount of workers, many of them very highly skilled, who choose agency work because it suits their lifestyle.”

BIS has missed a massive point that vulnerable agency workers who fully deserve protection are very much in the minority and there is a massive amount of workers many of them very highly skilled who choose agency work because it suits their lifestyle

Derek Kelly, Parasol

Breathing space for contractor agencies

As with the first stage consultation, the latest proposals from BIS place the responsibility, risk and liability, of policing the new Agency Workers Regulations on the shoulders of the agency sector.

Alan Rommel, Managing Director of Parity Resources, which specialises in placing IT contractors in both the private and public sector, says he was “overjoyed” at the news of the delayed implementation, but concerned that the consultation period is so short.

“Although we’ve been preparing for the AWD for some time, having the extra time to prepare for the new regulations is clearly very positive,” says Rommel. “And despite the fact that our current contractor roster comprises over 95% limited company contractors who will almost certainly be excluded from any legislation, this might not be the case in future.”

Umbrella company contractor options

So, what is the contracting sector’s likely response? Will we see a flood of limited company incorporations as October 2011 approaches? Probably not, says Parasol’s Kelly: “The parallel is when the Managed Services Company (MSC) legislation was introduced in 2007. We saw a flood of contractors into umbrella companies because they needed to be paid, and quickly."

“By the time we reach October 2011,” he continues, “there will be a number of alternative trading solutions available to contractors from the Parasol family, and no doubt others. These will enable those who wish to continue contracting outside of the scope of the AWD and without incorporating, to do just that.” However, Kelly remains tight lipped on the details of these trading solutions.

He accepts that incorporation may be a more attractive option for many of the lower paid and lower skilled contractors than previously, as changes in company law and the proliferation of low cost accountancy services has significantly reduced the knowledge and cost barriers to becoming ‘limited’.

Only 8 weeks for consultation

Rommel and Kelly both voiced their concerns at the very small window for consultation on the proposed Agency Workers Regulations, as responses must be submitted to BIS by 11th December 2009.

“We hope that the grey areas will be ironed out during the consultation stages, so we don’t have a repeat of what we saw when IR35 was introduced,” says Rommel. “In our experience it is precisely those grey areas that create costly confusion, which the contracting and recruitment sectors certainly don’t need as they emerge from recession.”

This concern was echoed in a statement by the Conservative’s Shadow Minister for Business, Jonathan Djanogly, who has led opposition calls against the overly-swift implementation schedule, including in an exclusive interview with ContractorCalculator earlier this year.

With the apparent expectation of the Conservatives forming the next government, Djanogly said: “We shall be making it very clear that if we feel that the process is not being run in a manner appropriate to the seriousness of £40 billion of extra costs on business over ten years, then we will have no hesitation in reviewing the regulations in Government.”

So who will benefit?

Kelly is disappointed that despite the clear evidence provided by many contractor organisations and service firms to BIS in the first consultation, the distinctions between professional contractor and vulnerable agency worker have not been acknowledged.

“Contractors with contracts lasting less than the 12-week qualifying period can continue to use an umbrella solution,” he says. “And there is sufficient time for alternative trading options outside of the AWD to make it onto the market before October 2011. Business will suffer because of the extra red tape and additional costs.”

But Kelly is concerned that under the proposed regulations, the very vulnerable workers the legislation is designed to protect will ultimately be the ones to suffer. His fear is that they will lose out on employment opportunities that are withdrawn by client organisations who want to avoid the additional complications of new laws.

Along with many other commentators in the contracting sector, Kelly worries that the implementation of the Agency Workers Directive may yet emerge as a rerun of the IR35 debacle.

Published: 20 October 2009

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