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Umbrella company contractors to reap multiple benefits from Agency Workers Regs (AWR)

Once the Agency Workers Regulations (AWR) come into force on 1 October 2011, umbrella solutions providers will enter a new era. The changes demanded by the new legislation should ultimately benefit contractors. That’s according to Rob Crossland, chief executive of Parasol, in this article for ContractorCalculator.

Contractors should reap the benefits of greater protection offered by the AWR without suffering unduly from increased costs and administration. There will be a ‘bedding in’ period, during which clients, recruiters and contracting solutions providers will jostle for position. But ultimately, it is the workers, the UK’s contractors, who will benefit from greater compliance in the contracting sector. There will also be less risk of them suffering from financial losses as a result of service providers operating outside of the law or with unsustainable business models.

The bottom line is that, for UK contractors working through solutions providers offering overarching employment contracts, ie the classic umbrella company, there is no way round the new law. There is no ‘get out of jail free’ card, no exceptions and no excuses. Umbrella company contractors are within scope of AWR, and service providers need to get on with providing contractors with compliant trading solutions, not gambling that they might somehow ‘get away with it’.

Currently compliant umbrellas are only a few steps from AWR compliance

But umbrella solutions providers that are compliant with current legislation are already nine tenths of the way towards fulfilling the requirements of the AWR. So, for many solutions providers, post-1 October 2011 will be largely ‘business as usual’, and by no means the ‘death of umbrellas’ predicted by some. The threat to contractors arises from non-compliant service providers or those with unsustainable business models.

There will also be recruiters or clients choosing to remain ignorant of the requirements and implications of AWR. The risk is that these organisations simply put contractors in the ‘too hard’ basket and place assignments outside of the UK labour market, or even relocate. The knowledge economy, to which so many UK contractors contribute, is both global and highly mobile.

There is also no doubt that not all of the umbrella solutions providers currently operating in the UK will survive, and this is not always a reflection of their levels of compliance. Smaller umbrellas simply may not be able absorb some of the costs and risks associated with, for example, offering full employment models to contractors to comply with AWR. Others may fall from agencies’ preferred supplier lists (PSLs), with ill-informed recruiters choosing to deal only with limited company contractors in the mistaken belief that this automatically removes such workers from AWR’s scope.

Costs must pass through the supply chain transparently

The key to surviving the ‘bedding in’ process will be complete transparency throughout the sector and supply chain. Timesheet levies charged by recruiters, already crippling for many umbrella solutions providers, are currently passed on to contractors, resulting in significantly higher weekly charges than they might otherwise expect. It is important that any additional costs of implementing AWR do not get charged on to contractors without the commensurate benefits of the additional rights and pay contractors should automatically receive from compliant suppliers.

And although compliant umbrella solutions providers will be required to work with recruiters to assist their contractors with finding work, this should not be viewed by recruiters as an attempt to move into their space. Contractor recruiters fulfil a vital role in the supply of the UK’s flexible workforce; contractors should continue to embrace their services which, in some sectors, place over 90% of contractors in assignments. Clients attempting to circumvent AWR by dealing direct with umbrellas won’t escape the new laws. The umbrella company simply becomes the temporary work agency, instead of the recruiter, achieving nothing.

Clients won’t all decide to dispense with agency services overnight, any more than we will see contractors fleeing into limited company trading solutions. Limited company solutions may be inappropriate for many contractors’ personal circumstances, although clearly incorporation presents a viable route for some. Clients depend on recruiters for a whole range of compliance and brokerage services they could not easily or cost-effectively duplicate themselves.

No planes will fall from the sky on 1 October 2011

The deadline of 1 October 2011 should be perhaps viewed as a ‘Y2K’ moment when, despite the hype, no planes fell from the sky. There is a lack of knowledge about AWR within the contracting sector, but that is common with most new legislation – the incentive to learn is greater when the legislation is actually in force.

Without doubt some labour organisations are lining up the first claims and tribunals taking advantage of the new law. Whilst no organisation would wish to be the subject of a claim, this is an important part of the implementation of any new law. We will also learn, when the first cases are heard, how the source legislation differs from the guidance issued by the government and how this will impact on future compliance.

All stakeholders, from contractors to service providers, recruiters and clients, should stay calm and carry on, not panic and, above all, communicate. Contractors should look to their service providers and agencies to guide them on what action to take now and once AWR comes into force. Largely, this will be nothing. For a few contractors, it may mean using a different trading option. For all contractors, it shouldn’t mean being panicked or pushed into an inappropriate trading solution, simply because their agency or client does not understand the new law.

Changes in the law can often present much more in the way of opportunities than they do threats, but only if organisations are able to recognise these opportunities. And AWR will be with us on 1 October 2011 – there’s no avoiding it. So it is incumbent on umbrella solutions providers, who after all only exist to allow contractors to trade, to ensure it is contractors who ultimately benefit in the new era of AWR.

Published: 15 August 2011

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