The Agency Worker Regulations (AWR) are due to take effect in October and the government has recently published some draft guidelines on implementation.
With the finer details still to be confirmed and the regulations almost certainly not affecting limited companies, David Hughes of Accountants 4 Contractors takes a brief look at what the regulations are all about.
Any worker using a payroll or umbrella service will need to be provided with rights equivalent to a normal employee after 12 weeks of service (work). This is likely to cause two types of services (and possibly three) to emerge.
Firstly, for very short term and/or low paid positions, services that already exist will probably continue.
Secondly, for the typical 3 or 6 month assignment, a company may be able to apply the Swedish derogation, which is a potential workaround.
For this to be applicable an agency must:
- Explain the implications to the worker so they can make an informed decision and to it is recommended that an agreement is evidenced in writing to that effect;
- Employ the agency worker on a permanent written contract of employment including a statement that the employee is foregoing certain entitlements;
- Pay the employee between assignments at a rate of at least 50% of assignment pay based on the previous 12 weeks and not below the National Minimum Wage.
Many umbrella companies believe they are not in a position to fund this type of arrangement and not prepared to take the risk the employee may make a claim between assignments
Thirdly, it is probable that services that attempt to allow the worker to “have their cake and eat it” will continue/adapt, namely to attempt to offer the benefits of a limited company within a collective structure (umbrella, etc). Receiving pay from such a service on a non IR35 basis (however that may work) is going to be even more contentious than it already is and almost certainly will have HMRCs eyes boring down on them.
Clearly, the benefits of operating through a limited company are untouched by these new regulations, indeed, the consensus is that the rules will not even apply to limited companies. Like a lot of things of this nature, the guidelines are a matter of interpretation but it would seem limited companies can’t really be subject to them as long as the company is/will be genuinely in business on its own. Exactly what that last bit means will probably only be confirmed after October, maybe even in a court. However it seems to be alluding to the scenario of an umbrella worker setting up a company in October working with the same client/agency purely to try to beat the rules.
Umbrella companies are bound to have some top quality legal people looking at ways of being able to continue to provide some sort of service to their clients/potential clients; after all it’s their livelihood, but limited company contractors are as-you-were. As the lower end and less reputable end of the market reacts to the regulations, HMRC will no doubt be looking at how the umbrella market adapts to the changes and it will be very interesting to watch how this plays out.
Some umbrella workers may not be willing to set up a limited company nor would it be appropriate for them to do so, however they may be prepared to look at self-employment. Umbrella companies (and possibly some agencies) would be best advised to consider enhancing and widening their provisions to perhaps include sole trader provision, freelance limited company and LLP worker support as well as umbrella services. However because of potential liabilities when an agency or client engages with a sole trader, this option may be of limited use.
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