Agency Workers Regulations: what IT contractors need to know

In October 2011 a new set of regulations introduced by the previous Labour government are set to change the rights of temporary workers.

The regulations, known as the Agency Workers Regulations, aim to increase the rights of certain classes of agency worker – in short, giving them the rights to the same pay and terms & conditions as a permanent employee if they are in post for more than 12 weeks. Since most contractors bill through an agency – an inevitable consequence of preferred supplier lists and the like – they are, in some senses, “agency workers”.

The move has led to fears that companies will be discouraged from hiring contractors for fear that they will be forced to treat them the same as their permanent employees – potentially leading to another downturn in the market and further depression in rates.

But does a contractor count as an agency worker for the purposes of the legislation? Much is yet to be determined, as the government has yet to publish its detailed guidance on exactly who will be affected – but according to one expert, it is likely to depend on how the contractor is engaged with their client – much like IR35.

Indeed, by forcing companies to make a clear distinction between a contractor operating as his own business and a temporary employee working through an agency, the government may have the perverse effect of encouraging companies to ensure their IT contractors are clearly operating outside of IR35.

“Contractors who are genuinely carrying on their own businesses, where the status of the agency / client is that of a client / customer of the contractor's business, are outside the scope of the definition of 'agency worker' in the regulations, and so not directly affected by the regulations,” says legal consultant Roger Sinclair of Egos Ltd. “Carrying on one's own business may be via an 'own' limited company, or as self-employed.”

Contractors operating through umbrellas, however, may be in a rather different position.

“A contractor using an umbrella company, where the function of the umbrella is that of a payroll service, is less likely to be able to show that (s)he is genuinely carrying on an 'own business', may well fall within them. Such a contractor may have the 'benefit' of the rights given by the regulations to the same basic working and employment conditions as if they had been engaged directly by the hirer.”

The Freelance & Contractor Services association fears the move is likely to discourage use of contractors.

“End clients may look to avoid using IT contractors for periods of longer than 12 weeks although that is less likely at the professional end of the market,” spokesman Charlie Napier told CUK.

“It remains to be seen what effect industry understanding of - or misunderstanding of - the regulations will have on the willingness of clients to engage temporary staff, or on the willingness of agencies to deal with umbrellas (as opposed to 'own company' contractors),” says Sinclair.

“It is hard to judge the extent of the impact until the guidance notes that the Department for Business is drafting to accompany the regulations are published,” notes Napier. “It is critically important to the flexible workforce that the guidance gives clarity to the regulations.”

It is also worth noting that the Conservatives indicated before the election that they would review the regulations. Then shadow business minister Jonathan Djangoly told an audience of recruitment consultants in February that the regulations were “counter-intuitive”.

The results of any review, however, remain to be seen.

Graham Taylor