Contractors to keep agency rules 'opt-out'

The opt-out from the agency conduct regulations, open to temporary workers who use limited or umbrella companies, should remain, Lord Mandelson's business department announced yesterday.

In a decision that most contractors will welcome, the Department of Business Innovation and Skills said it found "no significant evidence" in favour of removing the exemption.

It said that whether umbrella workers were too vulnerable to keep the opt-out from the 2003 rules, as the state feared, was the second most popular issue in its recent consultation.

Its officials floated the removal amid fears that some recruiters were ducking their responsibilities by pushing umbrella workers to opt out of the rules, and forego the protections within.

Reflecting on the concern, the BIS said: "Once a worker has opted out they lose the protections afforded to them by the Conduct Regulations and may be vulnerable for example to non-payment of wages."

But having taken pointers from the 350 consultation respondents, half of whom were individual workers, there is no "convincing evidence" of umbrella workers suffering such exploitation.

"Furthermore," the BIS said, "the evidence provided by the professional bodies that represent contractors and umbrella company providers is that any changes would have an adverse impact on legitimate contractors who actively choose their arrangements".

Officials added that removing the exemption from the Conduct of Employment Agencies Regulations for such contractors would potentially raise their "costs and administrative burdens."

Under the regulations, contractors have to hand over detailed information about themselves before they can be supplied by a recruiter, which in turn must fully explore the position to be filled.

The Association of Professional Staffing Companies welcomed the decision to keep the opt-out, for its member companies, who include IT contractor recruiters, and their customers.

"The government has acknowledged that there is insufficient evidence of the opt-out being used to exploit vulnerable workers," said APSCo chief executive Ann Swain.

"This is an important victory for the recruitment industry. If the opt-out had been withdrawn, the red tape burden on recruiters and contractors of automatically having to comply with the Conduct Regulations would have imposed significant additional costs."

Retention of the opt out also helps protect contractors' tax status and is a point referred to when representing contractor clients to HMRC, said Lawspeed, a recruitment law firm.

Managing director Adrian Marlowe added: "There was a real fear the umbrella companies would be singled out.

"This would have been wrong in our view since it would have represented an interference into certain models for which there is a genuine commercial justification and left those organisations at disadvantage.

"This welcome decision leaves umbrellas on a level playing field with other types of incorporated organisations."

Separately, but also based on the industry responses, the government will amend the regulations so that job adverts no longer need to include a statement on whether the outfit is acting as an employment agency or employment business.

Instead, wording will need to state whether the position advertised is "permanent" or "temporary," in a move designed to use terms "far more likely to be understood" by the candidate, BIS said.

Elsewhere, the government will continue towards equipping the sector regulator, the Employment Agency Standards Inspectorate, with new powers, such as stop trading notices and financial penalties.