Why limited company contractors aren't outside the AWR

Following talks with officials from the Department for Business, Innovation and Skills, we are satisfied that as the regulations of the Agency Workers’ Directive are currently worded, limited company contractors are not automatically excluded from being agency workers, writes Adrian Marlowe, managing director of Lawspeed.

Furthermore, it is not likely that guidance to accompany the regulations, due to take effect from October, will indicate otherwise.

Some in the contracting industry are asking why we have this view. Put simply; the regulations do not exclude limited company contractors.

Moreover, the government’s last response to consultation on the draft rules, states (at paragraph 3.9): "Our conclusion therefore is that the disadvantages of expressly excluding LCCs [Limited Company Contractors] would outweigh any perceived benefits.”

It continues: “The Regulations as drafted do allow the Courts and Tribunals scope to consider, for example, whether an agency worker is dealing with a hirer where the latter is a client or customer of the agency worker's business".

Also the regulations do not specifically exclude genuinely self-employed contractors, despite the stated policy intention. Instead, the regulations set up a mechanism for agencies to use in relevant specific circumstances where the individual carries on a profession or a business.

This may sound negative for contractors in one sense if they are worried about the regulations applying to them, but there are options to avoid being caught.

Umbrella workers are included within their scope on a normal interpretation of the regulations, and this is matched by the policy intention set out in paragraph 3.10 of the government’s latest full response in January. So as things stand, the main focus should be on single person-owned businesses.

The starting point is that the individual must be carrying on a business or profession when undertaking the work. But we do not consider that IR35-style tests will need to necessarily apply, as some advisers anticipate. Instead, agencies should be able to facilitate the arrangements for any contractors who are worried about potentially negative effect of the regulations on their business. Given that many are paid more than the regular comparator working for the hirer, most contractors and agencies may not be too concerned. However there are issues that agencies should address even in these circumstances if rates and terms are to remain unaffected by the regulations.

Final guidance from the government may help to reduce some of the uncertainty, particularly in relation to the definition of pay. This is important as contractors taking expenses will find their net pay reduced, thus creating an anomaly when undertaking a comparison with the pay of the regular counterpart.

Hopefully guidance can set this aspect straight. But we caution that guidance alone cannot change the meaning or words of the regulations themselves. This is why the Association of Recruitment Consultancies, of which I am chairman, is continuing to press the government to change the actual regulations, despite its officials insisting that it does not intend to make any changes at all.

Adrian Marlowe is chairman of the Association of Recruitment Consultancies and managing director of Lawspeed, a recruitment law specialist.

Further reading: Agency Workers Directive for IT Contractors