The biggest sting since IR35? Employment Agency Regulations - the facts and myths for the IT contractor

CUK: Where do all these opt-out queries puzzling IT contractors originate from?

"The Conduct of Employment Agencies and Employment Businesses Regulations 2003 – most of which came into effect on 6 April – govern the conduct of the private recruitment industry and establish a framework of minimum standards which both 'work-seekers' i.e. contractors and 'hirers' i.e. end clients are entitled to expect. The definition of a work-seeker specifically includes limited company contractors."

CUK: So let's assume I want to opt in – what can I expect?

Charging fees

"Under the old rules, employment agencies/businesses could not levy a fee from contractors for work-finding services, but could charge for additional services, such as CV writing or training."

"The new rules say agencies/businesses cannot stipulate that work-seeking services will be provided subject to the work-seeker taking up one of these chargeable services.

Getting paid

"If you are 'opted-in' an employment business cannot withhold payment to a worker because it has not been paid by the hirer or end client."

"Nor can it refuse payment because the worker has not produced an authenticated timesheet."

"The DTI guidance says if the hirer has not signed the timesheet because it is unhappy with the standard of work, this is a contractual matter to be resolved between the hirer and the employment business. It does not affect the worker's right to be paid."

CUK: What about the devil in the detail, such as Agreement of Terms?

"Employment agencies/businesses must agree terms with the work-seeker whether via a contract of service (i.e. a PAYE basis) or contract for services (i.e. via a limited company) before any work-finding services are provided."

These terms must address:

  • whether the work-seeker wants temporary or permanent work;
  • the type of work;
  • the minimum rate of pay;
  • details of entitlement to annual holidays; and
  • the length of notice that will apply to assignments.

"The majority of workers will be covered by the Working Time Regulations 1998 and entitled to four weeks' holiday pay."

"Additionally, the employment agency/business must also establish terms with a hirer before supplying workers."

CUK: What do contractors need to know about 'temp to perm' transfers?

"The new regulations impose limitations on terms that prevent temporary workers from taking up permanent jobs with hirers. These limitations relate to the length of time workers must wait after completing an assignment before a permanent job can be accepted with the same company, without the agency being able to charge a 'temp to perm' fee."


Identification, Verification and References

"Employment agencies/businesses must check the identity of work-seekers, and verify their qualifications, work experience and training

(If a work-seeker is to work with vulnerable people – including minors or the elderly/infirm – references should be obtained).

"Plus, once the work-seeker has been supplied to the hirer, employment agencies/businesses must notify the hirer of any information which subsequently comes to light suggesting the work-seeker is unsuitable."

CUK: Are recruitment agencies legally obliged to inform all their contractors about the new legislation and provide advice on opting in or opting out?

"Our understanding is that there is no obligation on recruitment agencies to inform their contractors as to the existence of the regulations or to advise them as to the pros and cons of opting in or out of the regulations."

CUK: And if I take the plunge and opt-out?

"Such an opt-out must be made before an assignment begins and written confirmation of the decision to opt out must be provided to the employment agency/business. The opt-out will then affect all the regulations. It is not possible to choose which regulations apply to a particular assignment and which do not.

CUK: What about IR35? Are contractors free of IR35 if they choose to opt-out

"The IR35 status of an individual is determined on an assignment by assignment basis by a combination of the contractual conditions in place with the agency or end client and the working practices operating on the ground.

"Depending on how an agency implements the Regulations, they may have an impact on working practices and thus on an individual's IR35 status.

"This again stresses the importance of rigorous IR35 status assessment and management processes. Where these are operated and demonstrate the assignment clearly falls outside of IR35, opting out of the Regulations is unlikely to have an impact."








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