In or Out
Prior to 6th July 2004, all contractors should hear from their agency on whether or not they want to be governed by the new Conduct of Agency Regulations or if they want to ‘˜opt out.‘ These new regulations have caused much debate on the benefits to contractors.
On the face of it, it appears that opting out of the regulations is the worse option for contractors. The legislation ensures that if the agency is not paid by the client (unless due to defective work) the contractor must still be paid.
In addition to which, after three and a half months into the contract, the contractor could go direct with the client with no fees or restrictions applicable.
This later point can be guarded against by the agency offering the alternative of a fee or an extension under terms no worse than those of the initial contract.
The problem with contractors ‘˜opting in‘ is the IR35 concerns.
If your agency must pay you under any conditions, then you could be removing business risk as a defence to operating as a genuine business.
It is also unlikely that IR35 insurance will be provided to those that have not opted out of the regulations.
Although this is not a categoric position, that you are caught if you don‘t opt out, it is certainly a strong factor that you may lose.
Contractors declaring for IR35 or working through Umbrella Companies may of course have little interest in opting out, and instead prefer the benefits of staying in.
The Opt out must be signed by both the limited company and any individuals carrying out the services.
Apart from additional administrative burdens, the regulations could provide a difficult position for agencies.
If their profits are removed by margin being eroded and a lack of temp to perm fees, or by them having to pay contractors despite a client being bankrupted and unable to pay them, then in the long run margins will have to rise or rates to contractors may fall.
Agencies are able to offer an increased rate to a contractor who opts out, in lieu of reduced administration imposed by other parts of this new legislation.
It could be that agencies offer 2 rates to a contractor to reflect this, however an agency cannot penalise you if you have accepted an offer but have not opted out.
The fact that limited company contractors can opt out of the regulations, supports the idea that the protective elements of this law are aimed more at persons being paid by the agencies or at umbrella companies, rather than at the genuine businesses.