Expert views on how the Agency Workers Regulations affect contractors

Expert Views on opting out of Agency Regulations
Opting Out of Agency Workers Regulations

Expert Views

We have got contractors expert views on the effects of the Agency Workers Directive.

Well, here we are, some 6 months on from the date when the Agency Workers Regulations took effect, and many of the questions that hirers, agencies and workers had on 1st October 2011 remain unanswered.

One of the major questions to be resolved is: when is a contractor an ‘agency worker’, as defined in the regulations?

We asked for one umbrella company’s expert views.

Said Joe Tully of paraplus ‘The regulations provide that an agency worker is somebody who has a contract with a temporary work agency. The temporary work agency supplies them to work temporarily for, and under, the supervision of a hirer.

Inside AWR

‘Many contractors will fall within that definition. Although, of course, it won’t catch those contractors who do not offer their services through a temporary work agency’.

Does that mean that those contractors who operate through a temporary work agency are AWR ‘agency workers’?

Furthermore, would that mean that hirers will be more reluctant to hire those workers because of the AWR rights they now enjoy?

That’s not necessarily so.

Individual Agency Worker

Firstly, Regulation 3(1), which defines who is an ‘agency worker’ for the purposes of the AWR, talks about the agency worker being an ‘individual.

Does that mean that those contractors who offer their services through limited company structures cannot be agency workers?

Possibly they are.

Possibly they are not.

Debate During AWR Consultation

Said Joe Tully of paraplus ‘There was much debate during the consultation that preceded the regulations becoming law about whether limited company contractors would be excluded from these new rules.

‘That did not happen. The AWR Guidance issued by the Department for Business, Innovation and Skills makes clear that the regulations are intended to catch workers operating through a limited company, provided that the test in regulation 3(1) is fulfilled’.

So where does that leave the reference to an agency worker being an ‘individual’?

Tested in Court

According to paraplus‘s Joe Tully ‘It is probable that, when this point is eventually tested in the courts, a court will look at the substance of the arrangement, rather than the form, and, if the worker appears to fall within regulation 3(1), it is likely to determine that they are an AWR ‘agency worker’. That’s irrespective of the limited company structure they are operating under.

‘It‘s one to watch, though’.

Professional Definition of AWR

If Regulation 3(1) does not necessarily help, what about Regulation 3(2)?

Regulation 3(2) takes outside of the regulations those workers who are ‘professionals’ or ‘business undertakings’. That’s provided the contractual arrangements reflect that.

The BIS Guidance talks about there being a ‘genuine business to business relationship’.

What is a ‘professional’, for the purposes of the regulations?

BIS Guidance Not Helpful

According to Joe Tully’s expert views, ‘The regulations themselves, and the BIS Guidance, are not very helpful on this point. Again, we must wait for the tribunals to bring clarity.

‘However, there is no legal definition of ‘professional’ and the courts are likely to apply a common sense interpretation’.

And what is a business undertaking?

Expert Views – Business Undertaking

There is a view that, by its very nature, a limited company is a business undertaking. There is some merit to that argument. However, that does not mean that a business undertaking cannot also be an individual or a partnership.

The key is that the services are being offered by a ‘business’. This implies that the business offering the services is taking risks and operating in a manner typical of business undertakings (rather than agency workers).

And so does that mean that, for a contractor to be a ‘business undertaking’ for the purposes of regulation 3(2), there must be an absence of ‘supervision and direction’ from the hirer?

The answer to that must be no.

Conditions of Regulation Not Fulfilled

If there was a complete absence of supervision and direction, the conditions of regulation 3(1) would not be fulfilled. The worker would not be an agency worker in the first place.

Regulation 3(2) must have been introduced to address those situations where there is a professional or business undertaking, offering services in a genuine business to business relationship. It’s where there is at least some element of supervision and direction from the end client.

So, it‘s all as clear as mud?

Limited Companies Outside Regulations

According to paraplus‘s Joe Tully ‘Well, it‘s certainly pretty murky, but what we do know is – Limited company contractors are not automatically outside of the regulations.

‘Contractors will be outside of the regulations if they do not offer their services through a temporary work agency.

‘Contractors will also be outside of the regulations if they can demonstrate that they are a business undertaking or professional, have a genuine business to business relationship with the client. The contracts must reflect this.

Awaiting the Courts

Continued Joe ‘We‘re all waiting for the courts to shed some more light on the many grey areas that remain. In the meantime, hirers and agencies are taking some comfort from the fact that the majority of contractors are paid more than any AWR ‘comparator’ might receive. Therefore, the main AWR exposure would appear not to be a risk. Secondly, in many cases, it is unlikely that a contractor will run the argument that they are an AWR ‘agency worker’. That’s because such an argument would undermine their desired legal and taxation status.

‘For these reasons, and because the law around AWR and contractors still requires much clarity from case law, I don‘t expect to see these new regulations having a material effect upon demand for contractors’.

So, there the expert views. What do you think?