A guide for limited company contractor’s using recruitment agencies
Conduct of Employment Agencies and Employment Businesses Regulations 2003 (The Regulations)
Introduction
There has been much dialogue on the Internet and in the IT press about the above regulations.
As a professional supplier of contractors/freelances, EBHR feels that its contractors may wish to be aware of the Regulations (the “Regs”), as this new law does affect them.
Taking a "top down" approach to this information, the "Regs" can be viewed in their entirety http://www.dti.gov.uk/er/agency/newregs.htm and the guidance notes can also be viewed http://www.dti.gov.uk/er/agency/conduct.pdf (PDF format).
For the purposes of this explanatory paper, EBHR is an Employment Business.
The “Regs” are intended to regulate the Employment Agency and Employment Business industry, so that vulnerable ‘work-seekers’ have legal protection from unscrupulous employment firms. For the purposes of the "Regs" both the individual Contractor and his/her Limited Company, are considered to be work seekers, and both are entitled to protection under the Act.
It is broadly accepted that the "Regs" were not primarily intended to legislate around the IT business model, and both ATSCO (http://www.atsco.org/ the top IT recruitment firm’s trade association) and the PCG http://www.pcg.org.uk/ (the professional contractor’s trade body) lobbied heavily for the professional contractor and his/her business to be excluded from the legislation.
However, the current Act does include cover for IT contractors, but clause 32(9) also allows such contractors and their companies to “opt out” of the cover the “Regs” provide, so they so choose.
To "Opt in" or to "Opt out"
At EBHR, we will work with contractors and their businesses whether they "opt in" or "opt out", subject only to the instructions of the individual end-client.
There are five main reasons why EBHR expects end clients to favour "opt out" contractors:
The "Regs" allow an "opted in" contractor to work for more than one client at once, including for a direct competitor of the end client, causing a potential conflict of interest, and of confidentiality, to develop.
"Opted in" contractors, by seeking legal protection more in keeping with employment status, may concern clients that they may also subsequently seek employment rights from the end client also.
The "Regs" require considerable checking of a contractor’s information, before details may be submitted to the end client. With contractor demand requiring the speed that it does, the end client is therefore more likely to hire someone who is available quickly and with fewer newer formalities.
End clients expect to be hiring businesses, and not "shadow" employees.
There are no obvious benefits to the end client in hiring “opt in” contractors, to balance the above. In any event, within the “Regs”, end clients have the right to only employ “opt out” contractors, if they so choose.
IT IS IMPORTANT THAT YOU, AND YOUR BUSINESS, KNOW WHETHER YOU ARE GOING TO “OPT IN” (THE AUTOMATIC OPTION) OR “OPT OUT” (THE ELECTIVE OPTION), AS IT WILL DETERMINE THE CONTRACTS THAT YOU MAY BE CONSIDERED FOR.
What does this mean to you, the Contractor?
There are a number of considerations that the professional contactor, and their limited company, should each consider before deciding whether to “opt in” or ”opt out” of the “Regs”.
Is it an indicator towards employment status within IR35?
Does it give you/your company additional legal protection that other B2B legislation does not?
Does it make more, or less, work potentially available to you?
Additional benefits to the Contractor
There are some benefits from the “Regs”, that are available to contractors, irrespective of whether they “opt in” or “opt out”. EBHR summarises the major ones as:
The agent may not unreasonably restrict your right to change agent during or immediately after a contract, with the same client. It may also not unreasonably restrict you accepting a permanent job offer.
The agent may not deploy a “pay when paid” payment clause in its contract.
It may not withhold payment unreasonably merely because there are no signed time sheets, although it may take reasonable time to prove that the work has been done satisfactorily.
When will the new “Regs” take effect?
The “Regs” take full effect from 6th July 2004, and all EBHR contracts written from 1st July 2004, and extensions written from that date, will require both the contractor AND his/her company to make, and confirm the “Opt” decision in writing, for the duration of the contract or extension, before EBHR can introduce them. The decision cannot then be changed for the duration of the contract.