With the AWR (Agency Workers Regulations) due to come into effect on the 1st October 2011 in the UK, we have been busy updating our contracts and procedures to make sure that the Arras People operation is fully compliant. During this process the one question that stood out, and I am sure will be asked many times over the coming months is; Contractor or Agency Worker?
As you may be aware the AWR will align UK regulations with Europe and was targeted at protecting the rights of “vulnerable workers” in terms of pay and selected conditions. Unfortunately from what we can see, the legislation failed to define what a vulnerable worker actually is, and this lack of definition has led to a situation where all Agency Workers, irrespective of remuneration are deemed as vulnerable!
So how is this going to impact PPM (Programme and Project Management) Practitioners?
Currently when we engage with most of our clients and indeed candidates, engagement methods tend to be categorised in three ways; Permanent, Temporary and Contract.
Permanent of course is generally well understood, being the situation where the candidate will be employed by the hirer on a contract of employment and remunerated through payroll (PAYE).
Temporary may sometimes cause some confusion as some organisations may mean “Fixed Term”, employed by the hirer on a contract of employment and remunerated through payroll (PAYE). Whilst for others it will mean a “Worker” who will work under supervision and direction, for whom they pay an agreed hourly rate and have no employee / employer relationship.
Contract is again generally well understood where the organisation is looking for a “contractor” who will deliver the required services (e.g. Manage a project) over an agreed duration for either a day rate or against an agreed milestone schedule. Again there is no employee / employer relationship and most organisations do not specify how the contractor operates i.e. Sole Trader, Limited Company or Umbrella Company. For Limited Company contractors, IR35 is sometimes a concern as they strive to ensure that it is clear that they are genuinely in business on their own account and not working under supervision and direction of the Client.
So come the 1st of October how will this be impacted by the AWR?
Permanent:
- No impact.
Temporary
- For “Fixed Term”, employed by the hirer – No impact
- For “Agency Worker”, there will be a requirement on the Client “Hirer” to disclose to the “Agency” and ensure that the agency worker can access common facilities such as the canteen and childcare facilities. In addition they must ensure that the agency worker is able to view information on job vacancies. These rights are applied from the first day of their assignment (“Day1″).
If the assignment is scheduled for more than 12 weeks the Client “Hirer” must provide the agency with up to date information on their terms and conditions so that the “Agency” can ensure that the “Agency Worker” receives the correct equal treatment, as if they had been recruited directly, after 12 weeks in the same job. This includes elements such as rate of pay, overtime, holidays and bonus (where it is based on individual performance).
Contract – Now this is where it gets interesting! The decision matrix is dependent upon not only the supplied contractors operating mode, but also the level of autonomy that they have in executing the services to be provided.
- Sole Trader; Where the “contractor / consultant” supplies services as a sole trader the primary test would appear to be, is it clear that they are genuinely in business on their own account? If so they are out of scope for all elements of the AWR.
It is worth noting that some organisations do not engage sole traders due to the possible penalties from HMRC if it is deemed that they are not genuinely in business on their own account.
- Limited Company; Where the “contractor / consultant” supplies services through their own limited company the primary test would appear to be is it clear that they are genuinely in business on their own account? If so they are out of scope for all elements of the AWR as this is a business to business relationship.
However some bodies have tied in the IR35 compliance to Limited Company Contractors with regards to “supervision and direction of the hirer” (the REC have developed model contracts for this scenario). So in this case, a Limited company contractor would be deemed to be an “Agency Worker” and thus in scope for the AWR.
- Umbrella Company; Where the “contractor / consultant” supplies services through an Umbrella company we have another added dimension, Swedish Derogation (SD)! This in its simplest form advances the current employee status of the contractor to one where the Umbrella Company engages the worker with a “permanent contract of employment providing for pay between assignments” and other services such as help finding their next assignment. So we could have SD Contractors and also potentially NON-SD Contractors.
NON-SD Contractors are not classified as contractors at all, they are in fact seen as “Agency Workers” and as such will be in scope for all elements of the AWR.
SD Contractors on the other hand are seen slightly differently, and can pass on to a second level of testing with regards to “supervision and direction of the hirer”.
- If the SD Contractor is under the supervision and direction of the hirer they have partial relief from the scope of the AWR, with only Day 1 rights being applicable.
- If the SD Contractor is not under the supervision and direction of the hirer they are out of scope for all aspects of the AWR.
So as we can see there is certainly scope for lots of confusion when looking to supply suitable candidates to clients who are looking to fill non-permanent roles and in the early days there may be some confusion especially around the supplying of Contractors / Consultants / Temps / Agency Workers through umbrella companies. It may well be a good time for PPM Practitioners who are genuinely long term contractors in business on their own account to review how they present themselves to the market. It would appear that some umbrella companies are already pre-empting this by offering new Limited Company services.
To put this into perspective we looked at the Arras People registration data and also the Project Management Benchmark report 2011 to see the breakdown of PPM Practitioners who are seeking / delivering as contractors.
| Type | Registrants | 2011 PMBR |
| Limited Company |
74% |
73% |
| Sole Trader |
8% |
12% |
| Umbrella |
18% |
15% |
As we can see the vast majority of PPM Practitioners are already operating through Limited companies with between 15 to 18 percent using the services of an Umbrella.
So in advance of October it would seem like a good time for this group to consider the question, am I a Contractor or an Agency Worker?
References:
Department for Business Innovation and Skills www.bis.gov.uk
REC – The Recruitment & Employment Confederation www.rec.uk.com
PCG – The Professional Contractors Group www.pcg.org.uk
Crystal Umbrella www.crystalumbrella.com
Parasol www.parasolgroup.co.uk
Please note! This is the writers’ current understanding of the AWR along with comments and observations. It is not offered as legal advice and should not be treated in that manner under any circumstance!
Image: By Horia Varlan
According to a report on PersonnelToday.com the Agency Workers Regulations could threaten 500,000 temporary jobs.
The report goes on to estimate that the cost to business of providing equal benefits for temporary workers will be £1.3 billion per year, an average cost per worker of £1,755.
We had similar “estimates” before the introduction of the minimum wage so it will be interesting to see the reality!