AWR – could you lose out?
By now you’ve probably heard the abbreviations AWD or AWR, which are often used interchangeably – AWD being the Agency Workers Directive and AWR, the Agency Workers Regulations. But, do you know what it’s all about and, most importantly, do you know if it affects you and, if so, what actions do you need to take to reduce the risk of losing out on that key contract? In this ebrief, Paul Gough from InTouch Accounting, the personal online accounting adviser for contractors and freelancers, explains more about how the changes coming into force on 1 October 2011 may affect you, as a contractor, and he looks at whether now may be the time to move from an umbrella to a limited company.
AWD and AWR – what is it all about?
In brief, the AWD is the original directive issued by the European Commission in 2008, with the aim of promoting a more flexible workforce
The final UK legislation, the AWR, is based on this directive and focuses on the protection of ‘vulnerable’ temporary workers.
From 1 October, and after a 12 week qualifying period on a contract with the same hirer, according to the AWR, a temporary worker will be entitled to the same basic employment rights as their permanent comparable counterparts, in relation to pay and other basic working conditions, such as annual leave, night work, rest periods, working hours and rest breaks.
But, if there are no comparable workers, then there is no entitlement to equal treatment and, if you earn more than a comparable employee, your pay will not decrease.
So, who does the AWR affect?
Specifically, the draft regulations say ‘people finding temporary work through a “temporary work agency” ’ will be affected by the AWR, and the definition of an agency worker will be ‘based on that used for “workers” in the Working Time Regulations 1998’.
According to the regulations, this excludes workers who are genuinely one of the following:
- working through their own limited liability company
- those employed on ‘Managed Service Contracts’
The AWR will create a re-shift in the way temporary workers are managed; whether via an umbrella company, a recruitment agency, or directly with the end client.
If you’re currently working through an umbrella company then you can expect your pay to be the same as if you’d been recruited directly by the hirer, or as paid to a comparable employee. If you receive part of your pay as a reimbursement for travel costs, then this can form part of your overall pay.
Example: if an employee earns £200 a day, then you could receive £180 pay and £20 in travel
NOTE: There is an exemption from the equal treatment provisions on pay, where the worker is offered a permanent contract of employment and they are paid between assignments. The pay must be at least 50% of the ‘on assignment’ level and be above the National Minimum Wage.
There are certain things that reset the qualifying period to zero too, such as a break of over 6 weeks (unless it’s due to sickness, maternity or jury service). But, moving from one umbrella to another will not reset it.
This is not retrospective either, so if you’re already on assignment, the 12 week qualifying period will start from 01 October 2011.
I am a limited company – do I need to worry about the AWR?
If you are a contractor using a limited company, you appear to have little to be worried about – as long as you are genuinely in business on your own account (using the same employment tests as IR35). In these cases, the directive most likely does not apply to you, and you can carry on business as usual.
What if I am caught out by IR35?
It has been made clear in the guidance that if you fall inside of IR35, then you are also subject to the AWR. In these cases, you should discuss the situation with your agency, to ensure that you are properly prepared for the October implementation. Or speak to a contractor accountant, such as InTouch Accounting, who will provide you with a free IR35 contract review. To request your free IR35 contract review please visit: www.intouchaccounting.com/ir35_request
If you’re a limited company contractor, you will not be affected by the AWR. But, if you’re an umbrella contractor, you will almost certainly be affected, with the regulations clearly stating that the definition does ‘include agency workers contracted to an umbrella company’.
How could the AWR have a negative impact on me as a contractor?
While the AWR is designed to protect the vulnerable, lower paid agency workers from being exploited, it could have a negative impact on you if you are a well paid contractor and you choose temporary work as your preferred method of making a living.
- The increase in red tape and the extra administrative costs to hirers of contractors and agencies may deter them from employing you if you are affected by the AWR.
- Or they may choose to subsidise the extra administrative costs by reducing your contract rates.
- And, end clients may choose not to engage with you for more than 12 weeks, in order to avoid the increase in your ‘employee’ rights – putting more pressure on you to find new work more regularly
In the months following the introduction of the AWR, it’s likely that many agencies and clients will not fully understand the legislation, and it’s possible that contractors could gain a competitive advantage if you can demonstrate that the regulations do not apply to you, as someone who is outside of IR35.
But, if you’re working through an umbrella, and you’re confident you don’t fall foul of IR35, then maybe it’s time to consider setting up your own limited company? This will give the hirer peace of mind that you are not affected by the AWR and it could increase your chances of winning that contract, or retaining it for longer than 12 weeks.