Agency opt out from employment regulations
All contractors who do any of their work though an agency will be asked to make a choice on whether to Opt Out from Employment Regulations. Some contractors will automatically Opt Out, but ideally it’s worth taking some time to think this through to ensure that this is the right decision in each case for every new contract you take on.
Why the Regulations were introduced
The overall purpose of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 is to protect job seekers and vulnerable temporary workers from unscrupulous employment agency practices. Although the Regulations are mainly aimed at the general population of people looking for temporary or permanent work there are also provisions which specifically relate to Limited Company contractors.
The purpose of the Opt Out option
This was built into the Regulations specifically to give highly skilled contractors the option of not being covered by the Regulations as in some circumstances these could potentially be seen as prohibitive to them.
Why Agencies prefer contractors to Opt Out
Opting Out makes things easier for Agencies, but legally they cannot make it a requirement of employment for contractors to Opt Out. Nor can they influence them in any way to do so, such as offering a different rate of pay for the work offered if they do Opt Out.
The key reasons an Agency will prefer a contractor to Opt Out are:
- Without the protection of the Regulations the Agency can exert more control over what happens at the end of a contract to ensure that the contractor doesn’t go on to work directly for the client. This protects their future business.
- The Agency won’t automatically have to pay the contractor if the client doesn’t pay them (although there are potential remedies for this).
- It reduces the requirement for the Agency to thoroughly check candidates’ current and on-going suitability for the placement role, which means less admin and paperwork.
It’s worth noting that if the Opt Out is signed after ‘introduction or supply’ the Opt Out is deemed invalid which will make the Regulations applicable. In many cases this could potentially benefit the contractor but it’s a point to look out for if you’re determined to be Opted Out.
Benefits of Opting Out
By Opting Out a contractor loses all the protection of the Regulations but in return can potentially gain in other ways. One factor is that by Opting Out contractors are able to take up roles quickly due to the reduced need to check information on skills and experience, which can be a significant advantage. Another perceived benefit is that many believe that by Opting Out they are protecting their IR35 status because the Regulations only apply to workers who are ‘controlled’ by the end user. As ‘control’ is a key indicator of employment status it has become quite common practice for contractors to automatically Opt Out to help demonstrate their independent, self-employed status. In practice there is some debate on whether this would actually be helpful in an IR35 investigation, but nonetheless it can at least show the intention of the contractor as part of the overall employment arrangement.
If you are in doubt regarding your IR35 status in any way it is recommended that you seek the independent, professional advice of your contractor accountant.
Benefits of Opting In
The key benefits of Opting In are:
- The contractor’s contractual terms must be confirmed in writing
- There can be no contractual term which prevents the contractor working directly for the client
- The Agency must pay the contractor even if the client does not pay the Agency
In theory the Regulations give protection to the contractor as was intended by the legislation. In practice, however, the wording can cause difficulties in interpretation and so far there is little case law to provide much needed clarity and certainty. Nonetheless, Opting In can still be worthwhile.
At Intouch our clients benefit from the advice of our experienced, qualified tax specialists who can provide clear, professional advice on all their tax, contractual and IR35 related issues. Intouch are professionally qualified accountants who specialise in providing online accountancy services to Limited Company contractors.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.