Be prepared for the Agency Workers Regulations (AWR)

The law came into effect in December 2010 and is effective from 1st October 2011.

What do the regulations state?

The Agency Workers Regulations (AWR) are intended to give fairer working terms and conditions for temporary workers. The regulations include interim managers and some consultants unless they can demonstrate that they are working through their own limited company and are in business on their own account.

The regulations are divided into two sections, Day 1 rights and Week 12 rights, as follows:

Day 1 rights. From the beginning of an assignment, all temporary workers should be given access to the same facilities as permanent employees of that company, e.g. canteen, childcare facilities, car parking etc and can access information on job vacancies from the first day of their assignment.

Week 12 rights. All temporary workers will be granted all of the same rights as permanent employees of that company, with regard to rights such as pay (including bonuses), working time and holiday entitlements (including annual leave, rest breaks and payment in lieu), allowances for pregnant workers and new mothers, and pay between assignments. See the BIS guidance for a fully comprehensive list of these entitlements.

Who do the regulations affect?

All temporary workers including interim managers but not if they are operating through a limited company which publicly states its line of business (see below), and if the contract clearly states that the client-candidate relationship is that of a business hiring the services of another business.

What do we mean by ‘publicly states its line of business’?

Nobody knows for sure until tested in the Courts but here are some important pointers.

  • Do you have a CV demonstrating that you are looking for interim roles rather than permanent roles?
  • Do you have business cards? These should be the best quality that you can afford with a shortened version of your elevator pitch on the reverse
  • Do you have a website for your business? A recent IR35 case was won on this point alone

Working through your own limited company means that your client is buying the services of your company, not the services of you, the individual. If you were, for example, working under a PAYE umbrella company, the contract would be between you as an individual and the client, which may bring you inside the scope of the regulations.

After 1st October 2011, it is important that you pay careful attention to any contracts drawn up between your agent and your client. You must (of course, as always) make sure that the contract is in the name of your company, not in your name.

What if I am working under IR35 – will this affect whether I am in scope?

When BIS issued the first set of guidelines, it looked as though Interim managers working under IR35 would be caught by the regulations. However the second issue of guidelines shows that AWR and IR35 are not linked and the references to IR35 have been removed.

Who is likely to get caught?

We believe that there are many interim managers still working through PAYE umbrella companies. These individuals will be subject to the regulations from 1 October 2011 if they have not switched to a limited company.

Some PAYE umbrella companies claim they can work around the regulations by covering the extra costs charged to the client – however this will mean that either PAYE umbrella company prices will rise or the interim’s income will be reduced.

Many providers and clients will not hire candidates who work through PAYE umbrella companies, and with the AWR looming and providers beginning to learn more about the regulations, things will only become more difficult for candidates who work through PAYE umbrella companies. It is advised that interims switch to a limited company as soon as possible, to avoid entering into an assignment that runs over the time when the law changes. That means, now!

Candidates who do not make this change may incur extra costs for their client, or may end up being subject to an employment tribunal involving not only their client but also their umbrella company and their interim provider, as applicable, which is undesirable for all parties involved.

How easy is it to switch to a limited company?

This is very quick and easy, and there are specialists who will handle the transfer for you. Competex Ltd is a specialist accountancy practice which focuses on the needs of interim managers and consultants, and they will set up your limited company within 24 hours. Staff at Competex are very experienced, they have been speaking at interim management events and workshops for many years, and they can guide you through every step of the process.

The transfer can be done mid-assignment, so if you are already on an assignment that ends after December 26th 2011 (12 weeks after the AWR comes into force), and you are working through a PAYE umbrella company, you can still switch. The staff at Competex will guide you through the process.

Is a limited company foolproof?

It is worth noting that as well as working through a limited company, it is essential that you have complete control of the company through which you are working. This means owning and being a director of that company which is normal practice. The AWR guidance clearly warns against those who might set up a limited company purely on an 'avoidance tactic':

"Simply putting earnings through a limited company would not in itself put individuals beyond the possible scope of the Regulations."

It then goes on to say: "If the arrangements do not reflect the reality of the relationship (e.g. despite the wording of a contract, the actual reality is that the individual is in not in business on their own account and they work under the supervision and direction of the hirer) or are an avoidance tactic, then individuals are likely to fall into scope of the Regulations."

Conclusion

There is no knowing whether or not the umbrella companies will be able to re-invent themselves and thus survive this latest round of legislation. Regardless of the outcome, the Interim Hub recommends switching to a limited company in order to:

  • Stay well out-of-scope of the regulations
  • Be in line with best practice
  • Be completely compliant with HMRC
  • Avoid incurring hidden costs for your client
  • Avoid the time, cost and embarrassment of employment tribunals

Finally, if you are working through a PAYE umbrella company, consider how that has come about. Most PAYE umbrella companies pay heavy incentives to providers for referrals, and you should ask yourself whether the best option has been recommended to you in your particular circumstances.

There will no doubt be many legal challenges in the months after October 2011, and you would be well advised to avoid PAYE umbrellas.

For further advice on the Agency Workers Regulations, please call the Interim Hub on 01737 234561.