TABLE OF CONTENTS 1.0 INTRODUCTION 2 2.0 MAKING THE CHOICE 4 2.1 OPTING OUT 5 2.1 OPTING IN 7 3.0 WHEN THINGS GO WRONG 8 4.0 FURTHER CONSIDERATIONS 9 5.0 THE FUTURE 12 6.0 ABOUT PCG 13 Disclaimer 14 Copyright PCG 2013 Page 1 of 14
1.0 INTRODUCTION Who is this guide for? This guide provides an overview of the Conduct of Employment Agencies and Businesses Regulations (2003), more commonly known as the conduct regulations. It is aimed at freelancers and contractors; particularly those who work through their own limited company. What are the Agency Conduct Regulations? The Conduct of Employment Agencies and Business Regulations are a set of laws designed to protect vulnerable agency workers. They are usually known as the conduct regulations, less commonly as the agency regulations. The regulations offer protection from issues such as handcuff clauses whereby the agency prevents you from working directly with the client for a set period of time (e.g. one year) temp to perm fees where an agency charges you or the client if you choose to become a permanent employee of the client Late payment in cases where the agency refuses to pay because they have not yet been paid by the client. They came into force in 2004, and all employment agencies 1 are bound by them. The Government is currently considering abolishing the regulations and replacing them with simpler legislation. This is planned to take place in 2015. This guide will cover both what to do under the existing regulations, and how any future legislation is likely to take shape. Why is this relevant to freelancers and contractors? If you work through your own limited company, then you are able to opt-out of these regulations. Indeed many contractors report that agencies will strongly encourage them to do so. It is likely that as a contractor you will be given some sort of form which, if you sign, will enable you to opt-out of the regulations. Your contract may include clauses with the effect of opting you out. You should think carefully before making a decision to opt-out of the regulations. This guide will take you through the options you have. 1 Note the regulations describe both employment agencies and employment businesses. Legally speaking employment agencies are firms that place permanent employees, whereas employment business are those that supply temporary workers and contractors. However, most people use the term agency for both. This guide also uses the term agency for both. Copyright PCG 2013 Page 2 of 14
Disclaimer The material in this guide is for general information only and does not constitute investment, tax, legal or any other form of professional advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation. PCG accepts no liability for any losses arising from action taken on the basis of the general guidance contained within this document. Copyright PCG 2013 Page 3 of 14
2.0 MAKING THE CHOICE What are my options? You should consider carefully how to deal with the Conduct Regulations. Essentially, the options available to you are as follows: You can opt-in by simply refusing to sign any opt-out declaration. You can opt-out by sending an opt-out letter before attending an interview, and then negotiate the best possible contract terms for the engagement. o o If the terms of the engagement are business-like, remain opted-out and commence work on the contract. If the agent is able to offer only employee-like contractual terms, which are likely to be IR35-caught, then send a letter to the agent, before commencing work, to opt back in to the Agency Regulations. Note that it may be illegal for the agent to refuse to honour the contract because you ve opted back in. Should I opt-out or remain opted-in? PCG does not recommend one course of action over another your decision to opt-out or to remain opted-in will depend on your own circumstances. Many agencies will encourage you to opt-out as it reduces their liabilities. Overleaf we outline the advantages of each approach. Copyright PCG 2013 Page 4 of 14
2.1 OPTING OUT To opt-out of the regulations, you will have to sign something to this effect provided by your agency. This will be in the form of a declaration or letter to the agency from you. You cannot be forced to opt-out. It is best to opt-out before you are introduced to the client (see below) in order for the opt-out to apply. It may be possible to opt-out before supply to the client, but you cannot opt-out once you have commenced work. Opting out means: You will have some recognition of your status as in business on your own account. This can be a minor pointer away from IR35. You are less likely to be treated like a temporary worker by your agency or client, as you will more clearly be engaged on a commercial footing. Sometimes opted-in contractors may find they are given contract terms which are the same or similar to those that a temporary employee would be subject to. You may find yourself in a better position to negotiate commercial terms with the agency and client. If you are opted-out you can have a more IR35 friendly contract. For example, you can be held responsible for your work (and fixing errors in your own time) which is a good indicator that the contract is a business-to-business contract and therefore outside IR35. You cannot include this clause if you are opted-in. When can I opt-out? Any opt-out will only be effective if notice is given in advance. You can only opt-out before introduction or supply to the client. You cannot optout halfway through a contract. What constitutes an introduction? PCG believes that the term introduction means before the client has received your CV or company profile. If the client decides to interview you without seeing your CV or company profile, then the interview itself would likely count as the introduction. Actually starting work would become the last cut-off point by which you would be allowed to opt-out. You may find this to be the case if you do not even attend an interview, perhaps because you have done work for the client before. Why is the introduction so important? The reason the term introduction is used is because these regulations also affect employment agencies that introduce candidates for permanent employment to another company, as well as those who supply limited company contractors. It effectively refers to the point at which the client becomes aware of who you are and has enough information to approach you directly and independently of the Copyright PCG 2013 Page 5 of 14
agency. However, the regulations also refer to supply of workers by employment businesses. To be certain you have opted-out, you may wish to opt-out before introduction, however it may still be possible to opt out before commencing work ( supply ). Can the agency force me to opt-out? No. The regulations also state that an employment agency or business cannot make the provision of its services conditional upon the worker/limited company contractor opting out. In other words, the agency cannot force you to opt-out. How do I opt-out? It is likely that your Agency will supply you with the relevant form or declaration to opt-out. If you would rather provide your own words to use, PCG s recommended template is below. "We hereby give notice, pursuant to regulation 32 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 ("the Regulations") that both [name of your limited company] and [your name] do not wish the Regulations to apply to any engagements through [name of your agency agency] Signed by [your name] Signed for and on behalf of [name of your limited company]" You are entitled to withdraw this opt-out by giving notice to the agency, in writing, at any time prior to starting work. If you are at all unsure, seek professional advice. Where can I see the regulations? The opt-out is covered in paragraph (9) of Clause 32 of the regulations: (9) Subject to paragraph (12), paragraphs (1) - (8) shall not apply where a work-seeker which is a company, and the person who is or would be supplied by that work-seeker to carry out the work, agree that they should not apply, and give notice of that agreement to an employment business or agency, provided that such notice is given before the introduction or supply of the work-seeker or the person who would be supplied by the work-seeker to do the work, to the hirer. The Conduct of Employment Agencies and Employment Businesses Regulations 2003 are published as Statutory Instrument 2003 No. 3319 by The Stationery Office Limited, under reference ISBN 011048374X Crown Copyright 2003 and may be viewed here. Copyright PCG 2013 Page 6 of 14
2.1 OPTING IN To remain opted-in to the legislation you shouldn t have to do anything. The legislation applies unless you choose to opt-out. Opting in means You have some protection against late payment or failed payment from the agency. This has proved useful to freelancers in situations where the agency has refused to pay because it has yet to be paid by the client. You are protected from handcuff clauses, should you decide to go permanent. You have the legal backing of the Employment Agency Standards Inspectorate, who will deal with any disputes that come under the scope of the regulations. They can secure compensation for you and punish agency malpractice. If you wish to remain opted-in, check your contract carefully to ensure that it does not contradict this. Your contract should not include such clauses because you will already have been introduced to the client before signing contracts. What exactly do the regulations cover? If you do choose to remain opted-in, the exact legal protections you will benefit from are summarised below. You may find it useful to refer to these specific clauses should you find yourself in a dispute with your agency or client. Handcuff clauses: Regulation 10 This places limits on temp to perm fees (where the temporary worker takes up a permanent job with the client) and temp to temp fees (where the temporary worker is engaged by the client through another agency). The Conduct Regulations allow such fees only where the engagement occurs within either 14 weeks of the start of the assignment or within eight weeks of the end of the assignment, whichever is the later. The client must also be offered, in the terms and conditions, the alternative of an extended period of hire. If the client opts for the extended period of hire, the worker can transfer without charge at the end of that period. It is for the parties to agree the level of the transfer fee, or the length of the extended period of hire. Withholding of payment: Regulation 12 - Employment businesses will no longer be able to withhold workers pay purely because, for example, the employment business has not received payment from the client or because the worker cannot produce an authenticated timesheet. This is one of the most popular reasons contractors choose to remain opted-in to the Conduct Regulations. Copyright PCG 2013 Page 7 of 14
3.0 WHEN THINGS GO WRONG My agency is pressuring me to opt-out. What should I do? The agency cannot force you to opt-out. Doing so is in violation of the regulations. If you believe you are being forced to opt-out, see below. The agency can: Offer inducements to opt-out. This can include offering different rates to contractors who opt-out, or more favourable contract terms. This can be a useful opportunity to negotiate for better terms should you choose to opt-out. State that the client will only work with opted-out contractors. This should be a rare occurrence. It may be that the Agency is trying to force you to opt-out. If you believe this to be the case, ask for proof the client is unwilling to take on opted-in contractors. If you remain suspicious, see below. If you are being forced to opt-out, or the agency is not meeting its legal obligations: There are a number of avenues available to you: 1. Try to negotiate. Draw attention to the relevant clauses within the regulations first. Ask what inducements are on offer to opt-out. It may be that the Agency will ultimately accept you being opted-in, or will offer you favourable contract terms to opt-out. If you have already opted-out but haven t yet been introduced to the client, you may withdraw this opt-out. Seek professional advice before doing so. 2. Complain to the relevant professional body. Many agencies are members of a professional body. The most popular and established of these are REC and APSCo; both these bodies enforce minimum standards of service and codes of conduct upon their members. If you believe your agency is failing to meet these minimum standards you should complain to the relevant body. 3. Go to the Employment Agency Standards Inspectorate (EAS). The EAS is the body that polices the Conduct Regulations. It can impose heavy fines on agencies that do not comply with the rules and even stop them from trading. If it is clear that an agency is in breach of the regulations, you should contact the EAS immediately. If you would like more information, the Government provides a helpline for Agency workers. The helpline is open during office hours and is run by the EAS. Further details can be found here. If you are mistreated by an agency with regards to the regulations please let PCG know by emailing policy@pcg.org.uk. Copyright PCG 2013 Page 8 of 14
4.0 FURTHER CONSIDERATIONS I am an umbrella. What do I do? The Conduct Regulations also apply to Umbrellas. Although it is possible to opt-out of the regulations as an umbrella, the opt-out was designed with individual limited company contractors in mind and not those who are employees of an umbrella. For an opt-out to be effective, any declaration of intent to opt-out must be signed by both you as the work seeker and a representative of the umbrella company. PCG recommends seeking advice through our Tax and Contracts helpline for further information. Can I decide to opt-out mid-way through a contract? No. The legislation has not made allowances for this scenario and a strict interpretation of the text shows that it is not possible to opt-out if you have already been introduced to the client. It may however, be possible to opt-out if you sign a new contract with your existing client. If you are not sure, you should seek professional legal advice before signing anything from the agency, or seek advice from our tax and contracts helpline. Can I opt back in? If you sign a new contract, or there is a change in your role or position that requires an amendment to an existing contract, then you may be able to opt back in. Contact your agency or our tax and contracts helpline for further information. Are these regulations the same as the Agency Workers Regulations? No. Confusingly, as well as the Conduct of Agencies Regulations, another piece of legislation exists known as the Agency Workers Regulations (AWR). The AWR are a set of laws designed to ensure vulnerable agency workers do not receive lesser employment rights simply because they have been engaged via an agency, as opposed to directly with the client. They ensure agency workers receive equal treatment as compared to their permanent colleagues after twelve weeks in post, with regards to pay, holidays and working time. They do not apply to genuinely self-employed workers or those in business on their own account working through their own limited company. Therefore, the majority of freelancers are unlikely to be affected by the AWR. For more information on the AWR and how it affects you, please see this guide prepared by PCG for agencies. I need more help and advice, where can I turn? PCG s Tax and Contracts helpline can provide further advice on the conduct regulations. More details are available here. Copyright PCG 2013 Page 9 of 14
I am in an existing contract with my client but the agency wants me to opt-out now, is this legal? This is a very grey area. The legislation has not made allowances for this scenario and a strict interpretation of the text shows that it is not possible to opt-out if you have already been introduced or supplied to the client. The DTI has, however, stated that this will be allowed if you sign a new contract at the same time. PCG has received reports of agencies that are using this as an excuse to issue new contract terms. Freelancers should check carefully to ascertain whether any new clauses or amendments have been inserted into the new contract, and if they have, to establish the purpose and possible effects of the new or amended clauses. If you are not sure, you should seek professional legal advice before signing anything from the agency. If I don t opt-out of the Agency Regulations, will I be classed as an employee of the client or otherwise harm my IR35 status? No, although remaining within the Agency Regulations will make it illegal for the agent to allow certain contract clauses that are helpful with your IR35 claim. In particular, they prevent you from being held responsible for your own mistakes (and fixing them at no cost) and therefore exclude you from benefiting from this particularly helpful clause in relation to IR35. My agency has stated that PCG recommends opting out of the Agency Regulations. Is this true? No. We recommend our members, and freelancers in general, make their own decisions based upon informed advice. It believes, however, that the majority of PCG members will wish to opt-out when they have assessed the relevant factors. My agency has stated that if I opt-out I can have a better contract than if I opt-in. Is this legal? Yes. This is legal, and on a positive note, you may also use the offer to opt-out as a bargaining tool to negotiate better contract terms. My agency has sent me a contract or terms of agreement of some description even though they have yet to find me a position and I have not attended an interview. Why is this? The Agency Regulations state that the agency must agree terms with the work seeker prior to providing work-finding services. It is debatable at what point the work-finding services actually commence and so the agency is protecting itself by doing this at the earliest opportunity. Some contractors are finding that the terms of agreements furnished are not very satisfactory. Part of the problem is that the agency must specify whether the terms amount to a contract of service or a contract for services (employment or self-employment). Since it is very difficult to guarantee that a contract is of the self-employment type, the agencies will naturally err on the side of caution and make it an employment type contract. By opting out of the Agency Regulations, you can avoid the problems that these types of clause may cause you with respect to IR35, as you will no longer have to agree terms prior to finalising a contract. Copyright PCG 2013 Page 10 of 14
My agency has sent me an opt-out form, with the further choice of opting out via a web-based form, but it contains much more than the simple optout notice suggested by PCG. What should I do? Exercise great caution. The notice should not incorporate any contractual terms. Remember that you are signing on behalf of the limited company and yourself individually (as required by the Regulations) and as such you could be removing your limited liability and potentially weakening any case you have to be outside IR35. PCG advice is to use agency opt-out templates and web forms only if they are obviously simple opt-out forms. You do not have to use any form of words suggested by the agency. If in any doubt whatsoever, create your own letter based on the form of words recommended by PCG. My agency has said that unless I opt-out they will not find me work or deal with me as they only deal with opted-out work-seekers. Is this legal? No. Agencies are not allowed to refuse to find you work, but (see 13) they can offer inducements to opt-out. For instance, it would be legal for them to offer slightly differing rates to opt-in contractors to cover their additional costs. A substantial difference could, however, be construed as a requirement for you to opt-out and would therefore be illegal. Copyright PCG 2013 Page 11 of 14
5.0 THE FUTURE The Conduct Regulations are being reviewed by the Government. PCG does not expect any changes to the regulations until 2015 at the earliest; therefore the advice within this guide remains current. Nonetheless, below we have outlined the proposed changes to the legislation and our views on how the current legislation operates. Changes: The Government is currently considering replacing the Conduct Regulations and the Employment Agencies Act with a new, stripped back legislation as part of its redtape challenge. The aim is to reduce the burden on businesses whilst having much more basic legislation which meets four key aims: Restrictions on charging fees to work-seekers looking for permanent work Clarity on who is responsible for paying temporary workers Contracts do not hinder movement between jobs and temp to perm fees are reasonable Work-seekers are able to assert their rights and have the confidence to use the recruitment sector. The new legislation will include an opt out similar to the one that currently exists. It is not yet clear what form this opt out will take. PCG is working with REC and APSCo to ensure that any new opt out is simple to understand and easy to operate for freelancers. As soon as the Government publishes new regulations, this guide will be updated. Copyright PCG 2013 Page 12 of 14
6.0 ABOUT PCG With over 21,000 members, PCG is the largest association of independent professionals in the EU, representing freelancers, contractors and consultants from every sector of the economy We believe that flexibility in the labour market is crucial to Britain s economic success. We are an active and influential voice in government and industry to create the stimulus needed for freelancers, and their clients, to thrive and prosper. As well as being a campaigning body, PCG provides a wide range of support services to help its members succeed in business. Founded in 1999 by a community of freelance contractors, PCG has become the leading authority on freelancing in the UK. The association is governed by its members and any member is eligible to stand for election to the Consultative Council, and from there, for election to the Board of Directors. Copyright PCG 2013 Page 13 of 14
Disclaimer Version The material in this guide is for general information only and does not constitute investment, tax, legal or any other form of professional advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation. PCG accepts no liability for any losses arising from action taken on the basis of the general guidance contained within this document. This is edition 2.1 of the guide, released in July 2013.This guide has previously been published as The PCG Guide to the Agency Regulations (PCG, 2007) and Guide to the Agency Conduct Regulations (PCG, 2010). Copyright PCG 2013 Page 14 of 14