In 2004 the Conduct of Employment Agencies and Employment Business Regulations 2003 was born, with a goal of enforcing a set of minimum standards to which the UK’s private recruitment industry must abide by. These standards apply to both employment agencies and businesses who provide temporary and/or permanent staff to end hirers / clients. Whereas these regulations are mostly aimed at individuals, they can have an effect on contractors.

How do the regulations affect contractors?

If you’re a contractor who’s working through your own Limited Company, you’re able to ‘opt-out’ of being covered by the regulations. In order to do so you must sign a relevant form, and your end hirer/client must be informed of your decision, before you engage into any contract for your services. Contractors do have the option to reverse their ‘opt-out’ decision, but this can only be done once the original contract has been completed.

Usually the ‘opt-out’ form is provided alongside the contract from the recruitment agency the contractor is using.

Opting-in, what are the benefits?

If you decided to ‘opt-in’ you’ll be given access to additional rights, including the agency being required to pay you even if the end hirer/client doesn’t, and the removal of contractual restrictions which mean as the contractor you’re be able to make direct arrangements with the end hirer/client for any future contracts.

What does Regulation 12 mean for contractors?

An agency is not permitted to request a signed time sheet to complete payment to a contractor. Whilst contractors must still provide evidence of completed work before being eligible for payment, they do not have to do so in the form of a signed time sheet, and the agency cannot use this as an excuse for not paying the contractor.

What does Regulation 10 mean for contractors?

Regulation 10 is in place to prevent an agency from impeding a contractor entering into a future direct contract with the end hirer/client once the original contract has been completed. At present its common practice for all contracts to state that contractors are not allowed to provide their services to the client in question for a period of up to 6 months, 12 months or longer. Whilst this may be the case, under Regulation 10 the maximum period direct contractor and client communication can be prevented for will only be the longer of 14 weeks post the first working day and 8 weeks after the last working day of the original contract.

What are the benefits of ‘opting-out’?

One of the major reasons why Limited Company contractors may decide to ‘opt-out’ is because of their IR35 status. If a contractor is receiving regular protection, it could be regarded as receiving regulations which solely apply to contractors who are under control of the end hirer/client, and therefore would be found ‘inside’ IR35.

Under the ‘supervision, direction and control’ element of a contractor’s IR35 status determination, ‘opting-in’ could demonstrate that level of control which would decide a contractor’s status as ‘inside’. Whilst this may be the case, in the same breath ‘opting-in’ could also demonstrate good management values for the contractor’s Limited Company business as a whole, and therefore would be demonstrating a commercial decision in the best interest of the company.

What are the perceptions of ‘opting-out’?

Many contractors believe that by ‘opting-out’ they are gaining greater flexibility. The regulations you’re subjected to by ‘opting-in’ enforce a certain number of obligations, which include:

  • confirming the contractor’s terms of services in writing prior to commencing work
  • auditing any sub-contractors the contractor may wish to use, by checking their experience and qualifications

both of which take time to complete, and many contractors feel it adds too much of a delay to starting the contract.

Unfortunately you’re also unable to pick and choose which points from the regulations you wish to adopt, if you ‘opt-in’ you agree to all.

SG Umbrella’s final thoughts

Before starting any new contract we strongly advise running your decision past a contractor accountant specialist, to ensure you’re making the right one for both your personal and professional circumstances, and the contract as a whole. Only you can make the final decision, but we can certainly help you understand the pros and cons of each outcome, and guide you in the direction we feel will benefit you the most.

Get in touch today to find out more about our expert supportive Umbrella company services and what we can do for you.