With the Agency Workers Regulations now in force in the UK, Scotland and Wales, we thought now might be a good time to add our thoughts to the cacophony of commentary currently filling the online space.
Although Crunch users have not been (and will not be) affected by the introduction of the AWR – as Crunch clients are in business on their own account and do not operate through agencies – it has thrown many umbrella companies into a bit of a spin. Although the regulations were never intended to apply to umbrella contractors, they are nonetheless within the remit of the AWR, and as such umbrellas have been battling with compliance for the last few months.
The range of options put forward by various umbrellas have been –
– Do nothing and cross their fingers (as some smaller umbrellas cannot swallow the added costs of compliance)
– Implement short contracts to avoid the twelve weeks rule (this was later deemed a bad idea as the AWR contains specific clauses forbidding this sort of activity)
– The Swedish Derogation Model (whereby contractors are effectively “hired” by the umbrella company)
Now, having considered their options, many umbrella firms and the agencies they work with to place their contractors are conceding that limited company directorship is the most tax efficient and compliant model for many contractors.
Some of the largest umbrella companies already operate business arms that deal with limited company contractors, and those that do not are hurriedly establishing such operations.
Those umbrellas that choose not to adapt will likely fall by the wayside. As AWR-related compliance costs start to bite (which are estimated at around £1.5-2 billion per year), their expenses will go up and their contractors will seek out a better option.
We have already seen the beginnings of this exodus. We are getting calls every day from umbrella company clients who are seeking more sure footing as the Agency Workers Regulations begins to change the way they do business. Our advisors have likened this sudden rush to the ban on offshore Employee Benefit Trusts at the end of last year, when a number of umbrella companies were suddenly unable to pay their clients.
So how can Crunch clients (and other small businesses) who are using temporary workers make sure they are compliant with the Agency Workers Regulations?
In the same way Crunch clients avoid the AWR by being “in business on their own account”, small businesses can avoid the added costs of AWR compliance by employing other small businesses, in a direct business-to-business relationship, instead of temps. If your temporary staff are not working through an agency, then the additional rights afforded under the AWR will not apply, meaning business as usual.
This is the model Crunch are recommending, and one we are employing ourselves.
If temporary workers are being sourced through an umbrella company or temping agency (or Temporary Workers Agency, to give them their full title), it is imperative that hirers ensure the umbrella or agency they are working with is compliant with the new regulations.
Despite the fact that they are now law, there is still a large amount of uncertainty surrounding what actually constitutes compliance with the AWR, and this uncertainty will likely continue until AWR case law is established. Until then, hirers would be well-advised to choose their agencies cautiously.
For more information, see our downloadable AWR Guide. If you have specific questions which our guide does not answer, feel free to leave a comment on Freelance Advisor’s Agency Workers Regulations Guide, and our resident HR expert will endeavour to help you out.