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In specific circumstances, limited company contractors working through a recruitment agency may be in scope of the Agency Workers Regulations (AWR).
This means they have the right to ‘equal’ basic terms and conditions with any ‘comparable’ permanent employees at the end-clients company (where they actually work).
In this article, we’ll look at limited company contractors offering their services to an end-client through a contract with a recruitment agency in more detail. This article doesn’t cover contractors providing services through an umbrella company.
Our downloadable Agency Workers Regulations Guide goes over what the law says, helps you figure out if it applies to you, and gives advice on what you can do to enforce your rights.
Up until now, the question of whether a limited company contractor can fall within the scope of the AWR hasn’t been well tested at Employment Tribunal.
The only AWR cases to reach Tribunal that’ve been reported so far are related to the Swedish Derogation model (limiting equal pay), redundancy consultation and other pay issues that we covered in another article.
The government’s original guidance on the AWR said that the definition of an ‘agency worker’ excludes:
In other words, where a genuine business relationship exists, and the contractor isn’t under the direct supervision and control of the end-client, individuals are excluded from the AWR.
Limited company contractors who are truly in business on their own account should be out of scope, although contractors aren’t automatically excluded just by virtue of working through a limited company.
It’s generally felt that Personal Service Company contractors are likely to think twice about jeopardising their tax status by asserting agency worker rights.
The Department for Business, Innovation and Skills guidance gives the example of an IT contractor who supplies his services through a limited company:
“An individual has set up his own limited company through which he provides IT services. He has a contract with a TWA (Temporary Work Agency) and is supplied to work on a specific project with an anticipated duration of 12 months.
“The individual has no fixed working pattern and can determine how and when he performs the services; he can also send a substitute to perform the services at any time, or payment is made on a specific, deliverable date, or on a fixed price and not simply on an hour, daily or weekly rate. However, he is subject to the hirer’s reasonable and lawful instructions.
“Given the absence of personal service and mutuality of obligation, the company is a client or customer of the individual. Therefore, the individual is out of scope. This must be a true reflection of the reality of the relationships between the parties involved and not simply a reflection of the contractual terms.”
Since the AWR were introduced in October 2011, recruitment agencies have been inserting clauses into contractual agreements that are related to the AWR and strengthen a contractor’s case for being seen as in business on their own account.
Such clauses include (not verbatim):
These clauses are designed also to give the agency and client comfort that the contractor isn’t subject to the AWR. However, if a contractor believes they are, they’d need to dispute their employment ‘status’ at an Employment Tribunal.
The Employment Tribunal will consider if the description of the arrangement in the contract reflects the reality of the relationship.
The focus will fall on the relationship which exists between the limited company, the end user client and/or the agency.
The Tribunal will also have to weigh up whether they’re in business on their own account or not (and have a business-to-business with the end-client). There’ll no doubt be a debate about what exactly a ‘business undertaking’ is and what a ‘business-to-business’ relationship actually means.
The courts have devised a number of tests which examine the individual’s circumstances and consider all aspects of the ‘employment’ relationship, including their conduct, what a contract does and doesn’t say, and the expectations of the parties involved, to establish the reality of the relationship.
In assessing the (self-)employed status of an individual, an Employment Tribunal is likely to examine the following:
If the contractual arrangements don’t reflect the reality of the relationship (e.g. despite the wording of a contract, the actual reality is that the individual isn’t in business on their own account, and they work under the supervision and direction of the hirer), individuals are likely to fall into scope of the regulations.
Other important cases where tribunals have looked at ‘employment status’ and whether the contractual arrangements reflect the reality of the arrangement are worth further reading:
So, in certain circumstances, it could be possible that a limited company contractor could be within the scope of the AWR.
You’ll notice this article doesn’t mention IR35 – IR35 and the AWR are different pieces of legislation and being ‘inside’ of one doesn’t necessarily mean you’re ‘inside’ the other. If you’d like to learn more about IR35, check out our comprehensive IR35 hub for more information, and to learn more about our IR35 service.
If you’re an employer and need ongoing professional help with any staff/freelance issues, talk to us at The HR Kiosk – a Human Resources Consultancy for small businesses. You can retain us for as much time as you need.
Please note that the advice given on this website and by our advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It also can’t be seen as specific advice for individual cases. Please also note there are differences in legislation in Northern Ireland.