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Ltd Company Opt Out

The Conduct of Employment Agencies and Employment Businesses Regulations (known as the EAA Regulations) became law in 2004 and was designed to replace old legislation on the recruitment sector. Full details of The Employment Agency Act can be found at:

www.legislation.hmso.gov.uk/si/si2003/20033319.htm

Although designed with good intention, the EAA Regulations appear to focus on PAYE & Payroll Contractors, rather than the usual Limited Company Contractor business format. As a result, contractors wishing to register with an agency may now go through a much longer registration process, which involve a number of additional stages including:

  1. We need confirmation from Contractors as to the full type & nature of work they are seeking.
  2. Before we submit Contractors details to any client, we have to fully check a Contractor’s ID. The REC advises that we require sight of a photo ID, together with any visas where appropriate.
  3. We have to provide a model contract to each contractor, which will have to alter at a later date.
  4. Contractors experience & training for each role needs to be verified and this involves in-depth referencing prior to Contractor details being submitted for a contract.

Help is to hand:

Fortunately the Government, have recognised that Contractors using either their own Limited Companies or Umbrella Companies are a special case. As a result Contractors operating specifically via Limited Companies can opt out of the Agency Regulations – see below. Click here for information for Limited Company Contractors regarding opting out of the regulations.

What are the Effects of opting out of the Agency Regulations?

A contractor who operates as a Limited Company Contractor will not be required to comply with certain procedural requirements of the Agency Regulations e.g. identity confirmation. There will also no longer be any procedural requirement upon the recruitment agency to obtain certain information from the client before placement of the limited company contractor. Also, certain contractual amendments need not be applied to the contract documentation to be agreed with both the limited company contractor and the client.

Why should a limited company contractor consider opting out of the Agency Regulations?

Some limited company contractors are taking the view that opting-in to the Agency Regulations may place them at a disadvantage in securing a contract assignment with a particular client. In particular, the additional procedural requirements imposed upon the employment business and the client may delay the evaluation of that limited company contractor relative to a contractor who has opted-out of the Agency Regulations. Also, some clients appear to be concerned about the additional employment risk of limited company contractors seeking to opt in to the Agency Regulations and becoming treated in law; as permanent staff.

There have been a number of recent court cases where contractors have taken clients to court when assignments have ended to obtain redundancy payments etc. Consequently, some clients fearing that a limited company contractor could be considered more akin to a temporary employee rather than an independent contractor may select only those contractors who have opted out of the Agency Regulations.Certain recruitment agencies are also suggesting that they will have to pass on additional administration costs directly to clients where there are additional administrative requirements for managing contractors who have opted in to the Agency Regulations. This would be handled in the form of a general increase in fees with a discount for those contractors who have opted out. As a result, some clients may avoid the additional costs and have a preference to those limited company contractors who have opted out of the EAA Regulations.

The Professional Contractors Group www.pcg.org.uk, together with some other contracting groups, have suggested that those limited company contractors seeking to legitimately challenge the application of IR35 to their services could be more likely to be assessed within IR35 if the limited company contractor is subject to the Agency Regulations. This is because some view the Agency Regulations as principally applying to protect the supply of individual workers who are similar to temporary employees, which would undermine any arguments of a limited company contractor seeking to challenge IR35. The Professional Contractors Group has published a Guide to Agency Regulations if you are a member or just wish to investigate further you view http://www.pcg.org.uk

What is Morgan West’s view on whether to opt in or opt out of the Agency Regulations?

At Morgan West, we are offering all our limited company contractors the choice of opting in or opting out of the new Regulations. At the time this document was produced, it appears that various contractor organisations and groups are suggesting to limited company contractors that they opt out of the Agency Regulations.