Prior to 2003, the Recruitment Industry was largely unregulated. The Employment Agencies Act 1973 put some restrictions on how recruitment agencies conducted their business, but it was felt that the industry needed more regulation due to the emergence of several rogue recruiters who were making the work-finding experience unsavoury for both individual candidates and the end clients.
The Regulations therefore seek to provide more protection to individuals who used recruitment agencies to find them work and also protect endclients who used recruitment agencies to find workers on their behalf. At this point we also consider what may happen If Your Agency Doesn't Pay You.
What it means to “opt-out”
If you can opt-out and you choose to do so, the Regulations will not apply to your entire assignment with that client.
It is possible to opt-out of some of the regulations but not others, so it is important that you consider whether you want the protection provided by the Regulations or not.
Do these Regulations apply to me?
There is an argument that the Regulations do not apply to individuals who are not working under the control of the end user client. Therefore, if you are providing services as an independent contractor and are working outside of IR35, the Regulations may not apply.
If the Regulations do not apply, there is no requirement for an agency to consider them. However, most agencies err on the side of caution and assume that the Regulations will apply to your assignment and draft the contract accordingly, or ask you to opt-out.
There is an argument that the Regulations do not apply to individuals who are not working under the control of the end user client. Therefore, if you are providing services as an independent contractor and are working outside of IR35, the Regulations may not apply. If the Regulations do not apply, there is no requirement for an agencyto consider them. However, most recruitment agencies err on the side of caution and assume that the Regulations will apply to your assignment and draft the contract accordingly, or ask you to opt-out.
What do the Regulations do for you?
The Regulations provide you with some protection during your assignments.
In particular, the Regulations seek to ensure that:
- You will get paid by the agency even where they do not receive payment from the end client;
- The agency cannot restrict you from providing services directly for the end client upon termination of the contract;
- The agency does not withhold pay in certain circumstances;
- The agency provides you with specific information relating to the services they will provide and the assignments they have sourced for you;
- The agency cannot charge you for their work-finding services, or require that you pay for additional services from them in order for them to find work for you.
How do I opt-out?
The Regulations permit individuals to opt-out of the Regulations if they are:
- Working through a limited company; and
- Not working with people under the age of 18 or vulnerable adults.
If the above conditions cannot be satisfied, for example you are working as a Social Worker, the Regulations will automatically apply to your assignment if you are working under the control of the end client.
If you choose to opt-out of the Regulations, you must agree to opt-out of the Regulations before you are introduced to your client. Both you and your limited company must opt-out of the Regulations together, the opt-out is ineffective if only one of you opts out or if either of you opt-out after you have been introduced to the client.
You can also choose to opt back into the Regulations if you choose to do so at a later date upon giving notice to your recruitment business of your intention to do so.
Are there any IR35 implications of not opting out of the Regulations?
There are various opinions on whether not opting out of the Regulations could affect your IR35 status.
Some argue that the Regulations only apply if you are subject to the control of the end client. As control is a factor that is taken into consideration when assessing employment status under IR35, this could go against a contractor. However, there are other ways to demonstrate whether you are subject to the control of the end user client, for example being able to choose your own hours of work, working on project based work, being highly skilled and therefore working autonomously will all help to demonstrate that you are not controlled by the client.
It is also important to remember that control is but one factor to take into consideration when assessing whether you are a disguised employee for IR35 purposes.
Some argue that the protection offered by the Regulations remove the contractor’s ability to demonstrate financial risk (financial risk being another factor taken into consideration when assessing employment status under IR35). As there are several ways to demonstrate financial risk, for example working for a fixed fee, not having a notice period in the contract, or having bad debts, we consider this to be a very weak argument.
There have not been any IR35 cases that have been argued before the Special Commissioners or other courts where HMRC have argued that the contractor fell within IR35 on the basis that the Regulations applied to the assignment. It is our opinion that HMRC is unlikely to run this argument, as it is very weak.
It is our view that a failure to opt-out of the Regulations will not mean that you automatically fall within IR35. However, to ensure that you are clear about your IR35 status, we would recommend that you have an IR35 Review as soon as possible.
What are the benefits of not opting-out?
You get the protection offered by the Regulations that the Government intended you to have.
What are the benefits of opting-out?
There are arguments surrounding IR35 (see IR35 implications). Otherwise, there are no benefits to opting-out.