Agencies don’t like the new regulations – that much is becoming clear. And hey, who can blame them? – they are (though some might question this) only human, after all. Why should they welcome new regulations which just add to the workload, increase their exposure, and reduce their opportunity?
There is, after all, additional administration imposed on them (requirements to disclose terms earlier, and to check identification and references); then they have to carry on their shoulders the risk of a Client dissatisfied with a Contractor not paying, but themselves still being bound to pay the Contractor; and finally, the opportunity for jam on the bread and butter of the margin reduces to a thinly rationed scraping – in the event that the Contractor goes permie, the charge the Agency can impose on the Client is considerably reduced.
Should my heart bleed? I don’t know the answer to that, but I’m not without a degree of sympathy. Sure, there are some ‘chancers’ in the industry – which Is hardly surprising, given that the business at its basics is just a variant of trading in commodities, of buying in here, selling there, making a deal, collecting a turn, and moving on to the next deal. It’s a business that suits some more than others, and one which of its nature is more likely to attract the ‘chancer’.
By and large, though, there are enough Agencies around for commercial pressures to dictate, and to rule out the grosser aspects of opportunism, at least from those who still want to be around tomorrow.
In a case where the regulations apply (and with Contractors in the IT industry, I would say that more often than not, they don’t – but that’s the subject for a later article), the starting points are:
1 that a contract is inside the regulations, unless the parties (Agency and limited company Contractor) expressly agree to opt out; and
2 any agreement to opt out must be made before ‘introduction or supply’ to the Client; and
3 having opted out, a Contractor can change his mind and give notice to opt back in, although this will only take effect when the Contractor ‘stops working’ in the position with the Client; and
4 that the agency may not make provision of their services conditional on a limited company Contractor opting out.
Some interesting consequences follow from this:
A having opted out, it may well be that a Contractor can’t just opt in again at the next extension, unless there is an actual break, followed by re-engagement – continuing F2M (end contract Friday, start extension Monday) may not be sufficient to achieve this
B there is no obligation on either party to agree to opt out – not only can the limited company Contractor ‘just say no’, but the Agency themselves don’t have to offer opt-out as an option, and they don’t have to offer advice about it (and the cynic in me wonders how objective such advice would be likely to be, if it were offered!)
C some agencies may try to persuade the limited company Contractor that it would be in his/her interests to opt out; IR35 has been used as a persuasive factor here, although I personally question whether or not the opt in/out decision has any IR35 consequences – someone who is running his own business should regard himself as free to take whatever decision places him/her in the best commercial position, and from this viewpoint, opting in (or rather not opting out) is generally preferable.
We are now starting to see a trend where, in their efforts to preserve what they see as the jam on their bread and butter, some agencies are either (a) letting Contractors know that if they don’t opt out, the process will be slower and more cumbersome – and that in times of heavy competition, they are therefore less likely to secure placements; and (b) offering differential rates, and paying Contractors who opt out more. I’m asked if either of these tactics are legitimate.
It is, to my mind, sloppy drafting by the author of the regulations that has caused these questions (some might call them opportunities) to arise.
The regulations make clear that an Agency may not make provision of their services conditional on a limited company Contractor opting out. It is clear that the spirit of the regulations is to try to ensure that those who choose not to opt out are not disadvantaged. But the regulations do not implement an EU Directive (if they did, the spirit of them would be a factor to take into account when interpreting them) – they are simply regulations made under an act of parliament. And so the spirit behind them is, by and large, irrelevant, save only where there is a genuine ambiguity to be resolved.
Letting a limited company Contractor know that his/her chances of being placed will be reduced if (s)he does not opt out risks, to my mind, stepping onto the wrong side of the line, and I would not be advising my own Agency clients to do this. It may be true, but to expressly tell a Contractor that comes perilously close to telling a Contractor that the Agency will not be providing effective work finding services unless (s)he opts out. There is, I believe, a real risk of this being unlawful.
But offering differential rates is, I think another matter. I have considered this, and have reached the conclusion that it is probably perfectly legitimate for the Agency to do so – to say they are prepared to offer a role on one set of terms, which offers more in the way of background rights, of fringe benefits – or to offer it on another set of terms, at a higher rate, but without the underlying background rates. And it is probably legitimate for the Agency to pass that decision on to the Contractor.
We are seeing this happen already – and I think it is likely to continue. Commercially, I can see how differentials of up to 10% could possibly be justified, and I think that commercial pressures are likely to end up ruling the day.
And after all, who can complain if the end result is that jam gets spread around a little?
For more info, see also my page on the agency regulations themselves.
I'd really appreciate your feedback on this FAQ - so mail me and tell me what you think of it, if it's been useful to you, or let me know of any specific problem you have where I may be able to help.
This page was last updated on 14th February 2005
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