The Conduct of Employment Agencies and Employment Businesses Regulations 2003
Information on Opting Out of the Regulations
Background
The Conduct Regulations
The Conduct of Employment Agencies and Employment Businesses Regulations 2003 ("the Conduct Regulations") govern the conduct of the private recruitment industry and establish a framework of minimum standards that work-seekers and clients are entitled to expect.
Limited Company Contractors (LCCs) can opt out of the application of the Conduct Regulations (except if the assignment involves working with children, the old or the infirm).
What is an "Opt-Out Notice"?
Under Regulation 32(9) of the Conduct Regulations, if an LCC and its Consultant both agree that the Conduct Regulations should not apply and give notice of that agreement to PCR Recruitment Ltd, provided such notice is given before introduction*, the Conduct Regulations do not apply. This notice is commonly known as an "Opt-Out Notice".
If an LCC gives PCR an Opt-Out out notice, this reduces the level of administrative bureaucracy for PCR and gives PCR greater scope to charge temp-to-perm and temp-to-temp fees to the client.
* It should be noted that, between the time of opting-out and the date of commencement of supply of the services, LCC's can opt back in (see FAQs).
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Why does PCR recommend that LCCs opt-out of the application of the Conduct Regulations?
It is the choice of the LCC whether or not to opt-out. Obviously the LCC should seek their own advice on whether or not to opt-out. However, PCR recommends that LCCs opt out for the following reasons:
PCR complies with best practice which already gives sufficient protection to limited company contractors and consultants.
PCR believes that the Conduct Regulations are designed to protect workers at the lower end of the market (for example, low paid workers in the hotel and catering industries) to ensure that they are paid a living wage, are not exploited and are told in clear terms what services the staffing company will provide them with.
Limited company contractors and consultants are at the top end of the market, are highly paid, PCR always makes them aware of the terms and conditions between them and PCR and finds them assignments with reputable clients.
If LCCs do not opt out of the Conduct Regulations, this may compromise their tax status under IR35, i.e. it may increase the chances of an assignment falling within IR35. This is for the following reasons:
- the Conduct Regulations provide quasi-employment protection to contractors; and
- the Conduct Regulations state that the services provided by PCR are to find assignments where the contractor acts for and "under the control" of the client. The concept of "control" is an employment indicator. When assessing whether or not an assignment falls within IR35, the Inland Revenue looks for employment indicators.
- PCR is able to offer LCCs more assignments because some clients require opted-out contractors only, especially where clients require reassurance about workers not, while providing the services, undertaking any other role involving a conflict of interest (such a restriction is unlawful unless the contractor opts out).
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In simple terms
What kind of working practices and contractual conditions are HMRC looking for to see if you’re inside or outside IR35?
Below are a few hints, tips and pointers. Please be aware this is not a comprehensive list, IR35 regulations are extremely complex but the brief notes below should provide a rough indicator:
Control:
Are you free to work under your own control i.e. not managed by the client?
Financial risk:
Although profit share is common place in the employed world, it is without exception in owner managed companies. Also, employees rarely risk financial loss by being employed, whereas if you buy assets such as PC’s, laptops, servers, printers, office equipment or a client fails to pay you as director of your company you will most definitely experience financial loss.
Substitution:
In your contract do you have a clause about using somebody other than you to perform the task you’re company has been contracted to do?
Provision of equipment:
Will you be using your own equipment? Sometimes this is very difficult and allowances are made where security measures prohibit the use of say using your own laptop.
Right of dismissal:
Do you have a fixed notice period. The Revenue will argue that this is like an employee, therefore there should be provision in your contract for immediate termination should the client choose to do so.
Employee benefits:
Plainly speaking you can forget about receiving any holiday pay, sick pay, pension
contributions, training courses, Christmas dinners or the annual staff summer outing.
FAQs from contractors
Q. Do I have to opt-out for PCR to find me assignments?
A. No, it is your choice.
Q. I've heard that if I don't opt-out PCR cannot impose restrictions on me going temp-to-perm or temp-to-temp, surely that's a very good reason for me not to opt-out?
A. True, PCR cannot restrict you going temp-to-perm or temp-to-temp if you do not opt out of the Conduct Regulations. However, most clients require PCR to restrict contractors from taking up assignments which may cause a conflict of interest with the assignment for that particular client. This means that PCR would not be able to offer you assignments with those clients unless you have opted out. This would reduce the number of assignments open to you. In addition, if you opt out, PCR only restricts you for the term of the assignment and for 3 months after expiry or termination of the assignment. After that you are free to provide services without restriction.
Q. Can I opt back in if I change my mind?
A. Yes, but not in relation to the assignment you are working on, only for the next assignment if it is a different "position". You must opt out before supply commences. If you have opted out, but have not commenced supply of services, you can opt back in again, but PCR would have to give you a different contract, and you may not be able to take up the assignment if it is an "opt-out only" assignment.
Q. What's in it for PCR if I opt-out?
A. It reduces PCR's administrative burden and record keeping requirements and means that PCR has greater scope to charge clients temp-to-perm and temp-to temp fees and hence recover the loss to the business. From your point of view, you will always receive excellent service from PCR whether or not you choose to opt-out.
Q. Can I agree to opt out by email?
A. Yes. Remember that agreement to opt out must be given by the limited company contractor and the consultant.
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