The Recruiters Guide to The Agency Workers Regulations · PDF fileThe Professional Passport Recruiters Guide How to deal with Providers post Agency Workers Regulations PP AWR Brochure

The Professional PassportRecruiters Guide

How to deal with Providers postAgency Workers Regulations

PP AWR Brochure with ads 4_Layout 1 30/05/2013 15:47 Page 1

https://www.professionalpassport.com/agencies


Crawford TempleChief Executive OfficerProfessional Passport

An Introduction to Professional Passport

Professional Passport started back in 2007 as a direct reaction to the MSC Legislation and the threat of debttransfer.

Working with HMRC to gain a full understanding of how they intended to apply the new legislation allowedus to develop the first provider audit standard of compliance in the market.

It is said that imitation is the best form of flattery and since our ground breaking work in 2007 others havetried to follow, with varying degrees of success. Professional Passport still remains the largest independentstandard of compliance across the service provider sector, as well as providing a wide range of additionalbenefits to all our recruitment company members through our web portal.

Our audited and approved providers are relied on by some of the largest recruitment companies in the market;safe in the knowledge that they are backed by our unique £5,000,000 insurance against any debt transferliabilities.

Professional Passport continues to grow and adapt our services to the market in line with the ever changinglegislation. Almost a year ago now we launched our Network Jobs Site, once again a first in the market.

The free to post jobs site was designed and developed as part of our early preparation for the Agency WorkersDirective.

We knew that the Regulations were likely to require the umbrellas to make efforts to find their workers work;Professional Passport Jobs is now networked across some 12 service providers and the top contractors newssites. This gives recruitment companies direct access to possibly the largest network of active contractorsavailable as well as saving significant amounts of money on pay between assignments.

Our latest development, Professional Passport Formations, provides an online company formations service forcontractors. This new portal allows contractors to form their own limited company electronically and providespossibly the fastest formation service available in the market.

If you have any questions, or require further information on any of our services please contact me directly.

[email protected]

the new company formations service delivers ...

...the simplest and fastest online formations



http://jobs.professionalpassport.com


http://formations.professionalpassport.com

• Introduction 4

• AWR Overview 6

•Who is covered by the Regulations 8

• Minimising Risk and Potential Liabilities 9

• Umbrella Overview 12

• The Traditional Umbrella 18

• Umbrella Comparator Pay Tables 24

• The Swedish Derogation Umbrella Model 27

• The Limited Company Contractor 33

• ‘In Scope’ Limited Company Comparator Pay Tables 40

• Sample Decision Trees and Advice Matrix 42

• Glossary of Terms 46

• Professional Passport’s Approved Providers Contact Details 51

Disclaimer StatementThe content of this guide is for guidance only and is not designed to replace your professional advisers or replace the need forprofessional advice. Whilst every care has been taken to ensure its accuracy this is a new and complex area that will only become

clear as the courts make their rulings. In all cases you should seek your own legal and professional advice for your own situation. Thisguide represents our understanding of the Regulations at the time of going to print.

CopyrightAll rights reserved; any unauthorised copying will constitute an infringement of copyright.

having your workers in the right payment solution ...

... is fundamental and will reduce everyone’s risk

Contents

Telephone:01635 573551 www.professionalpassport.com/[email protected] 3



The Agency Workers Regulations [AWR] come in to effect on the 1st October 2011. This guide has beenproduced to help recruitment companies build strong and trusted relationships with both umbrella andaccountancy service providers in a post AWR world, whilst at the same time protecting them from other risksand liabilities such as MSC Debt Transfer.

The guide’s primary focus is on the AWR but where appropriate it will bring other relevant pieces of legislationto your attention assisting you to operate in a way that aligns with your selected risk profile.

Guidance is provided to help organisations interpret legislation and understand the intentions behind it. Oftenthere can be conflicts where the legislation leads you to draw one conclusion whereas the guidance maysuggest a slightly different scenario; this is common place and the courts will always look to the legislationfirst, and only refer to the guidance where there is ambiguity in the drafting of the legislation.

Throughout the guide we attempt to highlight these areas of mismatch and suggest a range of risk profiles tohelp you understand the conflict. Where legislation and guidance are aligned this represents the lowest risk.Where legislation and guidance differ we will explain the various options that are likely to emerge and attemptto suggest a risk profile for each. This will help you to ensure both you, and your clients, operate in a way thataligns to your objectives.

As well as providing an explanation and commentary across the key aspects of the legislation and guidance,we have also included what we hope you find to be useful, and practical tools throughout the guide to helpyou through the AWR maze.

It is important you read the full detail to help you understand how you can then use the tools and operatewith a risk profile aligned to your position.

This guide provides information on the following topics:

• The Traditional Umbrella Model

• The Swedish Derogation Umbrella

• The Limited Company Contractor

• Operating a PSL

• Duty of Care and Due Diligence Checks

• Other Relevant Legislation

guidance does not change legislation ...

... that remains as published in 2010

Introduction

4 Telephone:01635 573551 [email protected] www.professionalpassport.com/agencies



5


http://www.i-paye.com


http://www.crystalumbrella.com

The Agency Workers Directive made its firstappearance in 2000 under the Greek EU Presidency.For the next 7 years many attempts were made tore-introduce the Bill without success.

In 2008, with the support of the Labour Party anda deal agreed between the TUC and CBI, the Billwas finally passed and the Agency Workers Directivebecame European Law.

Under the agreement the UK was now in a positionwhere they had to adopt the law and put therequired legislation in place, coming in to effect on1st October 2011; all EU Countries must implementtheir own version of the rules by no later than 5thDecember 2011.

In 2009 the Government entered in to a series ofconsultations on the proposed regulations with thefinal Regulations being published in January 2010.

In the run up to the General Election in May 2010the Conservative Party made it clear that theybelieved Labour had gone way beyond therequirements of the Directive and had “gold plated”the Regulations. They promised to undo this if theycame to power.

The Conservatives did come to power, all be it asthe major party in a coalition, and then realised theywere powerless to make any amendments to theRegulations.

Any attempts to amend the Regulations wouldrequire the agreement of both the TUC and CBI.The Government were reluctant to reopennegotiations as important concessions gained, suchas the 12 week qualifying period, could be lostresulting in even greater issues.

As a result the Government announced that theywould use the guidance to clarify the Regulationsand attempt to address, and answer, the manyissues that had been raised by the recruitmentsector.

This approach has resulted in the position we findourselves in today with guidance that is attemptingto address some of the short comings of theRegulations and, in some cases, presenting adifferent interpretation than the Regulationsthemselves.

Recruitment Companies need to be aware of thesedifferences as these areas tend to indicate wherethe highest risks of non compliance or challenge toprocesses exist; this guide attempts to highlightthese for you.

The principles of the Regulations are straightforward and where strong relationships exist theyshould not represent too great a challenge; thingsbecome a little more complicated where this is notthe case.

“The unique, tripartite relationship between agency worker, agency and hirer is a key feature ofthese Regulations and who is covered by them.”

Overview of AWR




7

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The intentions of The Regulations are quite straightforward:

“To provide agency workers the entitlement to the sameor no less favourable treatment with respect to basicemployment and working conditions, if and when theycomplete a 12 week qualifying period.”

In most cases we believe it will be clear where theRegulations apply although, as is now the case withmost modern legislation and regulation, there are greyareas and these will be left for the courts to decide.

Exclusions to be aware of:

• Workers operating through their ownlimited company that are also in business ontheir own account. [We cover this aspect inthe Limited Company Contractor Sectionlater in the guide.]

• Managed Service Contracts

• In-house temporary staffing banks

What does this mean in practice?

There are two key stages;

• Day 1 rights for all agency workers

• Equal treatment after 12 weeks

Day 1 Rights

All Agency Workers, from 1st October 2011, will beentitled to access the same facilities and information onjob vacancies as comparable permanent employees.

Some of the examples given are: staff canteen, carparking and child care facilities.

It is the hirer, or end client, who is responsible forensuring that agency workers are provided with accessto these same facilities. In the event of a dispute thereis no liability on the recruitment company.

We suggest that best practice would be for therecruitment company to enquire in to such facilities andinclude this as part of the role specification toprospective candidates. This will enhance the appeal ofthe role to prospective candidates and be a positivedifferentiator against similar roles on the market.

“an individual workingthrough an umbrellacompany, who findswork via a TWA, iscovered by theRegulations.”

Who is covered by The Regulations

“a temporary workagency supplies agency

workers to worktemporarily for a third

party.”

“an individual who has acontract with a TWA butworks temporarily forand under the directionand supervision of a

hirer.”

“The hirer is a privatelimited company

[partnership or soletrader] or public sectorbody that books agency

workers through atemporary work agency.”

“fall within thedefinition of TWA in

view of theirinvolvement in thesupply of individualsand/or their role in

forwarding payments.”




Minimising Risks and Potential Liabilities

Telephone:01635 573551

Equal Treatment After 12 Weeks*

After 12 weeks in the same job/role then the AgencyWorker acquires additional equal treatment rightssuch as:

• Pay and bonuses• Duration of working time• Annual Leave

“the requirement is simply to treat the worker as if heor she had been recruited directly to do the same job.”

In the event of a dispute over these additional rightsit is the recruitment company that is initially heldresponsible. The recruitment company will have adefence where they can demonstrate that theyrequested the information from the hirer and failed toreceive it.

What is comparable pay?

The guidance makes it clear that comparable pay doesnot have to be a direct comparison made to a workerand can actually be reference to the pay scales inoperation within a company.

This removes many of the conflicts around sensitivedata sharing as well as providing a range of applicablepay rates; where employees are brought in at thelower end of the pay scales then the same rates canbe used as comparators for the contractors.

Liabilities

End clients do have the ability to include indemnityclauses within their contracts allowing them to passall liabilities back to the recruitment company;regardless of court rulings. Recruitment companiesshould consider these very carefully before signing asin many cases the potential liabilities will besignificant.

It has also been suggested that even whereindemnities are included in contracts they could beunenforceable in law; this relates to both indemnitiesfrom end clients on to recruitment companies as wellas recruitment companies placing blanket indemnitieson providers.

The Employment Rights Act 1996 covers this aspect.Regulation 15 states that Section 203(a) of The Act“shall apply in relation to these regulations as if theywere contained in that Act”. *Full details on how to calculate the 12 week qualifying period can be

found in the guidance issued by BIS and should be referred to.

So if a hirer or recruitment company includes anindemnity clause in a contract with a TWA, and thisincludes umbrella companies, they are seeking tolimit the operation of certain provisions in theRegulations (and therefore the Act) which would bevoid as Section 203(a) states “Any provision in anagreement (whether a contract of employment ornot) is void in so far as it purports (a) to exclude orlimit the operation of any provision of this Act or (b)to preclude a person from bringing any proceedingsunder this Act before an Employment Tribunal.”

Where a recruitment company is supplying theirworker through another organisation we wouldsuggest that they request the required information,just as they would do if they were dealing with theend client directly. Checks should also be made onthese contracts to ensure there are no unreasonableindemnity clauses.

9



Workers Bringing Claims For Non Compliance

Any claims of non compliance to the AWR will beheard by the Employment Tribunals.

Typically a worker has to bring a case within 3months of becoming aware of the issue or 3months from the end of the contract or assignment.

Both the BIS guidance and the guidance on theEmployment Tribunals website make it clear that inall cases the parties should try and resolve anydisputes without bringing a case to the tribunal.

Where a case is brought claiming a shortfall in Day1 Rights it is the end client or hirer that isresponsible for ensuring compliance to these and itis highly unlikely that any other party will be heldliable.

Cases brought for non compliance to EqualTreatment Rights after the 12 week qualifyingperiod will be able to include all parties aspotentially liable, this could also extend to theumbrella company whether operating as aTraditional model or Swedish Derogation. If the caseis found in favour of the worker then it will be upto the tribunal to decide the apportionment of theaward.

The minimum award will generally be equal to twoweeks pay with no maximum.

The tribunal also has the ability to award penaltiesup to a maximum of £5,000. The BIS guidanceoutlines examples where penalties will apply andthese predominately relate to where there isevidence of anti avoidance tactics or intentionalabuse.

It is possible for ‘class action’ style cases to bebrought and many commentators feel that theseclass action cases are likely to be the early casesbrought by Trade Unions.

In order to minimise risk we suggest the followingsteps are taken;

• Where possible always advise the workerof the comparator data and confirm thattheir rate is comparable and compliant

• Where you are unable to confirm pay asequal you can use the Swedish

Derogation umbrella. You should ensurethat you align the pay betweenassignments rate to the risk profile of allparties. [This is explained in the sectionon Swedish Derogation Umbrellas]

• Where the worker operates throughtheir own limited company ask them toconfirm the basis of the relationship: Arethey in business on their own account?

• Ensure workers have a contractualobligation to highlight any shortcomingsdirectly to you as soon as they becomeaware of them

• Agree clear processes and proceduresbetween all parties for dealing withclaims and any subsequent awards.

Minimising Risks and Potential Liabilities

Whenever a disputearises attemptsshould be made toresolve without theneed for furtheraction or a claimbeing made to theTribunals Office.

Typically the workerhas 3 months tomake their claim. Ifaccepted all partieswill be asked to

formally respond. Ifno response is madethe Tribunal is likelyto make a DefaultJudgement.

In the majority ofcases the minimumaward is two weekspay; there is nomaximum.

Penalties of up to£5,000 can also be

imposed.




Call 0800 197 6516e: [email protected] or visit www.paystream.co.uk

surprises.

Our support with AWR will help you avoid any unexpected

As the leading provider of umbrella and accountancy services to recruitment agencies and contractors, we work closely with industry and government bodies. This ensures we have the knowledge and expertise to guide you through the introduction of the new Agency Workers Regulations (AWR).

Reasons to count on PayStream: # 01

11



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Umbrella OverviewFollowing the implementation of AWR there are likelyto be two variations of Umbrella solutions available onthe market;

• The Traditional Umbrella, as we have today

• The Swedish Derogation Umbrella

We look at both these models in detail in the followingsections but as an overview:

• The Traditional Umbrella continues to workperfectly well where it can be shown thatthe worker is receiving equal pay. Inthese cases there is very little change.

• The Swedish Derogation model is usedwhere you are unable to show the worker ison equal pay and you therefore need toremove the worker from that measure. As aconsequence there are some safeguards thathave been built in to protect the workerwhich can add a layer of complexity; theseare explained in the Swedish Derogationumbrella section.

Preferred Supplier Listings [PSL]

Many recruitment companies will look to establish closerelationships with a short list of trusted providers as away of managing their ongoing AWR compliance.

Whilst it is entirely legal, and appropriate, forrecruitment companies to insist that their workers onlyoperate through their selected panel of umbrellaproviders this can potentially increase risks for therecruitment company.

Where a recruitment company insists on the use of itsselected providers the company must carry out a highdegree of due diligence checking on all the providers.If any of their workers suffered a loss as a direct resultof using one of the preferred suppliers the recruitmentcompany could find itself facing a duty of care, ornegligence claim; often these claims can go beyond thelevel of financial loss incurred.

If the recruitment company is also taking commission,or incentive payments, from the provider this furtherincreases the level of due diligence required. Therecruitment company should also consider its positionin relation to The Bribery Act and ensure it is able todemonstrate compliance.

Traditional Umbrellaor Swedish Derogation?




13


http://www.simplifybusiness.co.uk


Umbrella Overview - continuedThe Legal and Contractual Relationships

Whether working with a Traditional Umbrella or aSwedish Derogation model the legal and contractualrelationships along the supply chain remain the sameand must be clearly documented and demonstrable.

Where a recruitment company works with an umbrellaprovider the legal relationship must be between therecruitment company and the umbrella provider; thereis no legal relationship between the recruitmentcompany and the worker.

The umbrella provider has the relationship with theworker as they employ the worker, and have a formalemployment contract in place to document thatrelationship.

It is essential that in all instances recruitment companiesensure that formal contracts are in place betweenthemselves and the umbrella provider for eachassignment. Without these the whole relationship couldcome under question with significant financialimplications to all the parties; umbrella companies,recruitment companies, and the workers.

It is the formalisation of these relationships that allowsthe umbrella to receive their margin on the moneycollected and deduct this prior to the calculation ofmoney payable under the terms of the overarchingemployment contract.

Self billing arrangements are entirely appropriate and arecognised mechanism to ease administrative burdenshowever they are not, and should never be used as, away to shortcut the contractual processes or reduce theinformation flow between parties as this in turn couldresult in the corruption of the relationships withpotentially significant financial implications.

Third Party Audits

Recruitment companies can rely on third party audits aspart of their due diligence so long as they have satisfiedthemselves on the detail and scope of the audit.

Some of the third party audits on umbrella providersonly cover risk assessments against specific legislationsuch as MSC legislation. HMRC have made it clear thatumbrella companies are outside the scope of the MSClegislation and therefore represent a low risk. Where anumbrella is operating all its payments in line with theUK PAYE system it represents an insignificant MSC risk.

Worker completesand submitstimesheet

Umbrella invoicesthe Agency on theterms laid out incontract [exceptwhere a self billingagreement is inplace]

A formal legalcontract for

each assignmentcreates

the business tobusiness

relationship

Agency paysinvoice

Umbrella paysworker alignedto employment

contract

The Formal Relationships

A formaloverarchingemployment

contract createsthe employer -

employeerelationship




Umbrella Overview - continuedThird Party Audits - continued

Other audits assess only one of the provider’sofferings, rather than both the umbrella andaccountancy service when both are available. Thiscan increase the risks to recruitment companies asoften any referrals made to the umbrella would bepassed to the accountancy service where this wasfelt to be a more appropriate solution. Recruitmentcompanies should ensure that any audit covers bothumbrella and accountancy services where both areavailable through the provider.

The Professional Passport audit is different to otherson the market for a number of reasons;

• Professional Passport always audits boththe umbrella and limited companyofferings where providers offer both.

• Professional Passport carries out 6monthly health checks with a full reaudit every 2 years.

• The recruitment company does not makethe recommendation, ProfessionalPassport does and therefore ProfessionalPassport holds all the responsibility fordue diligence.

• Professional Passport provides£5,000,000 of insurance against anyDebt Transfer Claims.

We believe this represents the lowest risk modelfor recruitment companies on the market todayand allows the safe operation of a complete PSL.

National Minimum Wage Compliance

All umbrella providers must comply with theNational Minimum Wage rules.

This will mean that workers on lower rates will beunable to work through the Umbrella as the

umbrella would not be able to apply a compliantpay calculation and still meet NMW.

The minimum rate that allows a worker to operatethrough an umbrella is typically around £7.75 -£8.00 depending on the umbrella margin.

Workers on rates on or around the minimum ratewill be unable to claim expenses and therefore haveno tax savings to offset the umbrella providersmargin. In these cases, and where workers operatebelow the required rate, we recommend operatingan agency payroll service. Many of the umbrellaproviders are now able to offer this as an extra partof their services providing recruitment companieswith a simple and easy ready made solution.

There are some providers who believe they havefound a way to comply with NMW whilst stilloffering tax relief on expenses for low paid workers;none of the information we have seen to date hasconvinced us that this works.

These providers are applying an ‘adjustment’ or‘relief’ to the tax calculation based on ‘allowableexpenses’. This process amounts to the umbrellaprovider offering instant tax rebates or adjustmentsat source which we believe is in contravention ofthe PAYE and Social Security Regulations.

Using umbrella companies that offer ‘schemes’ willsignificantly increase the risks to both therecruitment company and the end client.

Self Billing Arrangements

Many recruitment companies now operate selfbilling arrangements with their umbrella providersas it makes payments faster and more accurate.

Where these arrangements are in place it isimportant that the umbrella provider is still informedof the number of hours worked to ensure they areable to fully comply with their National MinimumWage obligations.

beware - not all companies that call themselves ...

... umbrellas meet HMRC’s definition

15



Umbrella Overview - continuedClaiming Expenses

One of the main selling points for umbrellacompanies is that their workers are able to claim arange of expenses that are not generally availableto permanent employees or workers operatingthrough traditional agency payroll models.

In order for a worker to claim expenses for traveland subsistence from their umbrella company theirare a number of critical steps that must be achievedfor example;

• The umbrella must operate with anoverarching employment contract

• The worker must confirm their intentionto carry out multiple assignments whilstemployed by the umbrella

• The worker cannot be based, or have anexpectation to be based, at a site forover 24 months

Workers who are unable to meet all therequirements will be prevented from making anytravel and subsistence expense claims. Where this isthe case an agency payroll solution or light touchumbrella service maybe more appropriate.

Some examples where workers will be unable toclaim any travel and subsistence expenses on anassignment from outset are:

• A temp to perm assignment

• Where they have no intention of carryingout multiple assignments and are usingthe assignment to fill a gap beforestarting a new job

• Where the contract is over 24 monthsfrom outset

Workers will also be prevented from claimingexpenses during their notice period with theumbrella as under HMRC rules the final workplaceautomatically becomes classed as a permanentworkplace; travel and subsistence expenses are notallowed to a permanent place of work.

Offshore Umbrellas

We are predicting an increase in the number ofoffshore ‘umbrella’ providers operating in themarket as a result of the AWR and advise extremecaution to any organisation considering one ofthese providers.

There are a number of areas that should be ofconcern:

• They could potentially be caught underMSC Legislation and expose therecruitment company to debts underThe Debt Transfer Rules.

• End clients and recruitmentcompanies could become liable tounpaid National InsuranceContributions under three pieces oflegislation:

1. Host Employers - Paragraph 9Schedule 3, Regulation 5 SocialSecurity (Categorisation ofEarnings) Regulations 1978

2. Agency - Paragraph 2 Schedule3, Regulation 5 Social SecurityCategorisation of EarningsRegulations 1978

3. Section 689 ITEPA 2003

In summary HMRC have a number of options thatpotentially allows them to pass any Tax or NationalInsurance shortfall directly back to your end clients.There would be two outcomes if HMRC did this;

• It would end any relationship betweenthe recruitment company and the endclient

• The end client is likely to pass the debtstraight back to the recruitmentcompany

For these reasons we would never suggest usingan offshore umbrella provider.




How exposed are you? How can you reduce the costs? How can you minimise the risk?

There are no simple answers but we can guide you through the legal complexities to help focus your compliance programme and minimise risk.

Our specialists are the acknowledged experts on AWR, having been involved for a decade in advice on the Directive, lobbying on the Regulations, and the preparation of BIS Guidance.

If you’d like us to help please contact:

osborneclarke.com/recruitment

Kevin BarrowPartnerT +44 (0)20 7105 [email protected]

Frances LewisConsultantT +44 (0)20 7105 [email protected]

Agency Workers Regulations How will they affect your organisation?

17



http://www.osborneclarke.com

http://www.agencyinsure.co.uk

The Traditional Umbrella model is the model thatexists on the market today. It continues to work wellpost AWR where you know that the temporaryworker is receiving equal treatment aligned to theterms of the Regulations and you are able todemonstrate this.

The majority of workers operating through umbrellacompanies are likely to be caught by theRegulations, as they are typically under thesupervision and direction of the hirer, this is knownas ‘in scope’.

When should we consider using thismodel?

Is the worker receiving equaltreatment as defined by the AWR?

Can you demonstrate that to bethe case?

When should we not use this model?

Workers rate is below £7.75

Worker is on a temp to permcontract

Worker has no intention ofcarrying out multiple assignments

When should we look carefullyat whether this model will besuitable?

Worker is unable to claimexpenses

Contract is for more than 24months or there is a clearexpectation that the contractduration will exceed 24 months.

When using the Traditional Umbrella you mustensure that the worker is informed, by the umbrella

provider, of their rate and the fact that this is at leastequal to the comparable worker’s rate, or alignedto the current pay scale rates.

The communication should also highlight thatwhilst the rate is equivalent, and thereforecompliant with AWR, it is not recorded in that wayon the umbrella worker’s pay slips or the way inwhich an umbrella remunerates its workers. Thetotal comparable remuneration will include basicpay, any bonus or commission payments as well asany expense reimbursements.

We have provided an example of an umbrellapayslip together with an overview of the paymentcalculation run by an umbrella company and anexample of the comparable pay calculation later inthis section of the guide.

The lowest risk communication will also provide acomparison of the returns achieved throughstandard agency payroll to those expected from theumbrella. To do this accurately the umbrella willrequire an understanding from the worker of theanticipated level of expenses. It will also need eitherthe equivalent payroll only rate or an agreedcalculation for establishing the rate from the limitedcompany rate.

It would be advisable to ensure the umbrellaprovider places an obligation on its workers toinform them as soon as the worker becomes awareof any issue over pay, or any other aspect of equaltreatment, as described in the Regulations.

Whilst this does not remove the potential for claimsit can certainly limit the level of claims as workershave an obligation to bring any discrepancyimmediately to the attention of the umbrellaprovider; who will in turn immediately highlight theissue to you the recruitment company.

This simple addition allows the umbrella andrecruitment company the opportunity to addressthe issue at an early stage and should avoid the riskof a Tribunal hearing.

The Traditional Umbrella

the Traditional Umbrella model continues to work well ...

... where you know the comparator data




AWR Risk

If we ignore the obvious risk of the umbrella notoperating compliantly then the main risk thatrecruitment companies need to be aware of is:

• Where worker’s pay falls below pay scalerates or the comparable worker’s pay

Where a worker is unable to claim expenses, andtherefore cannot benefit from the additional taxrelief, it is possible that their overall remunerationcould fall below that of the comparator or payscales for their role.

Where the umbrella has a single margin model forall their employees this will have a greater impacton lower paid workers and/or those prevented fromclaiming expenses.

Some umbrellas now operate differential marginmodels which can provide a low margin solution forworkers unable to claim expenses. These modelswill reduce the numbers of workers that couldpotentially fail as a result of being unable to claimexpenses.

Overall this is more likely to be an issue with thelower paid workers operating close to the minimumrate required by the umbrella providers.

The other risk that both the recruitment companiesand umbrella providers need to manage on anongoing basis is annual pay awards.

Where a company operates an across the board payaward for its workers this is now included in thecomparison for the worker. If the worker is on anactive contract, beyond the 12 week qualifyingperiod, when an award is made then they tooshould be given an equivalent rise.

If pay scales remain the same then any new workerengaged after the pay award can be measuredagainst the standard pay scale tables as before.

Managing The Risk

Working closely with a panel of providers will helpyou manage the risks more easily.

Sharing the comparator data with the umbrellaprovider will allow them to actively manage theongoing compliance of the rate against thecomparator data or pay scales.

It must be remembered that managing thecompliance of the pay rate against comparator datais an ongoing process and is not just carried out atthe start of an assignment.

If an organisation has an annual pay award youshould be aware of the date and ensure youmanage a rate review for all existing and qualifyingworkers. You should also update your pay scaletables or comparator data if required.

Working in this open and transparent way alsoallows you to agree how liabilities will be handledbetween you and who holds what responsibility.

We would strongly suggest that you agree withyour panel of providers the parameters for adviceand create decision trees that will operate across allyour contractors.

These decision trees will go beyond those workersthat operate through umbrella and should extendto all workers including those operating throughPAYE as well as those operating through their ownlimited company.

We have provided some example decision trees laterin the guide and you can use these as your startingtemplates for discussions with your preferredproviders.

Remember; the higher the umbrella margin thehigher the entry level rate for workers; this varies byprovider but all providers have the same NationalMinimum Wage Rules to comply with.

The Traditional Umbrella - continued

working closely with a panel of providers ...

... will allow you to manage the risks effectively

19



The Traditional Umbrella - Example Pay Advice

Note:

The umbrella margin should not be shown on the payslip. If the margin is documented on the payslip, orreferred to as a charge, then this could raise issues over VAT as well as questions on when the deduction isapplied.

Figures used are for illustrative purposes only.

The basic salary mustbe at least equal tothe NMW. MostUmbrellas will requirea rate of at least£7.75 per hour toremain compliantwith NMW. Thehigher the umbrellamargin then thehigher the minimumhourly rate to remaincompliant.

Expenses can only bepaid where there areexcess funds afterNMW, Holiday Pay,Employers NI and theumbrella margin haveall been accountedfor and deducted.

Workers on low ratesmay find they are un-able to claim ex-penses and thereforehave no tax benefitsto offset the umbrellamargin.

Holiday Pay shouldalways be shown as aseparate line on thepayslip.

Bonus payments areonly available wherethere are excess fundsafter all payments,including expenses,have been paid.

rolled up holiday pay should always be shown ...

... as a separate entry on the pay slip




The Traditional Umbrella - A Rough Payment Calculation

Figures used are for illustrative purposes only

the amount paid to the umbrella ...

... is not the comparable pay measure

21



Working Out The Comparator Rate

You can see in the example above that thecomparator rate for a Traditional Umbrella is basedon the total of:

• Salary +• Any bonus or commission payments +• Expenses

Holiday pay is ignored as this is directly comparableto the direct employee.

The previous page documented the rough workingsof a payment calculation for a traditional umbrellaand as you will see, for the purpose of comparatorpay, the umbrella margin and employers NI are alsoignored.

The comparator data is not the amount theumbrella invoices the recruitment company orthe recruitment company pays to the umbrella.

Workers who work less than a full week, but are

charged for a full week by the umbrella, could findthe impact of the umbrella margin results in themfailing the comparison, particularly at lower rates. Ifyou have a high number of these part time workersit would be worth discussing a daily margin with theumbrella provider.

Where a worker fails the comparator test on pay asa direct result of the umbrella margin it is likely tobe more cost effective, and considerably morestraightforward, for the recruitment company tocover the umbrella margin, even if that is passedback to the end client.

Agreeing that the umbrella invoices the agencydirectly for their margin will be less costly for allparties when compared to the complexity ofrunning a Swedish Derogation model andaccounting for the pay between assignments.

Remember that National Minimum Wage rulesmean that it is unlikely that an umbrella can payworkers at rates below £7.75 per hour and remaincompliant.

The Traditional Umbrella - Equal Pay

statutory holiday pay is excluded ...

... from the calculation of the comparator rate




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The Traditional Umbrella - Equal Pay Tables

ContractorHourly Rate

Equal PayHourly RateNo expenses

Equal PaySalary

No expenses

ExpensesClaimed

Equal PayHourly Rateinc expenses

Equal PaySalary

Inc expenses

£ 8.00 £ 6.13 £ 9,874 N/A N/A N/A

£ 9.00 £ 6.92 £11,137 £30.00 £ 7.10 £11,435

£ 10.00 £ 7.70 £12,399 £30.00 £ 7.89 £12,697

£11.00 £ 8.49 £13,662 £30.00 £ 8.67 £13,959

£12.00 £ 9.27 £14.924 £30.00 £ 9.45 £15,222

£14.00 £10.84 £17,449 £30.00 £11.02 £17,747

£16.00 £12.41 £19,973 £30.00 £12.59 £20,271

£18.00 £13.97 £22,498 £30.00 £14.16 £22,796

£20.00 £15.54 £25,023 £30.00 £15.73 £25,321

£25.00 £19.46 £31,335 £30.00 £19.65 £31,633

Hourly rate contractor - who is paid weekly

£ 8.00 £ 6.25 £10,057 N/A N/A N/A

£ 9.00 £ 7.03 £11,319 £120.00 £ 7.08 £11,394

£ 10.00 £ 7.81 £12,582 £120.00 £ 7.86 £12,656

£11.00 £ 8.60 £13,844 £120.00 £ 8.65 £13,919

£12.00 £ 9.38 £15,107 £120.00 £ 9.43 £15,181

£14.00 £10.95 £17,631 £120.00 £11.00 £17,706

£16.00 £12.52 £20,156 £120.00 £12.57 £20,234

£18.00 £14.09 £22,681 £120.00 £14.13 £22,755

£20.00 £15.66 £25,206 £120.00 £15.70 £25,280

£25.00 £19.58 £31,518 £120.00 £19.62 £31,592

who is paid monthly

Agency margin has been ignored and needs to be added on top of the contractor hourly rate shown in the table.Umbrella weekly margin £25, monthly margin £100. Statutory holiday pay applies. NMW £6.08.Comparator rates based on an employee who works 7 hours a day, 5 days a week and 46 weeks per annum.




25

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The Traditional Umbrella - Equal Pay Tables

ContractorDaily Rate

Equal PayDaily RateNo expenses

Equal PaySalary

No expenses

ExpensesClaimed

Equal PayDaily Rateinc expenses

Equal PaySalary

Inc expenses

£ 60.00 £ 46.07 £10,596 N/A N/A N/A

£ 80.00 £ 61.75 £14,203 £30.00 £ 63.05 £14,501

£100.00 £ 77.43 £17,809 £30.00 £ 78.73 £18,107

£125.00 £ 97.03 £22.318 £30.00 £ 98.33 £22,616

£150.00 £116.64 £26,826 £30.00 £117.93 £27,124

£175.00 £136.24 £31,335 £30.00 £137.53 £31,633

£200.00 £155.84 £35,844 £30.00 £157.14 £36,142

£225.00 £175.44 £40,352 £30.00 £176.74 £40,651

£250.00 £195.05 £44,861 £30.00 £196.34 £45,159

£300.00 £234.25 £53,878 £30.00 £235.55 £54,176

Daily rate contractor - who is paid weekly

£ 60.00 £ 46.31 £10,652 N/A N/A N/A

£ 80.00 £ 61.99 £14,258 £120.00 £ 63.29 £14,557

£100.00 £ 77.68 £17,865 £120.00 £ 78.97 £18,163

£125.00 £ 97.28 £22,374 £120.00 £ 98.57 £22,672

£150.00 £116.88 £26,882 £120.00 £118.18 £27,180

£175.00 £136.48 £31,391 £120.00 £137.78 £31,689

£200.00 £156.09 £35,900 £120.00 £157.38 £36,198

£225.00 £175.69 £40,408 £120.00 £176.98 £40,706

£250.00 £195.29 £44,917 £120.00 £196.59 £45,215

£300.00 £234.49 £53,934 £120.00 £235.79 £54,232

who is paid monthly

Agency margin has been ignored and needs to be added on top of the contractor hourly rate shown in the table.Umbrella weekly margin £25, monthly margin £100. Statutory holiday pay applies. NMW £6.08.Comparator rates based on an employee who works 5 days a week and 46 weeks per annum.




The Swedish Derogation UmbrellaThe Swedish Derogation umbrella model is the newversion of umbrella implemented as a direct resultof the AWR. The model works well where there isno comparator data available or where the dataindicates that pay maybe below comparison.

The majority of workers operating through umbrellacompanies are likely to be caught by theRegulations, as they are typically under thesupervision and direction of the hirer, this is knownas ‘in scope’; in the case of workers going throughan umbrella operating the Swedish Derogationmodel then pay is removed from comparison;although all other aspects of the Regulations remainin force.

As the requirement to compare pay has beenremoved, the Regulations contain additionalrequirements and safeguards to prevent abuse.

The Swedish Derogation model is new and, as yet,is not supported by any case history to clearly definecompliance. This lack of evidence means that thereare likely to be a wide range of interpretations ofcompliance. In this section we will attempt to covermany of these and provide a risk analysis based onboth the Regulations and the guidance issued.

Whilst the Swedish Derogation model allows thecomparison of pay to be removed it is not a lighttouch umbrella; all the processes required to keepthe Traditional Umbrella compliant are also requiredwithin the Swedish Derogation model including;

• Overarching employment contracts

• National Minimum Wage compliance

• Rules on expenses

There are also some additional obligations that haveto be met including;

• Gaining workers confirmation that theyare happy to be removed from the paycomparison requirements

• Workers must be paid betweenassignments

• Pay between assignment could still bepayable on termination of contract.

We will cover each of these in more detail later inthis section.

When should we consider using thismodel?

No comparator data is available

No pay scales are in operation

Pay appears to be below comparator

Longer contracts of around 12 months

When should we not use this model?

Workers rate is below £7.75

Worker is on a temp to permcontract

Worker has no intention ofcarrying out multiple assignments

When should we look carefullyat whether this model will besuitable?

Worker is unable to claimexpenses

Contract is for more than 24months or there is a clearexpectation that the contractduration will exceed 24 months.

Tax saving on expenses claimedfails to cover umbrella margin

The Swedish Derogation Umbrella only ...

... removes the requirement for equal pay

27



The Swedish Derogation Umbrella - continuedEnsuring Compliance with AWR

Gaining a worker’s confirmation that they arehappy to be removed from the entitlement toequal pay.

When a worker is to be engaged through a SwedishDerogation umbrella it has to be made clear to theworker that they are giving up their entitlement forequal pay on that assignment. As compensation forthis they will receive pay between assignments; wecover this aspect next.

We would suggest that it is essential to obtain asigned document confirming this understanding atthe same time the worker signs their employmentcontract.

As is suggested a worker can refuse to accept thisoffer although how that leaves them in relation tothe assignment is left in some doubt.

Workers to be paid between assignments

As mentioned above part of the compensation to aworker for agreeing to give up their entitlement toequal pay is the fact that they will receive paymentsbetween assignments.

This aspect is one of the areas where there appearsto be a significant difference between theRegulations and the guidance.

The Regulations suggest that a pay rate betweenassignments based on 50% of the assignment payrate achieved in the last 12 weeks, subject to alower limit of the National Minimum Wage, for aminimum period of 1 hour per week, for at least 4weeks.

However the guidance suggests a different scenario:

It too suggests 50% of the assignment pay rateachieved in the last 12 weeks, subject to a lowerlimit of the National Minimum Wage but goes onto provide a commentary that using the 1 hour perweek is likely to be seen as avoidance and suggestsusing an average working hours week.

With no case histories it is impossible to predict howthe courts would view this difference and it wouldappear that in this area there are likely to be a rangeof paid between assignment models available.

Clearly paying at a rate based on 50% of theassignment pay rate achieved for a minimum periodof 1 hour per week, for a minimum of 4 weeks willbe seen as aggressive or higher risk. Paying in thesame way except replacing the 1 hour per weekwith the average weekly hours, is likely to be viewedas low risk.

There is also likely to be every range in betweenthese two extremes.

Which model is accepted will be decided throughdiscussions between the end client and therecruitment company. The umbrella providers arelikely to be required to operate specific modelsdependent on end client; this is one of the reasonswhy working with a close panel of providers willassist the recruitment company.

Determining which rate to apply will also be aproduct of the end clients’ environment. End clientsthat have a high Trade Union presence are likely toadopt a low risk model, whereas those that operatein sectors with low Trade Union presence, or wherethey have very few temporary workers, may well optfor a higher risk model.

Ultimately it will be the worker’s decision; if theworker feels that the compensation offered for theloss of entitlement to equal pay betweenassignments is not sufficient then they can turn theoffer down. These market forces are likely toprovide a balancing in the offers of pay betweenassignments models.

Pay between assignments is only payable where theworker is available to work and should continue tobe paid whilst the employment contract remains inforce and the worker is between assignments. Inthese circumstances the PBA wil exceed the 4 weeksminimum.

Rolled up pay between assignments

It has become common place for umbrellacompanies to pay a worker’s holiday payentitlement within each pay run. The holiday pay isdocumented as a separate line on the pay slip andis clearly identifiable.

It has been suggested that the same ‘rolled up’approach could be adopted with regards to the paybetween assignments.

cont’d




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With the emergence of theall new Swedish Derogation

Umbrella it is clear that unless contractors areimmediately offered additional suitable work then thecosts to end clients, recruiters and providers willquickly mount up.

When using the Swedish Derogation Umbrella thereare steps that must be taken by the provider;

• The worker must formally accept the‘in between assignment’ rate offered

• They must agree what types of futureassignments would be suitable, this islikely to include role type, working hoursan area etc.

This second point relates directly to anytime a workeris out of assignment.

As a form of compensation for giving up their rightto equal pay the worker must be paid if they are inbetween assignments, there are more details on thisaspect in the guide.

There are some exceptions when the pay betweenassignment is not required to be paid;

• If the worker is not available for work

• When the worker resigns

• If the worker refuses acceptable work

Where a worker refuses an assignment that meetsthe agreed parameters of ‘acceptable’ then, subjectto your specific terms, it could be possible toterminate the contract without the requirement topay any pay between assignments.

Whilst the theory seems simple finding the suitableassignment and managing that process could beincredibly time consuming and costly, that’s why wedesigned and built Professional Passport Jobs.

With free job posting it allows recruitment companiesto register all their roles for free and these roles areautomatically updated across all the network sites.

This means you post your job once and it willautomatically appear on all the providers, and

network members, own job boards; allowing them asimple and fast search facility to find the nextassignment for workers. If you use one of the multiposting providers it becomes even easier; register,select Professional Passport Jobs, enter the passwordwe provide and it all happens automatically.

Where a provider identifies an assignment they candirect the worker to it and request that they apply; ifthe worker fails to do so then they cannot beavailable for work and threnode no pay betweenassignments is required. If they do apply and refusethe assignment then the umbrella can end itsrelationship without any financial costs.

Obviously the preferred option would be that therecruiter continually finds the worker newassignments or renewals.

It is in everyone’s interest to know as soon as possiblewhether a worker will be offered an extension,renewal or new assignment when operating througha Swedish Derogation Umbrella and so having goodcommunication throughout the supply chain isessential. This will significantly reduce cost and risk.

When using a Swedish Derogation model you shouldalso ensure that the contract length is set toaccurately reflect the length of the assignment. Thepay between assignments requires at least 4 weekspay. If a contract is for just over 12 weeks and theworker is then out of assignment for the next 4weeks this is the most costly version. Changing thecontract to length 9 or even 12 months willsignificantly reduce the percentage cost for the paybetween assignment applicable to that contract.

For these reasons we would suggest that the SwedishDerogation Umbrella should only be considered forcontracts in excess of 9 months.

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The Swedish Derogation Umbrella - continuedWhilst there does not appear to be anything specificwithin the Regulations preventing this it is clearlyoutside the intentions of the Regulations; as the titleimplies - ‘pay between assignments’.

Due to the National Minimum Wage Regulationsthis approach would only work for contractorsengaged on higher rates. It would also impact theirability to claim expenses and therefore furtherreduce the advantage to the worker.

We would suggest, and this was confirmed throughour discussions with BIS, that this approach wouldbe seen as aggressive and hold a higher risk; itcould ultimately hold a greater cost too if asuccessful challenge was made.

Giving notice whilst the worker is on anassignment

It has been suggested that one way to manage thepay between assignments notice pay is to providenotice to all workers 4 weeks prior to the end oftheir assignments.

So a worker on a 20 week contract would be givennotice at week 16 and work their notice period inparallel to the assignment.

Whilst this would appear to work in theory it couldultimately undermine the whole compliance of theumbrella for the following reasons;

• Umbrella providers rely on overarchingemployment to allow the workers toclaim travel and subsistence expenses. Akey aspect of this is the intention tocarry out multiple assignments. If allworkers were given notice on their firstassignment this could undermine thewhole basis of the employment

• As soon as notice is given the workplaceceases to be a temporary workplace andbecomes a permanent workplaceresulting in the loss of future expenseclaims from that point forward.

Legislation applying across this sector is complexand multi layered; you must ensure you fullyconsider all aspects before reaching any conclusions.Failing to fully consider the wider aspects means youcould find yourself complying with one set of rules

and falling short of another; it is likely that bothwould have significant financial consequences.

The Swedish Derogation model is far from clear andis likely to be the area that receives challenges in theearly stages of the Regulations.

It is impossible to predict how the courts will rulebut if it goes against providers and recruitmentcompanies the financial consequences could besignificant.

If this transpires to be the case there is also alikelihood that the Government will seek to amendthe Regulations and address any unintendedconsequences.

The lowest risk approach is to obtain thecomparator data and use the Traditional Umbrellamodel operating within the Regulations.

Pay between assignment on termination ofcontract

The actual amount that has to be paid on ending acontract will depend on whether the worker hasalready received some pay between assignments.

If a worker is offered a suitable assignment, asagreed at outset, and if they reject this their contractcan be terminated. The guidance appears to leaveit up to the courts to decide whether, in these cases,pay between assignment would be payable.

Ensuring the employment contract clearly statesthat any refusal of suitable work would be treatedas a material breach could allow the umbrella toterminate the contract without any requirement topay the pay between assignments notice pay.

If the umbrella dismisses the worker, and there hasbeen no contractual breach, then at least 4 weekspay between assignment must be paid before thecontract is terminated.

The original guidance also suggested that this hadto be paid even when the worker resigned from theumbrella. Professional Passport wrote to BIS on thisand has successfully challenged this aspect; BIS haveamended the final guidance to confirm that wherea worker resigns no pay between assignment noticepay is payable.




31

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The Swedish Derogation Umbrella - PBA Equivalent CostThe cost of Pay Between Assignments

The tables below look at the maximum cost impactto the rate where an assignment is operated outsidepay comparator and therefore through a SwedishDerogation Umbrella. In these cases pay betweenassignment [PBA] becomes payable of at least 4weeks.

In the examples below we are assuming that theminimum 4 weeks pay between assignments ispayable. The hourly PBA rate has been calculated ata rate of 50% of the average rate and based on anaverage working week of 5 days and 37 hours; thedaily rate table uses a 35 hour week.

The table reflects that NMW is the minimum ratepayable, with NMW at £6.08 and the additionalemployers NI costs. All rates shown are those paid

by the recruitment company to the umbrella andignore any agency margin.

The equivalent rate column illustrates the impact ofthe PBA on the rate and shows what the rate wouldbe when the cost of PBA is spread across the wholecontract.

As we have explained earlier, there are steps that canbe taken to limit the numbers of workers that willhave to have the PBA paid although generally this isonly likely to be known in hindsight. As a result it islikely that a contingent liability will have to be setaside for the potential liability.

We have also ignored the potential for some of theholiday pay being used to cover an element of theperiod as we believe that this is not a long termsustainable position.

ContractorHourly Rate

PBA Cost> 3 MonthAssignment

Equivalent Rate

6 MonthAssignment

Equivalent Rate

9 MonthAssignment

Equivalent Rate

12 MonthAssignment

Equivalent Rate

£ 8.00 £1024.02 £10.31 £ 9.06 £ 8.71 £ 8.53

£ 9.00 £1024.02 £11.31 £10.06 £ 9.71 £ 9.53

£10.00 £1024.02 £12.31 £11.06 £10.71 £10.53

£12.00 £1024.02 £14.31 £13.06 £12.71 £12.53

£15.00 £1,263.18 £17.85 £16.31 £15.88 £15.66

£20.00 £1,684.24 £23.79 £21.75 £21.17 £20.88

£25.00 £2,105.30 £29.74 £27.19 £26.46 £26.09

£30.00 £2,526.36 £35.69 £32.63 £31.75 £31.31

ContractorDaily Rate

PBA Cost> 3 MonthAssignment

Equivalent Rate

6 MonthAssignment

Equivalent Rate

9 MonthAssignment

Equivalent Rate

12 MonthAssignment

Equivalent Rate

£ 60.00 £ 968.67 £ 76.14 £ 67.45 £ 64.97 £ 63.73

£ 80.00 £ 968.67 £ 96.14 £ 87.45 £ 84.97 £ 83.73

£100.00 £1,138.00 £118.97 £108.75 £105.84 £104.38

£125.00 £1,422.50 £148.71 £135.94 £132.29 £130.47

£150.00 £1,707.00 £178.45 £163.13 £158.75 £156.57

£175.00 £1,991.50 £208.19 £190.32 £185.21 £182.66

£200.00 £2,276.00 £237.93 £217.51 £211.67 £208.75

£225.00 £2,560.50 £267.68 £244.70 £238.13 £234.85




The Limited Company ContractorA limited company contractor can be either ‘in scope’or ‘out of scope’ depending on their business status.

Contrary to many of the earlier publications contractorswho operate through their own limited companies arenot automatically out of scope.

Recruitment companies who operate with a panel ofproviders can agree with the providers the parametersfor advice for all the models, including when acontractor would be best suited to operate throughtheir own limited company. Where the recruitmentcompany is a member of Professional Passport, and theprovider is an audited and approved provider ofProfessional Passport, then the Professional Passport£5,000,000 debt transfer insurance protects therecruitment company from risk and allows the safeoperation of a full preferred supplier list.

As we have stated previously the lowest overall risk isalways achieved by making sure the worker is in themost appropriate operating structure for theircircumstances and that decision is based on a broaderset of circumstances than just avoiding AWR.

Determining ‘In Scope’ or ‘Out of Scope”

The guidance is [intentionally] vague in providing cleardirection for determining whether an assignmentthrough a limited company would be in or out of scope.It avoids referring directly to IR35; the reference toHMRC’s Employment Status Indicator tool has beenremoved and is now replaced with a link to Directgov.

The guidance states the following;

The definition of an agency worker excludes thosewho are in business on their own account where thestatus of the hirer is that of a client or customer of a“profession or business undertaking” (i.e. a genuinebusiness to business relationship).

It goes on to say;

In the event of a dispute, in order to establish if aworker is genuinely in business on their own account(business to business relationship), the courts havedevised a number of tests which examine theindividual’s circumstances and consider all aspects ofthe relationship, including what a contract might say orwhat it does not say, the expectations of the parties andtheir conduct, to establish the reality of the relationship.

cont’d

33



The Limited Company Contractor - continuedIf the arrangements do not reflect the reality of therelationship (e.g. despite the wording of a contract,the actual reality is that the individual is not inbusiness on their own account and they work underthe supervision and direction of the hirer) or are anavoidance tactic, then individuals are likely to fallinto scope of the regulations.

There are a number of points that are clear:

• As with IR35 the contracts should reflectthe reality of the situation.

• A contractor operating through theirown limited company on an assignmentthat is outside IR35 is likely to beconsidered outside the scope of theAWR.

• Contractors on assignments that areinside IR35 are not necessarily caughtby AWR.

• It is the worker that has to bring the casewhere a dispute arises and they mustconsider the impact on their tax status.

How to manage the uncertainty and risk

The origins of the Regulations were to protectvulnerable workers; whilst no definition of avulnerable worker has been accepted higher paidworkers are likely to be significantly lower on thevulnerable scale.

Many contractors have already establishedthemselves as limited company contractors andhave operated as professional contractors for anumber of years.

They have taken on the legal responsibilities ofoperating their own limited company andcomplying with all the rules that apply to that legalstructure.

They are held entirely responsible, and accountable,for the company and, as an officer of the company,

have many legal obligations to understand andcomply with.

In these cases perhaps the simplest way of dealingwith AWR requirements is to ask the contractor, asan officer of the company, to confirm on what basisthey are operating and accepting this assignment;i.e. Is it a business to business relationship wherethey are in business on their own account?

Where they confirm this to be the case we wouldsuggest that this represents a low risk approach.

If they fail to confirm this then we would suggestensuring all the terms of the AWR are met. This willalso mean that they must be within IR35 as manyof the equal treatment aspects are also used asindicators of IR35. In those situations you couldcreate a different contract that clearly demonstratesthem to be within IR35 and ask the contractor, ortheir accountant, to confirm that they are applyingthe deemed payment calculation to all paymentsreceived from that assignment.

Existing and established limited companycontractors are likely to be a lower risk profile thana new contractor who is just forming their limitedcompany.

Whilst the same process could be applied to a newcontractor who has just formed their limitedcompany this could be seen as a slightly higher riskprofile.

The reality must be that if the contractor hasconfirmed their understanding of AWR, and alsoconfirmed that they see the relationship as businessto business, then there must be a lower risk of themtaking action as it is contrary to their confirmation.

In stating all of that there are assignments that willbe clearly within the scope of AWR and theseshould be treated as such, regardless of how thecontractor selects to arrange their affairs.

Limited companies are not an easy way to avoid theRegulations and should never be used as such.

where equal treatment within the AWR applies ...

... a contractor is likely to fail IR35




35

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The Limited Company Contractor - continued

ensuring contracts accurately reflect the reality...

... provides certainty and reduces everyones risks

The Importance of Working Closely With EndClients

When IR35 was introduced over 10 years ago bothend clients and recruitment companies generallysaw this as the contractor’s problem.

There were no risks or financial consequencesplaced on the end client, or recruitment company,and so many operated IR35 neutral contractsallowing the contractor to determine their statusbased on the actual working arrangements; as theyare required to do.

The implementation of the Agency WorkersRegulations will change this position. Whilst IR35is not specifically referred to in the Regulations it isbroadly accepted that contractors operatingthrough their own limited companies onassignments outside IR35 will be considered asoutside the scope of the AWR.

Working closely with end clients to help themunderstand the key aspects of IR35, and whereappropriate, constructing contracts andarrangements that are clearly outside IR35 willprovide a high degree of certainty and significantlyreduce the risks associated with the AWR forrecruitment companies engaging limited companycontractors.

Clearly any contracts and arrangements must berepresentative of the reality; contracts that do notreflect reality will represent higher risks for bothrecruitment companies and end clients.

Professional Passport is able to assist in this processand can also provide training on the key aspects ofIR35 to recruitment consultants if required.

Professional Passport has agreed a process withHMRC that allows end clients to gain confirmationon the status of assignments prior to theengagement of the contractor and thereforeprovide a higher degree of certainty on the AWRstatus.

A formal legal contract for the relationship,and assignments, between the end clientand the recruitment company known as theupper contract. Post AWR this should coverthe key aspects relating to IR35 to allow a

clear conclusion on IR35 status.

A formal legal contract between therecruitment company and the contractor’sown limited company. The key terms of theupper contract should be mirrored in thiscontract, also known as the lower contract.




The Limited Company Contractor - continuedMSC Legislation and the risk of debt transfer

Since its implementation in 2007 there have been manyarticles on the Managed Service Company Legislationand the Transfer of Debt Rules, many of which havebeen designed to frighten companies unnecessarily.

It is entirely possible to operate a Preferred Supplier List[PSL] that includes providers offering accountancyservices to contractors so long as some basic principlesare followed.

In most cases there are two scenarios that a recruitmentcompany could face:

1. Dealing with a contractor who alreadyhas their own limited company set upand running before making contactwith the recruitment company.

2. A contractor who is new to contractingand has no operating structure andneeds help and guidance on what theyshould do.

The first case is simple and straightforward there canbe no risk to the recruitment company as it can beshown that the contractor’s company was already inexistence. You are not required to make any checks,other than the normal checks you would carry out suchas VAT and bank etc.

The second situation is the one that many recruitmentcompanies still seem unclear on and the concerns canbe broken down in to two key areas:

• Operating a Preferred Supplier List

• Providing information to contractors

Operating a Preferred Supplier List

Contrary to many articles it is entirely possible for arecruitment company to operate a PSL of both umbrellaand accountancy service providers.

As we have already stated earlier in the guide arecruitment company must carry out due diligencechecks on any provider they wish to include on a PSL,regardless of whether they offer umbrella only,accountancy services only or both. This requirement hasalways been there and in no way relates to the MSCLegislation.

cont’d

37



The Limited Company Contractor - continuedWithout these checks recruitment companies couldfind themselves liable under duty of care ornegligence claims which in many cases wouldexceed any potential debt from the MSCLegislation.

Where these checks are carried out, and to a highstandard, they will also provide a recruitmentcompany with evidence to appeal any debt transfernotice issued.

The difficulty for most recruitment companies ishaving the expertise to make those checks andassessments; that’s where the Professional Passportaudited and approved provider listings can help.

Professional Passport carries out detailed checks ona provider’s compliance. Where the provideroperates both umbrella and accountancy servicesthen both these services have to be audited.

Recruitment companies then have two choices; youcan either use the full Professional PassportApproved Provider listings as your PSL or select apanel from the list as your first tier preferredsuppliers.

If you select to use the full Approved Providerlistings you can further reduce your risk by simplydirecting your contractors to the ProfessionalPassport Contractor website; you can also providethem free membership if you are an agencymember. By directing contractors to the site you arenot taking any action that could bring you withinthe scope of the MSC Legislation and therefore youare risk free.

If you decide to operate a selected list or panel ofApproved Providers as your PSL you are able toprovide this directly to your contractors. Once againto reduce your risk still further you can state thepanel has been selected from the full ProfessionalPassport Approved Provider listings and provide alink to the full listings.

Your PSL can be made up of umbrella onlyproviders, accountancy service providers andproviders who offer both. Having a selection ofofferings is further evidence that you are notattempting to influence contractors operatingmethods and therefore further reduces your risk.

Where you deal with providers that operate bothumbrella and accountancy services you should agree

the parameters of advice that will apply to any ofyour contractors, there are some example decisiontrees later in the guide that will help with this.Agreeing these will further reduce your risks.

Recruitment companies that are members ofProfessional Passport and use the ApprovedProviders as their PSL are covered by the membersDebt Transfer Insurance that provides £5,000,000of cover in the event that a debt transfer noticecould not be successfully appealed.

We believe this represents the lowest risk and mostrounded solution for recruitment companies on themarket today.

As we have highlighted before many of the otheraudits available on the market do not go as far asProfessional Passport’s. Many will audit just one ofa providers offerings which can potentially leave youexposed to negligence claims as no duty of care isdemonstrable on the other service. Others auditagainst a single specific piece of legislation and donot consider wider aspects; these too can leave youexposed to potential liabilities.

If you, the recruitment company, are relying on athird party audit and it is still you, the recruitmentcompany, that is making provider recommendationsdirectly to your contractors you will still bepotentially liable under MSC Debt Transfer. In thesesituations you must ensure the audit provider coversany potential debt transfer risks with insurance.

Professional Passport covers both aspect as we havehighlighted earlier;

• there is no need for you to make directrecommendations to providers, you cansimply point your contractors to theProfessional Passport Contractorswebsite and allow them to select aprovider from the Approved Providerlistings. This is the lowest risk solution asit is Professional Passport that is makingthe recommendation and therefore it isProfessional Passport that holds therequirements to demonstrate duty ofcare.

• Professional Passport provides£5,000,000 of insurance to agencymembers against any Debt Transfer risk.




The Limited Company Contractor - continuedProviding information to contractors

Post MSC legislation recruitment companies havehad to be careful on the information they provideto contractors to ensure they do not unintentionallybecome caught by the MSC Legislation and thepotential for debt transfer.

This has resulted in a number of recruitmentcompanies taking an approach of making norecommendations and providing no advice tocontractors; prefering instead to just refer them tothe internet and search engines to search for theinformation they require.

Whilst this approach worked in part post MSC it isunlikely to continue to work post AWR.

With all the requirements around comparator data,compliance, umbrella providers, SwedishDerogation, pay between assignments and theongoing comparator checks that need to be carriedout it will be essential that recruitment companieswork closely with a selection of providers. [seeprevious section on operating a PSL]

Where the recruitment company operates a PSLthey must still ensure that any information providedto contractors is accurate and factual, to avoidbeing caught under MSC legislation by the terms‘influencing’ or ‘encouraging’. This only relates tothe situation where a contractor subsequentlyoperates through their own limited company.

There are a number of ways that recruitmentcompanies can deal with this:

• Refer the contractor to the ProfessionalPassport Contractors website packedwith independent information on all thekey areas of interest to contractors

• Provide links to independent specialistbusiness related sites such as BusinessLink

• Provide links to relevant sections ofGovernment websites such as BIS andHMRC

• Produce their own fact sheets on keytopics

• Use Professional Passport BeginnersGuides on subjects such as operatingstructures and IR35

• A combination of all of these

Whatever route, or combination, you select youmust ensure the information is factual and in noway favours, or is biased to, any particular operatingstructure.

Using independent resources such as ProfessionalPassport will dramatically reduce your risks as it isProfessional Passport that provides the information.

In the situation where an end client specifies thatthey will only accept contractors who operatethrough their own limited company then it isacceptable to relay that information to contractors,as it is factual, and it will then be down to thecontractor whether they wish to continue toprogress that engagement.

It is also entirely appropriate for a recruitmentcompany to insist that a contractor who chooses tooperate through an umbrella provider must use oneof the umbrellas on the preferred supplier listings;you can refuse to deal with umbrella companiesoutside of your PSL if you so wish.

This is not the case for providers of accountancyservices. Where a contractor decides to operatethrough their own limited company you cannotinsist they use a certain accountancy serviceprovider. A limited company is a legal entity in itsown right and the officers of the company areresponsible for its compliance; it is they have todecide what accountants they will use.

Having said that it is appropriate to have a range ofaccountancy service providers on your PSL to assistcontractors in finding a good accountancy service.

Where a provider operates both umbrella andaccountancy services this can also provide a placewhere contractors can go to gain an understandingon both; in many cases the providers will be able tohelp the contractor identify which structure wouldbe the most appropriate for their individualcircumstances.

We have also provided some example decision treeslater in the guide that you can use with yourproviders to agree the parameters of advice.

39



‘In Scope’ Limited Company Contractor - Equal Pay TablesThe cost of ‘in scope’

As we have highlighted earlier in the guide acontractor operating through their own limitedcompany can be either ‘in’ or ‘out of scope’.

Whilst the Regulations, and guidance, do not referdirectly to IR35 it is widely accepted thatassignments that are outside IR35 will be outsidethe AWR. This has, for the first time, allowed us toestablish a realistic and true direct cost of IR35 tothe end clients. We can use the following exampleto illustrate this;

An end client is looking to engage a contractor andpay them the equivalent of £40,000 per annum.

An assignment outside IR35 would equate to a dailyrate of £174.

Whereas if the assignment was inside IR35, andtherefore in scope of AWR, it would require a dailyrate of £207 to achieve comparison.

Over the term of the 16 week contract the total costof the contractor outside IR35 would be £13,920

and the worker caught by IR35 would be £16,560;a difference of £2,640 in just 16 weeks or £8,580over a full year.

Working closely with your clients to help themunderstand this, and amending how they deal withtheir contractors can save them significant amountsof money and reduce everyone’s risks.

We believe that as a result, many end clients willnow review their arrangements with many of theircontractors and ensure their contracts and workingpractices reflect those that are more akin to abusiness to business relationship.

We must again emphasise that constructingcontracts that do not accurately reflect thearrangements in place will increase risks to bothrecruitment companies and end clients.

Professional Passport is able to assist recruitmentcompanies, and their clients, in establishing the truestatus of their workers directly with HMRC. Ourunique process allows us to confirm an assignmentsstatus directly with HMRC providing clarity, certaintyand the lowest risk.

Limited CompanyContractorHourly Rate

Equal PayHourly Rate

Equal PaySalary

£ 15.00 £ 12.86 £ 20,711

£ 20.00 £ 16.96 £ 27,303

£ 25.00 £ 21.05 £ 33,895

£ 30.00 £ 25.15 £ 40,488

£ 40.00 £ 33.34 £ 53,672

£ 50.00 £ 41.53 £ 66,856

£60.00 £ 49.71 £ 80,040

£ 75.00 £ 62.00 £ 99,817

£100.00 £ 82.47 £132,778

£150.00 £123.42 £198,699

Limited CompanyContractorDaily Rate

Equal PayDaily Rate

Equal PaySalary

£100.00 £ 85.95 £19,769

£125.00 £106.43 £24,478

£150.00 £126.90 £29,187

£175.00 £147.37 £33,895

£200.00 £167.84 £38,604

£250.00 £208.79 £48,021

£300.00 £249.73 £57,439

£350.00 £290.68 £66,856

£400.00 £331.62 £76,274

£500.00 £413.51 £95,108

Agency Margin has been ignored and needs to be added on top of the contractor hourly rate.Comparator rates based on an employee who works 7 hours a day, 5 days a week and 46 weeks per annum.




41

THE SIMPLEST, QUICKEST AND EASIESTWAY FOR CONTRACTORS TO FORM A

LIMITED COMPANY


Australia & New Zealand · Europe · Africa · North America · Asia · Middle East

P: 020 7374 6957

At CXC Global™, we work with recruitment companies who want to focus on their core business. We help them

minimise administration and improve the attraction and retention of contractors whilst minimising compliance risk.

CXC has an option to suit all recruitment agencies – no matter their size.

CXC Global™ solutions o�er:Full compliance and inclusive comprehensive professional insurances (Global policies).Managed by UK quali�ed accountants with public practice and recruitment industry experience.Same day Contractor payment; Contractors receive funds on the same day that CXC are paid. Dedicated Contractor Care consultants, providing on-going support throughout the contractors employment at CXC.Complete Contractor pay-and-bill system for the agency. (CXC can also run your internal sta� payroll if you wish.)Outsourcing of agency administrative tasks; pass them to the specialists, and devote yourself to what you like and do best – recruitment.In-house IT platform supported by development teams in the UK and around the globe.Dedicated agency account managers.

CXC Global™ has been a trusted industry leader in the management of �exible national and global work forces since 1992 and has assisted 100,000’s of contractors and companies across 5 continents by reducing business and administrative costs.

CXC Global™ solutions also work to the bene�t of the contractor, ensuring consistency of service, online information and time sheet portals, as well as �nancial bene�ts.

Isn’t it time you spoke to CXC Global™ about how we can help you decrease costs, increase pro�ts... and make your job easier?

Let’s face it, your business is to find the best candidates ... and you are very good at it!

You shouldn’t need to get caught up in the day to day management and administration of your contractors.

E: [email protected]: www.cxcglobal.co.ukW: www.cxcglobal.com

The global leader in innovative contractor renumeration and contingent workforce solutions.





Example Advice Decision Tree 1

All Umbrella Providers must comply with the National Minimum Wage.

This will mean that workers on lower rates will be unable to work through the Umbrella as the Umbrella wouldnot be able to apply a compliant pay calculation and still meet NMW.

The minimum rate is typically around £7.75 - £8.00 depending on the Umbrella margin.

Workers on rates on or around the minimum rate will be unable to claim expenses and therefore have no taxsavings to offset the Umbrella Providers margin. In these cases, and where workers operate below the requiredrate, we recommend operating an Agency Payroll service. Many of the Umbrella Providers are now able tooffer this as an additional part of their services providing recruitment companies with a simple and easy readymade solution.

Where a worker is unable to claim expenses, and therefore cannot benefit from the additional tax relief, it ispossible that their overall remuneration through a Traditional Umbrella could fall below that of the comparator.




Example Advice Decision Tree 2 - Rates between £7.75 - £15 per hour

Where a worker is unable toclaim expenses, and thereforecannot benefit from theadditional tax relief, it ispossible that their overallremuneration through aTraditional Umbrella could fallbelow that of the comparator.

43



Example Advice Decision Tree 3 - Rates over £15.00 per hour

Where a worker is unable toclaim expenses, and thereforecannot benefit from theadditional tax relief, it ispossible that their overallremuneration through aTraditional Umbrella could fallbelow that of the comparator.




Example Advice Decision Tree 4 - Rates over £15.00 per hour

45



Access to FacilitiesProviding the agency workers the same access rightsto certain facilities as permanent staff. Examplesgiven are staff canteen, transport facilities, carparking and child-care.

Access to VacanciesAgency Workers now have the right to be notifiedof any job vacancy that becomes available at theend clients. This is from Day 1.

Agency WorkerThe term used to identify the workers that aresubject to the new legislation. Defined in theguidance as: An agency worker (often referred to as a ‘temp’) issomeone who has a contract with the TWA (anemployment contract or an agreement to provideservices personally) but works temporarily for andunder the direction and supervision of a hirer. Theunique, tripartite relationship between agencyworker, agency and hirer is a key feature of theseRegulations and who is covered by them.The key elements required for someone to be anagency worker are:

• There is a contract (an employmentcontract or an agreement to provideservices personally) between the worker anda TWA;

• That worker is temporarily supplied to ahirer by the TWA; and

• When working on assignment the workeris subject to the supervision and direction ofthat hirer.

AND

• The individual in question is not in abusiness on their own account.

Annual Pay AwardThe term used to identify annual pay incrementsoffered by the end clients to their permanent staff.

Where these awards are made an agency workershould receive the same pay increment that theywould have been entitled to if they were recruiteddirectly to do the same job.

Anti AvoidanceMeasures that have been put in place to avoid anyparty circumventing the Regulations.

Audit TrailHaving demonstrable evidence to show that therequired information was requested.

AWD and AWRThe Agency Worker Regulations; previously referredto as AWD before the Regulation came in to effect.AWD is the Agency Workers Directive and refers tothe European Directive that was passed by theEuropean Parliament in late 2008. It was thisdirective that requires the UK to implement theRegulations by no later than December 20 11.

BISThe Department for Business, Innovation and Skills.A Government Department that many people stillrefer to as its very old name The DTI.

Break between AssignmentsThe term used to describe a gap in a contract. Thiscould be to describe a period where a worker is notengaged on any assignment but could still beengaged by an umbrella company; or where aworker has previously worked for an end client andis returning after a break.

BonusesIn relation to AWR; an amount that is directlyattributable to the amount or quality of the workdone by the individual and included when havingto compare pay.

Umbrella Providers can also use the term bonus [orassignment bonus or commission] to describe theelement of a worker’s pay that is paid in addition tobasic salary.

measuring equal treatment is an ongoing ...

... process throughout the assignment

Glossary of Terms




Collective FacilitiesThe description used to define the facilities that areincluded in the equal treatment from Day 1. Someof the examples given are; canteen, creche and carparking.

Comparable PayEqual pay comparisons can be with a directemployee who is doing broadly the same role or,what is more likely, the use of pay scale rates for arole. The BIS Guidance provides some excellentexamples on the use of pay scales for comparablepay.

Comparable WorkerAn employee or worker engaged directly by the endclient. This worker can be used as a benchmark forequal treatment for an agency worker who is doingbroadly similar work.

ComparatorThe employee or worker engaged directly by theend client who is the basis of comparison for equaltreatment covering both Day 1 Rights and rightsacquired after the 12 week qualifying period.

Day 1 RightsThe rights that must be given to all agency workersfrom the first day of their engagement, theseinclude; access to information on vacancies,collective facilities or amenities.

Direct EngagementWhere the end client contracts a temporary workerwithout the use of a recruitment company oragency.

Due DiligenceMaking informed checks and enquiries to establishthe accuracy and compliance of information,processes or procedures provided by third parties toyour workers before recommending them; whetherthat be formally or informally.

Duty of CareA legal requirement to take steps to ensure theappropriateness of an organisation beforerecommending to workers. If a worker suffersfinancial loss and it cannot be demonstrated that anappropriate standard of enquiry was made then thecompany could be liable to action of negligencewith significant financial consequences.

Employees NIEmployees National Insurance is a tax paid byemployees on their taxable pay under the Pay asYour Earn rules [PAYE].

Employers NIEmployers National Insurance is a tax paid byemployers on their employees gross taxable payunder the Pay as Your Earn rules [PAYE].

In the case of an offshore umbrella this tax is notcovered under the double taxation agreements thatexist and is often not paid by offshore umbrellas.Where they fail to pay this to HMRC it can leave endclients exposed to the risk of investigation andchallenge by HMRC and, where successful, allowHMRC to transfer any outstanding liabilities directlyto the end client as the ‘host employer’.

Employment TribunalsThe formal process that will hear, and rule on,disputes where a worker feels the terms of the AWRhave not been met.

Typically claims made by workers must be receivedby the tribunal within 3 months of when the allegedbreach occurred or the end of the contract.

End ClientAlso referred to as the hirer and is the ultimate clientwhere the temporary worker is working.

Equal TreatmentThe term used to describe how an agency workermust be treated in relation to a direct employeedoing broadly the same role.

recruitment companies must demonstrate taking ...

... duty of care when recommending providers

Glossary of Terms

47



ESIThe Employment Status Indicator tool developed byHMRC to determine a worker’s employment status.

HirerAlso referred to as the end client and is the ultimateclient where the temporary worker is working.

Holiday PayPayments made to workers when they are onholiday; one of the measures within the equaltreatment.

Where the holiday entitlement is above thestatutory minimum this additional amount can beeither given as paid leave or paid in lieu as part ofthe rate.

In Business On Your Own AccountThe phrase used to define a contractor whooperates through their own limited company and isoutside the scope of the AWR.

The phrase relates to a series of tests, that are notdefined in the Regulations, that should be appliedto establish the worker’s status.

Workers who are outside IR35 are likely to beconsidered out of scope however workers insideIR35 could be either in scope or out of scopedepending on the exact terms of their assignment.

In-House Temporary Staffing BankGenerally considered out of scope where acompany employs its temporary workers directlyand they are only supplied to work directly for thatbusiness. Although they are still subject to the FixedTerm Employees (prevention of less favourableterms) Regulations that have been in place since2002.

In ScopeThe term used to refer to an agency worker who iswithin the Agency Workers Regulation.

Information RequestsThe information that a temporary work agencyshould ask for / receive from the end client for eachvacancy.

The ability for an agency worker to requestinformation in relation to their equal treatmententitlements.

IndemnitiesThe ability for any of the parties to either pass some,or all, of their potential liabilities under AWR toanother party through a legal agreement or whereanother party agrees to cover such liabilities.

IR35A piece of legislation that applies to all contractorscarrying out assignments through their own limitedcompany.

It is designed to identify and differentiate betweendisguised employees and contractors who are inbusiness on their own account by apply a series ofprescribed tests to determine their status.

The outcome of the tests determines how theincome from a specific assignment will be taxed.

LiabilityThe potential consequences for failing to meet therequirements of the legislation.

The minimum award, in the majority of cases, is theequivalent of two weeks money with no maximum.

Penalties can also be made of up to £5,000.

Managed Service ContractsWhere a company provides a specific service to aclient, the examples used are catering and cleaning.

Where the contract is for a contract for services andsets out service level agreements these are outsidethe scope of the AWR.

workers who are outside IR35 are likely ...

...to be considered out of scope for AWR

Glossary of Terms




Master VendorWhere one company, usually a recruitmentcompany, is appointed to manage the supply ofworkers to an end client.

These master vendors typically use otherrecruitment companies to provide workers asrequired.

A master vendor falls within the definition of aTemporary Work Agency and therefore is in scope.

Multiple HirersWhere an agency worker is engaged on multipleassignments through a number of recruitmentcompanies.

National Minimum WageThe legal minimum wage a worker can be paid perhour.

At the time of going to press this was:

• £5.93 for workers aged 21 and over• £4.92 for workers aged 18 - 20• £3.64 for workers aged 16 -17 • £2.50 the apprentices rate

The rates change in October and the new ratesapplicable from 1st October 2011 are:

• £6.08 for workers aged 21 and over• £4.98 for workers aged 18 - 20• £3.68 for workers aged 16 -17 • £2.60 the apprentices rate

Neutral VendorSimilar to a Master Vendor but usually the companyhas no direct recruitment offering of its own.

These neutral vendors typically use otherrecruitment companies to provide workers asrequired.

A neutral vendor falls within the definition of aTemporary Work Agency and therefore is in scope.

New HirerA new hirer for the purposes of the AWR must be adifferent person, or a different legal entity.

Where a hirer has multiple sites moving the workerto another is unlikely to constitute a new hire.

Where a hirer is part of a larger group, and eachcompany has its own legal identity, then eachcompany will be a new hirer, subject to the antiavoidance rules.

Out of ScopeWhere a worker is outside the rules and theRegulations do not apply.

Overarching EmploymentThe terms and conditions of employment used byumbrella providers that allow workplaces to beassessed as a series of temporary workplaces.

Where a workplace is assessed as temporary thentravel and subsistence expenses can be claimed.

PayPay is one of the measures of equal treatment underthe Regulations and is tested after a 12 weekqualifying period.

Pay Between AssignmentsWhere a worker sacrifices their right to equal paythere is a requirement to pay the worker aprescribed amount when they are in betweenassignments.

The worker must have qualified by completing the12 week qualifying period.

The worker must also be available for work toqualify for the payments.

In this area there is a difference between theRegulations and the guidance with the Regulationssuggesting a pay between assignment rate of 1hour per week at 50% of the average rate, paid fora minimum period of 4 weeks.

The guidance suggests paying at 50% of theaverage rate based on the average hours workedeach week and once again paid for a minimum of4 weeks.

The guidance suggests through the anti avoidanceclauses that only paying 1 hour per week will beseen as non compliant by the courts and thereforerepresents a higher risk approach.

The courts will ultimately have to decide and this isan area that is expected to be challenged.

Glossary of Terms

49



PAYEThe UK tax regime to tax employed workers on theiremployed schedule E income.

Pay as you Earn includes both Tax and NationalInsurance Contributions.

Payment in LieuWhere holiday entitlement is above the statutoryminimum then this additional entitlement can bepaid as part of the hourly or daily rate.

It can also be paid as a one off payment at the endof the assignment.

PenaltiesAn additional amount that an Employment tribunalcan levy where they feel it is appropriate.

Penalties can be up to a maximum of £5,000.

They are only likely to be applied in extremesituations or where there are clear and deliberatebreaches of the rules.

They can be applied to any of the connected partiesin the chain.

Permanent Contract of EmploymentWhere a worker agrees to sacrifice their right toequal pay under the Regulations they must beoffered full employment, either through thetemporary work agency or an umbrella provider,and they must be paid an agreed amount inbetween assignments after a 12 week qualifyingperiod.

Qualifying ClockThe Regulations have additional obligations thatstart after a qualifying period of 12 weeks; thequalifying clock is the term used to define whetherthe 12 weeks has been reached.

The clock can also be reset under certaincircumstances as well as paused.

Qualifying PeriodA worker has to work for 12 weeks to qualify forcertain additional rights, this is known as thequalifying period.

Works in conjuction with the qualifying clock.

Reasonable Offer of EmploymentThe agreed terms that an agency worker is willingto accept on any particular assignment. This will beagreed at outset between the umbrella provider andthe worker, when the Swedish Derogation is beingused, and a written record of the agreement needsto be kept.

Reasonable Offer of WorkThe same as a Reasonable offer of employment.

SecondmentWhere an individual is on loan from oneorganisation to another. These arrangements willtypically be out of scope.

Substantively DifferentThe term used to describe a new assignment withthe same hirer where the job role is significantlydifferent. As it is significantly different it isconsidered as an entirely new assignment andrestarts the qualifying clock.

Suitable Alternative WorkRelates to pregnant agency workers who are unableto continue with the original assignment and itbecomes the responsibility of the agency to find anew role at an equal, or higher, rate to the originalassignment.

Swedish DerogationThe term used to describe the umbrella model thatcan be used when a worker sacrifices their right toequal treatment on pay.

Temporary Work AgencyThe term to describe a company that suppliesagency workers to work temporarily for a thirdparty.

Umbrella CompanyA company that employs workers on an overarchingemployment contract and allows them to claimtravel and subsistence expense subject to certainrequirements.

Working TimeIncludes duration of working time; night work; restperiods and breaks and is one of the factors thatmust be equalised after the 12 week qualifyingperiod.

Glossary of Terms




Audited and Approved Umbrella Providers

51

0845 603 8088

[email protected]

www.orangegenie.com

0800 197 6516

[email protected]

www.paystream.co.uk

0800 1216513

[email protected]

www.paymatters.co.uk

0845 450 1310

[email protected]

www.nwmsolutions.co.uk

0151 449 3500

[email protected]

www.i-paye.com

0208 735 6370

[email protected]

www.lesters-uk.com

01942 679997

[email protected]

www.blackdiamondumbrella.co.uk

01932 33 44 55

[email protected]

www.atlantic-umbrella.com

0207 374 6957

[email protected]

www.cxcglobal.co.uk

0845 20 20 360

[email protected]

www.360-group.com

0800 848 8888

[email protected]

www.crystalumbrella.com

01253 600140

[email protected]

www.danbro.co.uk

0845 604 0571

[email protected]

www.racsgroup.com

0800 954 9942

[email protected]

www.conduitpm.com

01332 595959

[email protected]

www.simplifybusiness.co.uk


http://www.racsgroup.com

http://www.conduitpm.com

http://www.nwmsolutions.co.uk

http://www.simplifybusiness.co.uk

http://www.lesters-uk.com

http://www.crystalumbrella.com


http://www.danbro.co.uk


http://www.atlantic-umbrella.com

http://www.blackdiamondumbrella.co.uk


http://www.i-paye.com

http://www.orangegenie.com

http://www.paymatters.co.uk


https://www,professionalpassport.com/contractors

Audited and Approved Accountancy Service Providers


0800 089 0110

[email protected]

www.1st-option.co.uk

01942 684769

[email protected]

www.blackdiamondaccountancy.com

0845 20 20 360

[email protected]

www.360-group.com

01253 600140

[email protected]

www.danbro.co.uk

0800 197 6516

[email protected]

www.paystream.co.uk

0845 603 8088

[email protected]

www.orangegenie.com

0845 604 0571

[email protected]

www.racsgroup.com

0207 628 5222

[email protected]

www.contracting365.com

0333 240 6058

[email protected]

www.weareaccounting.co.uk

0207 117 6435

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Documents

The Recruiters Guide to The Agency Workers Regulations · PDF fileThe Professional Passport Recruiters Guide How to deal with Providers post Agency Workers Regulations PP AWR Brochure