The Agency Workers Regulations (AWR) introduced on 1 October 2011 are starting to depress the market for limited company contractors. Clients are increasingly seeking contractor hiring and resourcing models that provide certainty under AWR. And new models are offering other benefits, as Dan Collier, Managing Director of Elevate, explains in this article for ContractorCalculator.
AWR is depressing limited company contractor recruitment because clients are choosing to hire permanent staff or not to hire at all. The Recruitment and Employment Confederation (REC)/KPMG Report on Jobs for February 2012 reveals permanent recruitment growing and temp and contract billings falling, which anecdotal evidence suggests is due to the effects of AWR.
Clearly this is not welcome news for contractors, whose livelihoods are being put at risk. But our concerns are also for clients whose appetite for risk is such that they would prefer to cancel or offshore projects, or to recruit permanent employees. These clients require contractor hiring and resourcing models designed to offer greater certainty and reduced AWR risk. They also want to be sure they are not using AWR-avoidance measures that go against the spirit of the regulations and so could lead to later legal challenges and complications.
Overcoming the AWR certainty challenge
When Elevate set out to develop alternative contractor hiring and resourcing solutions, we knew that one key element would be to provide certainty that a limited company contractor would not be an agency worker, as defined by section 3(2) of AWR. This means demonstrating that the client is a “customer of a profession or business undertaking carried on” by the contractor.
The other vital component was ensuring that the intermediary linking client with contractor would not qualify as being a ‘temporary work agency’, as defined by section 4 of the regulations. The contractual relationships, payment chain and level of supervision and direction of the contractor by the client are all relevant factors.
A paper-based solution – not worth the paper it’s written on?
One option is to largely maintain the status quo with a client, agency and contractor as part of the arrangement, but to use contracts to set out the exact nature of the relationship and clearly establish the contractor as being outside AWR’s scope.
By requiring the contractor to warrant in their agency contract that they are providing their services as part of a business undertaking would surely mitigate the risk of an individual subsequently claiming employment rights under AWR. Additional clauses could be included that require the contractor to indemnify the agency against any AWR claims.
But on deeper investigation, it would appear that the paper-based approach is probably flawed. Since the Autoclenz ruling, an employment status case in which a tribunal disregarded the written contract and determined employment status and resulting rights purely on the basis of the actual worker-client relationship, contractual clauses can be effectively meaningless.
And further analysis of AWR source legislation reveals that indemnity clauses may not only be unenforceable, but may also be illegal. The regulations detail how AWR tribunals should deal with liabilities, so indemnity clauses could be viewed as usurping the jurisdiction of tribunals.
Analysing the benefits of the traditional agency model
When it became clear that tinkering with the status quo offered no solution that could meet the needs of both contractors and clients, we took a step back and considered what benefits contractors and clients actually wanted from the traditional tripartite agency relationship, and how those benefits could still be provided using an alternative model.
Our research shows that genuine limited company contractors are seeking a solution that will promote their skills and experience only to potential clients who are actually actively looking for their services. They want to be visible when seeking contracts, but not bombarded with recruiter spam when in a contract.
Interestingly, most contractors prefer to negotiate directly with clients, rather than via an intermediary. And many recognise that the self-analysis required to draw out their features and benefits as a service provider and effectively present them to potential clients is a challenge.
Clients want to find contractors with the right skills and experience and at the right price quickly and efficiently, and to know that the contractors they are searching are seeking a contract and available to work on their project. They want contractor information presented in a uniform and systematic style, to make it easier to make comparisons between contractors. And they want certainty under AWR.
Business brokerage, not recruitment
Existing agency and job board models fail to deliver many of the basic benefits required by contractors and clients from the hiring and resourcing process. And the very existence of an agency implies embodied AWR risk will be part of the arrangement.
Tinkering with the status quo offered no solution that could meet the needs of both contractors and clients
Dan Collier, Elevate
It would appear that an alternate model would require the following features:
- Brokering contractor services, in the form of matching contractors’ skills and experience with clients’ needs and allowing contractors to contract direct with clients
- Providing a closed and secure brokerage environment in which both contractor and client access is qualified, ie clients only get to seek contractors if genuinely hiring, and contractors are only visible if they are available for hire
- Discretion and confidentially is assured within the closed environment, and communication is optimised by linking contractors direct with clients, with no intermediary
- Assistance for contractors when preparing their ‘promotional literature’, which draws out the skills and experience clients are seeking in a systematic and consistent format, enabling genuine comparison between service providers
- Productivity and efficiency enhancements, which range from transparent pricing for clients, free sign up for contractors, low overheads, communication and management tools – that includes messaging, interview invitations, contract offers, timesheet management, application process management and workflow, billing and payroll.
By supplying a secure brokerage environment in which contractors and clients can be matched and contract directly, there is no temporary work agency involved in the process and the contractor is not an agency worker. This means AWR certainty and much lower risk for the client.
Clearly, alongside the benefit of mitigated AWR risk, there are multiple silver linings for the contractor and client through the optimisation of the entire hiring and resourcing process. This ultimately leads to satisfied clients, whose projects are completed on time, to specification and on budget, and happy contractors being paid what they are worth to complete projects for which they are ideally suited.