Is new legislation protecting contractors?
Published: 24 Jun 2004 12:45 BST
Agencies prefer contractors to opt out due to the potential loss of transfer fees and the increased administration cost of complying with the legislation. It is a "logistical nightmare -- going through all client contracts and consulting every client to renegotiate the terms," explains Square One's Lewis.
Some agencies see the very existence of the legislation as fundamentally unbalanced. They claim they are unfairly portrayed as the bad guys when in fact contractors are just as guilty of questionable practices. "The reason why we have all these clauses in contracts is because contractors are not reliable -- they'll leave one contract part way through because they've been offered more money somewhere else. Contractors don't need protection -- do you know how much money they're paid?" asks one agency source.
And despite the government's intentions, the legislation is not all good news for contractors. Some are actually choosing to opt out to avoid controversial IR35 tax regulation. IR35 was introduced in 2000 to close a legal loophole which allowed IT contractors to be taxed at lower business rates while effectively, according to the Inland Revenue, working as an employee of a company.
A contractor looking to avoid IR35 needs to prove they are a business not an employee, through contractual substitution clauses and independence from company management, as was shown in the recent Tilbury case. The theory seems to be that opting into the legislation for a contractor is tantamount to admitting to being an individual rather than a business and therefore opens the door to IR35 tax penalties.
But determining how the new legislation impacts IR35 is still a fuzzy area, according to Bridget Wood, partner at City Solicitors, Tarlo Lyons. "There is a debate about whether opting out affects contractors' tax status," she says.
Also, it is unlikely that simply opting out will help a contractor avoid IR35. Agencies are unlikely to add additional clauses in the contract to make a contractor seem more like a business, as they could risk criminal charges.
PCG's Durrant says that if contractors fall inside IR35, they should opt in to the legislation, although he warned that to find work through an agency they may need to opt out. Recruitment manager Lewis agrees that contractors should opt in unless they are outside IR35 or have got a job at a company requiring opt-outs (some companies only accept opted-out contractors because otherwise they cannot stop them from working for competitors immediately after finishing a contract).
One UK contractor that ZDNet UK spoke to had a more positive view of the new legislation and the fact that "all agencies are trying to push you to opt out." He said that he would be using the new legislation as a "negotiating ploy when discussing contract terms -- if I don't want the terms that the agency is offering me, as it will damage my IR35 case, I will threaten to opt in."
The benefit of any legislation to protect temporary workers from agencies that allows those same agencies to pressure contractors to opt out is questionable. One way to shore up the legislation would be for the government to allow contractors to keep their opting preferences secret until a job has been offered. But even if these changes are implemented, it's unlikely to dramatically improve a situation that has always been based on mutual distrust.
If you have had any problems with recruitment agencies, you can register a complaint by following this link.
  1) Transfer fees What it means for you: more flexible movement between contracts and between contract and permanent roles. 2) Payment What it means for you: you will still be paid if you have lost your timesheet but the agency may delay paying you while they check the hours worked with your line manager. If a company goes bankrupt or refuses to pay, then you will still get paid. 3) Paperwork What it means for you: agencies may ask you to provide proof of work experience, training and qualifications. Information provided by Bridget Wood, partner at City Solicitors, Tarlo Lyons
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