A number of conflicting news reports appeared in the freelance and contractor press towards the end of last week, continuing the debate as to whether or not limited company contractors will fall within the definition of an agency worker when the AWR comes into effect in October. In the past, industry commentators and analysts have gone as far as citing the Working Time Directive, a completely separate piece of legislation, as proof that limited company contractors will not be caught by the legislation. A bit of reading though clearly demonstrates this isn’t necessarily the case.

The regulations themselves state that:

3.(2)But an individual is not an agency worker if –
(a) the contract the individual has with the temporary work agency has the effect that the status of the agency is that of a client or customer of a profession or business undertaking carried on by the individual; or
(b) there is a contract, by virtue of which the individual is available to work for the hirer, having the effect that the status of the hirer is that of a client or customer of a profession or business undertaking carried on by the individual.

Although written in ‘legal speak,’ at first glance this would suggest that limited company contractors would not be caught within the regulations. However, if you look to the most recent consultation document published by BIS in January 2010, the opposite becomes apparent.

In section 3.9 the Government makes it very clear that limited company contractors are to be included. The paragraph reads:

“If a very general provision were made to exclude, for example, anyone who has a share holding or holds office in a limited company, this could make it easier for unscrupulous parties to set up business models – for instance, minimal share holdings could be used to circumvent the protection of individuals under the directive. Since a properly legally constituted shareholding could be difficult to challenge, and this approach may unwittingly make it harder for employment tribunals to police in ‘sham’ or other avoidance arrangements. Our conclusion therefore is that the disadvantages of expressly excluding LCCs (limited company contractors) would outweigh any perceived benefits.”

The document also makes it clear that the government is happy to let case law shape how the AWR are applied. Section 3.8 of the January 2010 consultation document reads (link):

“On the issue of ‘sham’ self-employment or other similar avoidance we remain of the view that the Courts and Tribunals are capable of determining employment status and identifying such avoidance devices.”

The absence of further guidance on the AWR to date has been unhelpful in some respects but we believe that the Government has made it very clear that limited company contractors do fall within the scope of the AWR and no further guidance or consultation will change this.

The only way a limited company contractor would NOT be caught is when working for an end-client via a limited company but NOT under the supervision or direction of the hirer, then they are NOT caught by the AWR. This is in line with the IR35 legislation however there has not been any official link made between the two pieces of legislation.

What is more unhelpful for a contractor or recruiter is conflicting debate, speculation and conjecture in our industry and we will always advise contractors, and the recruiters who place them, based on the evidence we have. Contractors seeking more information should contact their service provider or agency.

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