Courtenay HR

The Get-out Clause

It would be an unwary interim or provider that paid insufficient attention to the special significance of 6 July for their industry. On that day this year, certain amendments to an important law governing the relationship between interims and interim providers finally came into force.

No longer were limited company contractors or personal services companies - which the vast majority of interims set themselves up as - exempt from the scope of the Department of Trade and Industry's Conduct of Employment Agencies and Employment Businesses Regulations 2003.

In theory, now that the new laws fully apply to interims who supply their services via a limited company for tax reasons, employment agencies owe them a series of new - and potentially costly - obligations which match those that apply to workers contracted to them on a pay-as-you-earn basis.

In fact, many of the most important clauses in this legislation, such as obliging agencies to pay workseekers for work they've done, whether or not the provider or agency has been paid by the client, have been set up to combat the sharks that occasionally operate at the bottom of the recruitment pool.

But others demand that the interim provider must confirm and supply extensive information about the end-user and the assignment to the interim and vice versa. Information required ranges from details of the terms and conditions of the work, to health and safety risks and the steps taken to minimise them, as well as forcing the agency to conduct far more extensive checks into the workseeker's background.

It may not seem significant for interims who work at the very top of the temporary workforce food chain. As Tony Evans, an interim manager and deputy chairman of the Institute of Interim Management (IIM), the professional body for interims, says: "These regulations are clearly aimed at protecting seasonal workers, or those who work close to the minimum wage, from the less ethical agencies."

Yet interim suppliers are adamant that the extra paperwork required if they are to comply with the regulations could place a large burden on providers. Gareth Jones, managing director of Courtenay HR, which specialises in supplying interims in the HR field, says: "Most agencies don't have the mechanism or manpower to do this work. It would probably have to be outsourced, resulting in extra costs for the providers."

Nick Robeson, chairman of the Interim Management Association (IMA), which represents providers, goes further. "This could have brought the interim industry to its knees," he says. "It would have made interim management a far less attractive solution."

"I think it may have decimated the market," agrees Marcia Roberts, deputy chief executive of the Recruitment and Employment Confederation (REC). The fact that this hasn't been the case has largely been down to the securing of one vital feature of the new law - an opt-out clause. Huge lobbying efforts have been partly successful: interims can now choose to opt out of the legislation, thereby foregoing the protection the new regulations are designed to provide.

"These laws were five years in the making and the penultimate version didn't have the opt-out," says Roberts. Yet now that the all-important get-out clause has been secured, should interims use it? The consensus seems to be yes, for two main reasons. First, interims should aim to protect their own competitiveness. "Providers would prefer their interims to opt out," says Robeson, who is also chief executive of Boyden Interim Management. However, providers cannot insist they do so.

He adds that interim managers generally take the risks associated with being out of work for periods and pensions and other expenses into account in their daily rates, and would not want to be obliged to claim extra protection as it would undermine their competitiveness.

Jones says: "We only deal with interims that already have limited company status, and, because that status means they can opt out, we are giving them that option."

The second and more significant reason for interims to consider opting out is to maintain their tax status as self-employed rather than as an employee. Fiona Coombe, senior legal adviser for the REC, explains: "The conduct regulations require the agency to pay the workseeker [in this case the interim, who has set him/herself up as a limited company], regardless of whether they get paid by the client. "That takes away one of the tests of self-employment: the question of whether there is any financial risk borne by the limited company. It is a good reason to opt out."

This matches the view of the IIM, which was also in favour of the opt-out clause, as Evans explains: "We would have been collateral damage here. The main thrust of these regulations was aimed at a different sector."As a result, the IIM is advising members that "all else being equal, they need to seriously consider opting out".

"Interims should view it as sensible to operate as a limited company because it helps them with respect to how they are judged in the tax system," Evans says. "Some freelance organisations are advising members that the Inland Revenue would not automatically consider someone who doesn't opt out as an employee for tax purposes. I don't see that myself, and, as this is my livelihood, I would not put myself in that position."

So how will it work in practice? To opt out, both the interim and agency must sign a form before the start of any assignment. As long as the interim remains on the assignment, they cannot opt back in again. Opt-outs are permitted in all circumstances, the only exceptions being where the interim will be working with people considered vulnerable, such as children or the elderly. This is because stricter background checks need to be run against such interims, which would be harder to carry out in the case of someone who had opted out.

And are there any ramifications for HR managers here? Marcia Roberts believes there are, though they are subtle. She points to Regulation 20, which says that providers must pass on any information that comes to light about a candidate's fitness to work in that position.

"It was brought in to cover people working with the vulnerable, such as supply nurses, but it now also means that if it came to an agency's attention that, for example, an interim finance director had been involved in fraud, they would be legally obliged to notify the client."

Interim providers stress that this would have been industry practice anyway, says Roberts, but it does provide end-users with an extra layer of protection. Yet while these laws help to clarify the relationship between agency and workseeker, and thus indemnify HR managers to an extent, Roberts says there should still be an element of caution about tax status when any interim - or other temporary worker - is on a long-term assignment, whether they have opted out or not. "The longer the temp is supplied to the user, the more the relationship between them will blur," she says.