Conduct of employment regulations - opting out
The EAA regulations represented a series of changes to the way recruitment now operates in the UK.
As an ISO 9001:2000 accredited IT recruitment specialist, Jenrick CPI welcomed regulations that would go some way to promote best practice and compliance across the entire recruitment industry.
However, there is, as with any legislation some confusion on what the regulations actually mean for contractors – particularly in the area of ‘Opt Out’. We would like to clarify to new contractors what opting out actually means.
The standard question we get asked by our contractors is "Why should a contractor opt out of the conduct regulations?"
The simple answer to this question is that opting out demonstrates that the Service Agreement is NOT an Employment Agreement and is therefore deemed to be outside of IR35. By not opting out of the conduct regulations, the contractor is confirming that the assignment falls wholly within IR35 legislation.
*IR35 - IR35 was announced in 1999 as an anti-avoidance measure. It seeks to deny that freelance contractors are genuinely in business and to tax them as employees without establishing a proper employment relationship. Its extraordinary complexity makes it almost impossible for contractors to assess whether they fall within it or not - in some cases their status may rest on contracts they have never seen.* - PCG
The conduct regulations contain key definitions:
"work seeker" means a person to whom an agency or employment business provides or holds itself out as being capable of providing work finding services
"work-finding services" means services (whether by the provision of information or otherwise) provided:
- by an agency to a person for the purposes of finding that person employment or seeking to find that person employment;
- by an employment business to an employee of the employment business for the purpose of finding or seeking to find another person, with a view to the employee acting for and under the control of that other person;
- by an employment business to a person (the "first person") for the purpose of finding or seeking to find another person (the "second person"), with a view to the first person becoming employed by the employment business and acting for and under the control of the second person;
Definition (a) cannot apply to a Contractor, as this relates to Permanent Employment. Definition (b) cannot apply to a Contractor, as this relates to employees of the employment business. Therefore, as a contractor, definition (c) is applicable.
As the "work seeker" is being placed "under the control of the 2nd person" , this has to place their contract within IR35 legislation, meaning that their remuneration for the whole project will need to be taxed accordingly.
In summary, Opting Out of the Conduct Regulations mean that none of the above definitions apply, therefore signalling that the contract is outside of IR35.