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Does AWR Spell The End For Umbrella Companies?
By: Paul Towndrow
Posted On: Apr 12th, 2011 Under: Umbrella Company, Freelance Contractors, IR35, Contractor Limited Company, Sole Trader
The release of the Draft Agency Workers Regulations (AWR) guidance has confirmed that Agency contractors who are under the direction and control of an end client will fall within the AWR. The draft has made clear that while the self-employed and limited company contractors who are in business on their own account should not be affected, it will include the thousands of contractors currently working through umbrella companies. One of the most significant areas of the forthcoming AWR that could impact on umbrella companies is the right to equal pay. The draft legislation makes it clear that ‘equal pay’ means a ‘salary comparable to an end client’s worker’, generally expressed as a daily or hourly rate. This requirement could have a grave impact on the ability of an umbrella company to continue to operate the traditional umbrella model of paying workers a hourly rate of or about the minimum wage, with the remaining income being expressed as a ‘variable’ bonus or commission payment - thereby enabling the reimbursement of ‘temporary workplace related expenses’ and increasing the worker’s ‘net pay’. With the new requirement for an ‘equal salary’ the start point for an umbrella contractor will be that equal rate of pay, with the umbrella employer then having to pay the employers National Insurance and holiday pay in addition to this amount. Many umbrella companies may find that there just isn’t enough money in the pot to comply with this requirement, even before fees and expenses have been considered. With self-employment or running a personal service company out of the question, with the continuance of the IR35 legislation, it remains to be seen if umbrella companies will be able to amend their services, to continue providing a cost effective solution to this contractor base.
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What people are saying about Does AWR Spell The End For Umbrella Companies?
On 2011 04 12 Steven@Parasol said...
The true umbrella companies are already eight tenths of the way to being a fully compliant solution to working within the AWR due to the full over-arching of employment that shopuld be in place.
This means that the umbrella is legally the employee of the umbrella.
we will then be using this full employment model, with elements of the swedish derogation, and will be paying contractors in between assignments (a minimum of 50% of the previous contract value), working with the recruiters we partner with to help contractors find their next assignment, and will be contributing to contractors’ pensions.
This removes the contractor from the AWR in relation to pay.Day one rights will remain the responsibility of the end client.
So in reality for umbrella workers, the AWR could see them having access to more benefits then they currently have.
AWR is a genuine opportunity for true umbrella companies and is not the big scary piece of legislation some would make out.
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