The Conduct of Employment Agencies and Employment Businesses Regulations 2003

These regulations govern the conduct of the private recruitment industry and establish minimum standards that both freelancers,or 'job-seekers', and hirers are entitled to expect. The government has adopted a clause enabling freelancers operating through an Umbrella Company or Personal Service Limited company (PSC) to 'opt out' of these regulations. 

Employment agencies vs. employment businesses

The regulations aim to legislate for different types of businesses and define 'employment businesses' as providing temporary/casual workers to third party hirers, and 'employment agencies' as businesses that provide workers for direct employment by the hirer. Therefore, recruitment agents sourcing contractors for their clients will be classed as an employment business.

What does this mean to the recruitment agency?

The regulations can mean extra admin for recruitment agencies as you are required to disclose terms earlier, as well as providing the candidate with greater detail and clarity of contracts. You are also required to ensure that the candidate has the suitable training and qualifications for the role by seeking proof. All records must be kept for at least one year.

When can someone chose to opt in or out?

To opt-out, a limited company and the individual supplied by that company to carry out work must agree that the regulations shall not apply to them - whether that company comprises one or more people or is an Umbrella Company.  This notice must be given before an individual is supplied to a client. An opt-out may be withdrawn by giving further notice in writing to that effect, but this new notice will not take effect until the end of the current assignment/engagement.

What are the disadvantages to the recruitment agency if a candidate 'opts in'?

There will be an increase in admin costs to the recruitment agency if the candidate chooses to 'opt in' because you need to give them more detail about their contract and all other relevant information relating to potential assignments. You will also have a greater obligation to get details of the candidate's qualifications before vacancies are filled; meaning you will need to get copies of certificates etc.

The regulations also state that the employment business is still bound to pay the worker even if the client does not pay their invoices on time. Also, the regulations create restrictions on charges that you may make if your candidate ends up working permanently for the end client (also known as 'transfer fees'). Transfer fees must be agreed in advance by written contract.

Where transfer fees apply and the client wishes to take the contractor on permanently, there are three options: ·

• The client is charged the agreed fees.
• The client must also be given the option to extend the contract period rather than pay the transfer fee. This extended contract of supply must not be on any less favourable terms than the original contract (i.e. you cannot automatically introduce a rate decrease at this stage)
• The transfer fee can be avoided if a relevant period of time passes between the assignment ending and the client hiring the individual. This relevant period of time is defined as either:
  * Eight weeks after the individual last worked for the client on assignment.
  * Fourteen weeks after the individual first worked for the client on assignment .

Where the contractor works intermittently for the client the 14 week period is treated as continuous from the date of the first assignment unless there is a gap of at least six weeks between assignments, in which case the 14 week period can begin again.

In effect, you may lose money in two ways: if the end client fails to pay (or goes bust) and through lost fees if the candidate takes a permanent position at the end of the contract (therefore losing you the chance to submit a new candidate to that position or, place that candidate in another role and earn a fee from that).

An 'opt out' status will not be allowed if the contractor will be working with 'vulnerable' groups e.g. working with under 18's.

Can I insist that someone opts out?

No, the provision of services cannot be conditional on a contractor opting out.

Further reading

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