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Should I Opt In or Opt Out of the Employment Agency and Employment Business Regulations 2003?

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All UK employment businesses are required by law to comply with the Conduct of Employment Agency and Employment Business Regulations 2003.

These regulations govern the conduct of the private recruitment industry and establish minimum standards that both job-seekers and hirers are entitled to expect. The government has adopted a proposal enabling freelancers operating through an Umbrella Company or  PSC to 'opt out' of these regulations, making it easier to demonstrate that these freelancers are operating outside of  IR35.

If you are working through a limited company you will be asked to sign a form to show that you wish to either 'opt in' or 'opt out' of the regulations. If you work through an Umbrella Company they will not be able make this decision for you, although their signature will be required as well.

What are the advantages of opting out?

Recruitment agencies will have to pay the freelancers who 'opt in' in full for work performed, regardless of whether they have been paid by their client.

There is less restriction on providing a substitute worker or subcontractor, which will give a limited company contractor the option of paying the recruitment agency for finding work assignments. This relationship could then be viewed as a true business to business relationship and demonstrate that you are operating outside of IR35.

Having an 'opt in' in or 'opt out' status will not effect the agency's selection procedure, but the client is not subject to the same restrictions and may seek a freelancer who has 'opted out'.

What are the disadvantages of not opting out?

Recruitment agencies will have to pay the freelancers who 'opt in' in full regardless of whether they have been paid by their client. This could strengthen the case for freelancers wishing to demonstrate that they are operating outside of IR35, as there is greater financial instability in 'opting out' which could be regarded as more indicative of a self-employed status. It may therefore be harder to prove 'outside' IR35 status if you do not opt out.

You will not have the protection that the 'Employment Agencies and Employment Business Regulations' are designed to cover i.e. provision of health and safety details and training, protection on rate/hours, contractors have the right to not suffer any detriment should they decide to seek work through another agency/employment businesses or any other third party.

The increased admin could potentially delay the start of your assignment. If a recruiter is looking to fill a vacancy as soon as possible they may look for freelancers who have opted out of these regulations.

Other points you will need to be aware of:

It is worth noting that you will need to state whether you wish to 'opt in' or 'opt out' of the regulations before the start of your contract.  If you decide that you want to change your  mind once your contract has begun, you will need to wait until the end of the contract for this to take effect. You will also need to state whether you wish to 'opt in' or 'opt out' for each of the assignments you undertake. An 'opt out' status will not be allowed if the contractor will be working with 'vulnerable' groups e.g. working with under 18s.

Further reading

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