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Recruitment
Law and Contracts
Recruitment
Contracts
For
any company that acts as a third party facilitator between
a worker, this term includes the self-employed and limited
companies, and a client, it is likely that the following regulations
will apply. This is regardless of whether the company is actually
a recruitment company. There are some companies that organise
worker's for clients, may be for charity or as a service provider,
that wouldn't think of themselves as recruitment companies
and, therefore, not affected by the relevant legislation.
But as a 'third party' they also have to comply.
A contract that involves this type of arrangement, i.e. a
contract between the third party and the worker and the third
party and the client will need to incorporate and comply with
the Conduct Regulations and IR35. If the third party works
with workers who are self-employed and not limited companies,
they will also be under the remit of the 'agencies legislation'.
This makes the third party liable for the taxes of the self-employed
person, if that individual is found to be an employee by HM
Revenue.
The Conduct Regulations
The Conduct of Employment Agencies and Employment
Businesses Regulations 2003, a statutory instrument governed
by the Employment Agencies Act 1973.
The Conduct Regulations govern the conduct of recruitment
businesses for all permanent placements, temps and placements
of 'limited company contractors' (LCC). There are provisions
in the Regulations for an LCC to opt-out although, until they
elect to do so, they are automatically covered by the Regulations.
An employment agency can roughly be described as a recruitment
company that places permanent employees (a contract of service).
Whereas an employment business can roughly be described as
a recruitment company that places consultants on contracts
(a contract for services). One recruitment company can be
both an agency and an employment business at the same time
and are required to state which they are acting as at any
particular time.
IR35 - Employment Status
Although IR35 doesn't directly affect recruitment companies,
as it affects their contractors it is wise for them to have
IR35 'friendly' contracts. Read more about Seeley Solutions
IR35 services and IR35.
The Agency Legislation
The use of a Personal Service Company, ordinarily defined
as a so called 'one man' limited company which is no different
in structure to an ordinary limited company, was brought about
by the 'agency legislation' which was introduced in 1988.
This legislation (Section 44 Income Tax (Earnings and Pensions)
Act 2003 (ITEPA) ) states that where an individual personally
provides services to another person through a third party
in such a way that technically he is not an employee of either,
the third party or 'agency' is liable to pay tax as if the
worker was an employee. To circumvent this, the agencies required
the workers to incorporate and provide their services through
a limited company, or a PSC. The tax liability was then shifted
from the agency back to the worker.
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