When does having a team make you an employment agency?
You think you’ve got an outsourced team that supports your clients. But does the law think that you have “employment business”?
You can be an “employment business” if you supply workers to do work for other organisations. Employment businesses (or employment agencies) are covered by the Conduct of Employment Agencies and Employment Businesses Regulations 2003.
If you run your team in a way that brings you within the scope of the Regulations, you will have a lot of additional compliance and complexity.
How does this affect how you run your team?
If these regulations apply to you, there are restrictions that apply to you.
- You will need to provide specific information and documents equivalent to the thirty-item statutory statement of terms of employment for an employee (and avoid completing it in a way that makes your team member an employee).
- You may not penalise your team for having other or seeking other clients (which you would not want to do anyway for tax reasons).
- You can’t require your team to purchase training or other services provided by you as a condition of getting work from your clients.
- You have to pay your freelancer even if your client does not pay you.
There are many ways of running an outsourced team of associates. Many of our clients pay associates regardless of whether the ultimate client has paid them. But those who are growing a team are not always in a position to do this. It is equally common to see a ‘we’ll pay you when we get paid clause’. This is perfectly lawful if you are not covered by the Regulations.
Employment agency status will make it your job to sort out IR35
If you are an agency, then it is your job to handle certain elements of IR35 status assessments and administration depending on the size and structure of your clients business. The fact your business may be below the threshold does not get you out of this.
What would make you an employment agency?
Like so many things concerning freelancers and self-employed service providers, a lot of this comes down to control.
If you are set up to supply people paid by you to act ‘for and under the control of other persons’ (in any capacity), you will fall within the relevant definition. The fact your team are self-employed freelancers does not automatically get you out of this. The key phrase here is “under the control of other persons”.
Many teams work on the basis of a lead VA or Designer, etc, who takes a brief and outsources work to a team. Where the lead person keeps control of the project and the work this is unlikely to result in an employment business being created. But where the team members report to and work directly for the end client, things may be different.
There has not been much litigation on this, and that would ultimately explain the test. But it seems that “control” is with the person “who retains the predominant ability to direct the conduct of the worker”. Team members who report directly to the end client may fall within this definition UNLESS the person doing the work is genuinely in business on their own account.
As is often the case, this means it is important for the end client to control only the outputs of the work, and not the inputs. Your team member should not be ‘controlled’ by the end client – they must function as an independent business rather than an ’employee in disguise’. It is really important that you set boundaries on what the end client can dictate to your freelance team member.
Agency worker rights
You could also find you and your team member being covered by the Agency Worker Regulations 2010. You could in effect be an employment agency hiring out workers to your clients. This too is not restricted to your employees but can cover freelancers you provide.
Agency workers have special rights:
- Statutory holiday
- National Minimum/Living Wage
And after 12 weeks’ continuous working for the same end client, agency workers have the right to ‘match’ the employment terms and conditions at the client, with equivalent pay, holiday, sick leave, pensions, working hours and rest breaks, parental time off.
Can you avoid being regulated as an employment agency?
You need to contract properly with your client and your associate/freelancer to make sure you are each contracted and controlled as independent businesses. If you are using KoffeeKlatch terms of business and hiring agreements you have suitable contractual rights.
BUT if what you and your client do on a daily basis does not match the contracts you all signed, then you run the risk of undermining this.
- Make sure that your client does not “control” your freelancer.
It is tempting for a client to treat a freelance associate as a remote employee. But they are not. Your team member should not be asking permission for leave, nor being micromanaged. As long as the results are to the right standard they should be free to implement a secure and appropriate working methodology that gets to the right results.
- Make sure that you are a client of your freelancer’s business.
Do this by setting up your contract right, and by specifying clearly the quality and quantity of work outputs. Don’t try to control the work itself – if you do that, you are stepping towards being “employer”. Control the outputs, not the work.
You and your client need to balance the need for secure data handling with the need to preserve the independence of your team member. And you are both going to have to get used to the idea that your team member can and should provide suitably qualified substitutes when needed. If you get this bit wrong, your freelancer could be your “worker”, and then you are having to give paid holiday and lots else besides in the way of employee-type rights.
- Make sure your freelancer is not paid by the client directly.
Contracts for the way you work today
If you want to create an outsourced team around you – check out our team hiring options. Designed with businesses just like yours to help you work the way you need to.