IR35 and the AWR are not linked, despite initial indications to the contrary in the first publication of the BIS guidance. The second issue of the BIS guidance has removed reference to IR35 tests following consultation with the Association of Recruitment Consultancies (ARC).
Under IR35 a number of tests have been devised to determine the employment status of the individual. These tests are:
• Mutuality of obligations (whether there is an obligation to provide and do work)
• Right to substitution of individual responsible for the work
• Who controls where, when and how the work is done
• The nature of the work being done (i.e. project based or not)
• Whether there is a genuine business-to-business relationship
• The financial risks and liabilities taken on by both parties
• The intentions of the parties involved.
The intention of the AWR is not to establish whether an individual has an employment relationship, but rather whether they are an agency worker. The definition of an agency worker in the AWR is broad; an individual is an agency worker if they are (i) supplied to a hirer; (ii) work under the supervision and direction of that hirer, and (iii) there is a third party involved in such arrangements. This does not relate to the employment status tests under IR35.
It is possible for a contractor to be agency worker and not have employment status under IR35 tests. This is because a contractor may be under the direction and supervision of a hirer and supplied by a third party, thus achieving the status of agency worker under the AWR. However, under IR35 there are various tests one of which is in regard to the control exercised over the contractor by the hirer. Control by the hirer is a much narrower test than ‘direction and supervision’. A contractor could easily be given basic directions and supervision over the work, but not be controlled in how he/she does it especially where they are highly skilled knowledge contractors. This would mean they may meet the test to be an agency worker and could seek to establish rights to equal pay and terms (after achieving the 12 week qualifying period), but still be fine under the IR35 tests. The opposite of this could also be true, a contractor could be outside the scope of the AWR but inside IR35.
In reality, a contractor may find it beneficial in regard to IR35 to remain out of scope of the AWR and therefore the risk of claims are in theory low but not zero.
We are anticipating case law to interpret and clarify the many difficult areas of the AWR over the coming years; this could be one area that leads to more confusion than clarity in the future.
For more information on IR35 and/or the AWR please call Lawspeed on 01273 236236.