AWR seeks to protect all contractors by ensuring they have the same pay and same working conditions as their comparable permanent employee at the hirer.
The protection falls into two categories:
- Week 1 Rights – where the contractor can have access to the same shared facilities as their permanent counterpart. The HIRER has sole responsibility for compliance here.
- Week 13 Rights – After 12 weeks in the same assignment with the same hirer, the contractor should receive at least the same pay and working conditions as the comparable permanent employee – primarily salary and holiday entitlement.
- In the professional services sectors the majority of contractors earn more than their permanent counterparts and therefore AWR compliance is relatively straightforward.
- For tax purposes, be regarded as an employee of the client; and
- For NICs purposes, be regarded as employed in employed earner’s employment by the client.
IR35 was first proposed by the Chancellor in the 1999 Budget.
The aim of the legislation is to eliminate the avoidance of tax and National Insurance Contributions (NICs) through the use of intermediaries, such as Personal Service Companies or partnerships, in circumstances where an individual worker would otherwise –
Prior to the introduction of the legislation, an individual could avoid being taxed as an employee on payments for services and paying Class 1 NIC by providing those services through an intermediary. The worker could take the money out of the intermediary, normally a Personal Service Company, in the form of dividends instead of salary. As dividends are not liable to NICs, the use of a dividend remuneration strategy results in the worker paying less in NICs than either a conventional employee or a self-employed person. And PAYE would not apply to the dividends.
Download our Agency Worker Regulation (AWR) & IR35 guide.