Crystal Umbrella

Contractors working through umbrella companies or limited companies may welcome news that end-clients who make late payments will soon be liable to minimum fixed sum compensation penalties.

The coalition has brought an EU directive on late payment forward so that it will take effect in 2012 and not in 2013, as originally planned. The directive will impose a maximum 60-day deadline for payment on commercial contracts unless suppliers, such as contractors, have already agreed to a longer period.

From next year, any terms offering payments in excess of the 60-day limit are likely to be torn up in UK law courts as grossly unfair and unlawful. Standard payment terms set out in the directive are set at a maximum of 30 days, and include a £35 fee for costs if exceeded, along with interest payments of 8%. This period could even be reduced to ten days, according to Liberal Democrat MP for Solihull, Lorely Bert.

Ms Bert seemed to have one-person contractor companies especially in mind. She told the House of Commons “First-tier suppliers are often paid promptly but keep the little guys further down the supply chain waiting. If first-tier suppliers are being paid quickly it should be extended to everyone down the supply chain, and the further down the supply chain a business is the more important prompt payment is to it.”

The Professional Contractors Group (PCG), which supports the EU directive as a “powerful adjunct” to existing legislation, believes that charges and compensation payments should be automatic for late-paying customers. Individual contractors, the PCG warns, may be reluctant to apply the rules for fear of losing their clients.

It was only last month that the Prime Minster declared that the controversial Agency Workers Directive would become law over the next few months. This was followed by a promise from the Conservative Party that should they be elected at the General Election, they would delay its implementation for as long as possible.

Back in September Gordon Brown said: “I believe the fight for fairness must include agency workers, and so I pledge to you today that when Parliament returns our new legislative programme will include equal treatment for agency workers and that in the coming few months the law will be on the statute books.”

However, his declaration was met with an abundance of criticisms and it would seem that there has now been a u-turn on his pledge. Lord Mandelson, head of the Department for Business, Innovation and Skills has stated that the Agency Workers Directive will not come into force until October 2011.

The directive must be implemented by the end of 2011 under EU rules but its implementation in the UK has certainly been a contentious issue as it will award agency workers the same rights as employees after 12 weeks. It is supposed to protect the most vulnerable agency workers, however high earning contractors fear that clients may think twice about offering them work as a result of the Directive.

A further draft consultation has now been published and Pat MacFadden, Business Minister, had this to say: “Last year the Government secured a deal in Europe on the Agency Workers Directive that allows us to base Britain’s rules on the agreement reached in the UK between the CBI and TUC. This allows us to implement the Directive in this country in a way which gives fair treatment to agency workers and maintains labour market flexibility. It was only possible because the Government is engaged in the mainstream of Europe – actively influencing proposals coming from Europe which affect the UK economy and UK workers. Careful and sometimes difficult negotiations were required to get the CBI-TUC agreement reflected in the final EU Directive.”

He concluded: “As the Prime Minister has said, the Government is committed to getting this legislation on the Statute Book by the end of this Parliament. The law will come into force in the UK in October 2011, giving recruiters and their clients time to prepare and plan. We are also mindful of the need to avoid changing requirements on business until the economic recovery is more firmly established.”