The extended liability rules could increase the risk of illegal working civil penalties, so now is a good time to review contracts, right to work checks and supply chain procedures.
The rules on who needs to carry out right to work checks are changing on 1 October, but that is not the only change businesses should have on their radar. Under the extended liability rules, the Home Office will be able to extend civil penalties to businesses that do not directly employ illegal workers but benefit from work carried out by them, including in certain contractor, subcontractor and labour supply chain arrangements.
This is likely to be particularly relevant for sectors that rely on contracting and subcontracting arrangements. In some cases, the Home Office may be able to impose a civil penalty on a business further up the contracting chain if the direct employer of the worker cannot be identified or does not pay the civil penalty. With civil penalties for illegal working starting at £45,000 per illegal worker and increasing to £60,000 for subsequent offences, businesses that rely on subcontractors should consider whether their current arrangements provide enough protection.
How will the extended liability rules apply in practice?
The Home Office has already published its draft guidance for employers on extended liability and right to work checks. The guidance includes examples of how the rules could apply in practice, although each case will depend on its facts. As a broad guide, extended liability is more likely to be relevant where a business provides or arranges work or services for another party, where an online matching service is involved, or where a contract permits substitution.
One example given by the Home Office is a property developer that wins a contract to build new homes. The developer then engages a series of businesses to provide workers for different elements of the project, and some of those businesses then subcontract with individual workers. This is a common type of arrangement and, until now, the developer was not liable for right to work issues involving the individual subcontractors.
Under the extended liability rules, if the Home Office finds that a subcontractor is using an illegal worker, it may be able to impose a civil penalty on:
- The subcontractor;
- The contractor; or
- The property developer, even though it has no direct relationship with the subcontractor.
When will extended liability for right to work penalties not apply?
Extended liability will not apply in every case. For example, where a business simply buys a service for its own use, it will not generally be liable for illegal working by the service provider. However, the position may be different if the contract allows another service provider to be substituted, or if there is onward subcontracting. Even where an arrangement appears to fall outside the rules, it is worth checking whether substitution or subcontracting could bring it within scope.
How can businesses reduce the risk of right to work civil penalties?
When a business directly employs a worker, it can protect itself from a civil penalty by carrying out a compliant right to work check before the employment starts. The position is different for businesses using contractors and subcontractors because they may not be able to rely on that same check. Instead, the Home Office guidance indicates that a business may have a defence to an illegal working civil penalty if it has suitable contracting arrangements, supply chain right to work compliance procedures and evidence of contractor right to work obligations in place.
To reduce the risk of a Home Office civil penalty, businesses should consider whether they can evidence the following protections:
Having a written contract with the contractor, dated before the work starts.
- Requiring the contractor to carry out compliant right to work checks.
- Making subcontracting subject to the business's prior written consent, with any subcontractors also required to carry out relevant right to work checks.
- Having the ability to audit contractors' and subcontractors' right to work records, with all contractors and subcontractors required to co-operate with the Home Office.
- Being able to take enforcement action, such as terminating the contract, if the contractor or subcontractor does not meet its right to work obligations.
- Where a contract with an individual worker allows substitution, carrying out a compliant right to work check before the work begins and ensuring appropriate contractual protections are in place.
- Having processes to verify the identity of individual workers and confirm they are the same person as shown in the right to work check.
What should businesses do before 1 October?
The extended liability rules will apply to new working arrangements after 1 October, so businesses should consider reviewing their contractual arrangements, right to work checks for contractors and subcontractors, and supply chain compliance processes before then. Practical steps include:
- Reviewing supply chain and contracting arrangements and, where needed, putting amended arrangements in place to help protect against extended liability for civil penalties.
- Checking existing contractor arrangements to assess whether they could fall within the scope of the extended liability rules.
- Identifying what evidence the business can retain to demonstrate compliance, including how it verifies the identity of individuals carrying out the work.
If your business uses contractors, subcontractors or labour supply chains, our specialist immigration team can help you understand how the new rules may affect you, review your contracts, strengthen right to work compliance procedures and reduce the risk of illegal working civil penalties. Please get in touch if you would like to discuss the steps your business should take.
