Under the new legislation, agencies will be forced to deduct income tax and National Insurance at source, unless they can show that there is an 'absence of control' in the worker's relationship with the client. The changes will come into effect on 6 April 2014.
REC chief executive Kevin Green told HR magazine that the short time employers have to prepare for these changes means many will face problems preparing in time.
He added the extra costs employers will face, especially in areas like construction and oil and gas which rely heavily on contractors, could hamper project and job creation.
"This won't help to get projects or infrastructures off the ground. It could lead to an increase in costs of up to 25% for companies using these people," he said.
Green said REC widely supports the need for change, to tackle problems with 'false contractors' hiding taxes in off-shore accounts. This legislation could go some way to tackling that, although Green said he doesn't believe HMRC will receive the forecast £500 million tax boost.
However, REC has called for a delay of at least one year so that employers can put systems in place to deal with the extra costs.
The current changes could lead to a return to "the dark ages" of building work, warned Green.
"Self-employed workers may need to set themselves up as personal services companies," he said. "As they won't have time to do this, and due to rising costs for employers, we may well see people getting picked up on street corners to go to building sites."
