The Agency Workers Regulations
The Agency Workers Regulations (AWR) came into effect in the UK on October 1st 2011. The AWR is EU initiated legislation aimed at providing temporary Agency Workers (AW) with the same basic working and employment conditions as if they had been recruited directly by the Hirer (the end client). It affects Agency Workers placed in a temporary assignment with an employment contract or a contract for services where they will be supervised by the Hirer. The Temporary Worker Agency (TWA) who places the AW and the Hirer who supervises them also fall under the scope of the legislation. The definition of TWA has been written to include intermediaries (such as umbrella companies) in the supply chain. The AWR will not affect those who are providing a personal service where the relationship is business to business or that of a professional providing services to a customer or client nor will it affect workers who are placed in a permanent role by an employment agency. The regulations prevent temporary contracts where an Agency Worker agrees to "opt-out" of the rules.
The guidance notes associated with the legislation were published on May 6th and later revised on May 27 2011, following much debate and lobbying from businesses and particularly the recruitment industry. There remains concern that the regulations will have a negative impact on the UK's flexible work force by increasing the cost of hiring Agency Workers. plan.it provide a range of compliant payment solutions to suit all placements and offer recruitment businesses a free, no-obligation AWR consultation.
Equal Basic Working & Employment Conditions
There are two stages. Day one rights apply as soon as the Agency Worker begins an assignment. They include equal access to the Hirer's on-site facilities (such as car parking or child care) and access to information about any employment vacancies.
Further rights come into effect once an Agency Worker has been on assignment for 12 calendar weeks. The 12 weeks are not retrospective and begin from October 1st 2011, with the resulting rights kicking in on Christmas day 2011 at the earliest. The 12 week rights include equal treatment on:
- Pay including bonuses (but not those related to long term incentivisation),
- Duration of working time
- Length of night work
- Rest periods
- Rest breaks
- Annual leave
They do not include equal rights on
- Occupational sick pay
- Occupational pensions
- Occupational maternity, paternity or adoption pay
- Redundancy or notice pay
- The majority of benefits in kind
- Bonuses that are not directly linked to the contribution of the individual
- Additional discretionary, non-contractual bonuses
- Paid time off for trade union duties
- Accommodation and travel expenses
12 Week qualifying period
In the qualifying rules, weeks begin from the weekday of the first day of an assingment and any amount of time worked during that seven day period counts as a week worked. The AWR guidance notes use a metaphorical 12 week clock to explain the rules for accruing the qualifying period. As it counts to 12 the clock may run, pause or reset. A break of less than 6 weeks will pause the clock which would resume if the AW then continued in the role but after 6 weeks the clock is reset. Taking time off for annual leave, qualifying sick leave, jury service, company closure (e.g. Christmas break) or due to industrial action will pause the clock without counting towards the six week break required to reset the clock. Where any break is for reasons relating to pregnancy, childbirth, maternity/paternity/adoption leave the clock will continue to run.
Working for a different Hirer or the same Hirer in a significantly different role will reset the clock. The clock will continue to run when working for the same Hirer in a similar role for a different Agency. It is possible to simultaneously "clock up" 12 week rights with more than one Hirer.
The definition of Hirer can be quite broad in effect and may result in a worker performing different assignments on different sites and reaching the 12 weeks cumulatively; for example a supply teacher working in two different schools under the same local authority for six weeks each would qualify for the 12 week rights. For this reason contractors can expect to be asked for their recent work history by Agencies and Umbrella Companies.
Anti-avoidance measures target patterns of contracts which are designed to prevent Agency Workers from qualifying, for example one role rotated between two workers for 11 weeks each on an on-going basis. There is a fine of up to £5,000 to prevent this.
The notion of the same basic employment conditions is based on a comparison with a permanent employee doing broadly the same work for the Hirer at the same time. Where there is no such worker, it will be difficult for the Agency Worker to establish they are not receiving equal treatment. In some circumstances, the norm for other workers at the company may require that the Agency Worker receive equal treatment regardless of the nature of the work done, for example if all other employees have a lunch hour, the Agency Worker should also get an hour for lunch.
When it comes to pay, a successful claim will require the Agency Worker establish that there is a "going rate". This would likely be the case if the company operates a pay scale according to a number of factors (such as experience, qualifications used in the role and time served) or if most or all of the permanent employees performing the equivalent job were on the same or very similar rates of pay. But if for example, there are many permanent employees doing the same job as the Agency Worker on varying, individually-negotiated rates of pay there would be no "going rate".
Temporary Worker Agencies will be responsible for informing the Hirer of the Agency Worker's day one rights. The Hirer will then be responsible for ensuring they meet the obligation to provide these (as the TWA has no control over the Hirer's on-site situation). The TWA must also obtain from the Hirer information on the company's pay, rest breaks and annual leave so that the TWA may ensure the Agency Worker's proper treatment after the 12 week qualifying period. This will be the TWAs responsibility, but in some circumstances will require working with the Hirer (for example the supervision of on-site rest periods). Where there is an obligation to match annual leave in excess of the statutory minimum, it may be converted to the equivalent monetary payment.
An Agency Worker may request this 12 week rights information from their TWA who must respond within 28 days. Where they believe they are not receiving the treatment they are entitled to, the Agency Worker has a three month limit to bring any AWR case against their Temporary Worker Agency and/or Hirer. The cases will be heard by Employment Tribunals in the first instance. They will be able to make financial awards (and levy penalties in certain circumstances) in relation to breaches of the Regulations, based primarily upon the Agency Worker's loss of earnings. Where such awards are made the Tribunal will apportion blame (and financial liability) between the Hirer and TWA (or TWAs where there is more than one in the supply chain).
Exception: The Swedish Derogation Model
When the legislation was implemented at EU level, the Swedish representatives negotiated an exception to the Regulations based on the practices of their labour market. This has also been adopted in the UK legislation. Where a TWA offers a contract of permanent employment to the Agency Worker, beginning from the Agency Worker's first contract with the Hirer the Agency Worker may opt out of the right to equal pay as if they had been recruited directly by the Hirer. The other rights will remain. There are some specific rules about the nature of the permanent employment terms in this derogation. Notably, the worker must be paid between assignments at a minimum rate of the 50% of their highest paid week (from the last 12 weeks or during the whole assignment where it was less than 12 weeks) and not less than the National Minimum Wage based on the hours worked in that same week. A minimum of 4 weeks between assignments must be paid before the contract can be terminated (unless the worker resigns). It is expected that the permanent employment contract entered into before the first assignment will set out what kind of work (including location, pay, hours, nature of work) must be accepted by the worker.
Effects on Contractors
The AWR is likely to affect Agency Workers differently depending on their circumstances. Where skilled and relatively well-paid contractors are within the scope of the AWR, the 12 week rights will be unlikely to have a significant impact on their pay as most skilled contractors are already paid as well as their permanent counterparts. Unskilled and lower paid contractors (or temps) are more likely to benefit from either improved pay after the 12 week qualifying period or pay between assignments.
Agency Workers can anticipate an increase in the paperwork an Agency or Umbrella Company will require before an assignment in order to comply with the Regulations. They may enjoy better access to facilities and can expect equal access to the Hirer's employment vacancies from day one, however where they have been placed by a recruitment Agency, there will invariably be "transfer fees" required if they take a permanent or direct position with the Hirer. The Hirer is entitled to consider this when filling the position.
The Umbrella Company approach of paying remuneration via a combination of salary, bonus and expenses is still allowable under the new Regulations with the sum total being required to measure up to the equivalent permanent employee's gross salary. This means Umbrella contractors may still enjoy tax-relief on expenses within the new rules. As the gross income position will be considered for comparative purposes, increasing net pay will not reduce the rate required to match an equivalent permanent employee's income.
Pay Between Assignments Versus Equal Rates
An Agency or Umbrella Company may offer contractors a permanent employment contract with an opt-out of the AWR rights to equal treatment on pay. As described above such ‘Swedish Derogation' contracts must include pay between assignments. However the Agency or Umbrella will be entitled to offer contractors other work once an assignment ends. The initial contract will likely prescribe what work the worker is willing to take on subsequent assignments.
The Agency (or Hirer) is not obliged to disclose what the equivalent pay rate (as if hired directly) would be before the 12 week qualifying period is complete. A contract of permanent employment must be offered and accepted before the first assignment with a given Hirer in order to opt out of the right to equal pay. Therefore it may not be possible for an Agency Worker to make a precise financial comparison between a temporary contract where their pay may increase after 12 weeks on assignment and a permanent contract with at least 4 weeks of (partial) pay between assignments. However where an Agency is bound to pay between assignments they are also obliged to assist in finding that contractor a new role. The choice (if there is one) will boil down to the "possibility of more money" versus a "steady income".
PSC (Limited Company) Contractors
The AWR wording has deliberately steered clear of explicitly saying the rules do not apply to limited company contractors. Possibly for fear that this would cause a rush of incorporations by people using the structure to avoid the legislation. In fact, the inclusion of "intermediaries" within the definition of TWAs means that the contractor's company itself might fall within scope as a TWA and they as an Agency Worker even where no recruitment Agency is involved.
However the rules specify genuine business relationships and those of a professional supplying their services to a customer or client are outside the scope of the regulations. These are similar notions to those contained within the IR35 rules. As it is unlikely PSC (limited company) contractors will require the protection of the legislation - typically earning considerably more for their services than a permanent employee - it is unlikely a PSC contractor will want to make a claim that would also raise questions about their IR35 status. The largely aligned goals of ensuring the contractor remain outside the scope of the Agency Worker Regulations and outside of IR35 will mean PSC contractors find clients and Agencies much more willing to work with them to ensure the terms of their contract and working practice are those of a genuine business relationship.
To read the full AWR legislation click here.
This brief is for guidance purposes only. For individualised advice, more information about the AWR or any other matters affecting contractors or those who supply them please contact us. plan.it Services Limited is a regulated firm of Chartered Accountants.