Agency Workers Directive seminar


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Blake Lapthorn solicitors' Recruitment sector group held a seminar on the Agency Workers Directive during September 2009.

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Agency Workers Directive seminar

  1. 1. The Agency Workers Directive - what has the consultation process to date revealed about how staffing companies will operate in the future? Frances Lewis and Kevin Barrow Recruitment sector group September 2009
  2. 2. Agenda Welcome and introduction – – Kevin Barrow Who is an “agency worker” and what rights will they have? – – Frances Lewis Likely workarounds and wider implications – – Kevin Barrow Q&A © Blake Lapthorn 2009
  3. 3. Agenda: who is an “agency worker” and what rights will they have? Introduction Where are we now? What rights will "agency workers" have? Comparator problems? What type of temporary worker will be covered? © Blake Lapthorn 2009
  4. 4. Introduction Directive first proposed in 2002 by Economic and Social Affairs Committee of EU: anti-agency working Blocked for five years by UK and some others (qualified majority vote required) October 2008 – AWD became European law: UK required to implement within three years whoever is in power in UK UK Government change of stance because of – Polish Government change (= loss of blocking minority) – Labour back bench pressure – UK union pressure © Blake Lapthorn 2009
  5. 5. Where are we now? May to July 2009 - First round of BIS consultation on “general principles” of implementing AWD in the UK Late Sept 2009? - First draft of the implementing Regulations Late Sept to late Oct 2009? - second 4(!)-week consultation on draft Regulations End of 2009? – Laid before Parliament for approval April 2010? – Come into force (latest – end 2011) May be transitional provisions for existing ‘temps’ © Blake Lapthorn 2009
  6. 6. What rights will "agency workers" have? Directive = equal treatment from day 1 (as in 2002 draft) CBI-TUC “least worst” option deal in May 2008 – 12-week qualifying period under UK legislation – occupational social security schemes (pensions, occupational sick pay, financial participation schemes) = outside scope © Blake Lapthorn 2009
  7. 7. What rights will "agency workers" have? 12-week qualifying period – anti-avoidance measures – consulting on “gap” between assignments – BIS = four weeks – other proposals = length of assignment if < four weeks – new role = new qualifying period? Same "basic working conditions" as comparable permanent employee – does NOT confer or imply employment rights “Basic working conditions" = pay, working time, holiday and sick pay © Blake Lapthorn 2009
  8. 8. What rights will "agency workers" have? What will “pay” include? – not defined in Directive – proposals for basic hourly pay – keep simple Plus – other contractual entitlements linked to the work undertaken by the agency worker while on assignment. holiday pay [CBI – WTR entitlement sufficient] overtime shift allowances unsocial hours premiums and bonuses and bonuses relating to personal performance, eg based on piece-work © Blake Lapthorn 2009
  9. 9. What rights will "agency workers" have? What will “pay” not include? – benefits such as share participation, – profit sharing schemes – car allowances Notice of permanent vacancies – notice board? Intranet site? – proposal – no requirement to advertise staff re- deployment vacancies? © Blake Lapthorn 2009
  10. 10. What rights will "agency workers" have? Access to onsite facilities – canteen, childcare facilities, transport facilities Access to training – BIS proposal – encourage access to government training Rights for pregnant and new mothers – eg paid time-off to attend ante-natal appointments BUT – is there a comparable permanent employee with whom to establish equal treatment? © Blake Lapthorn 2009
  11. 11. Comparator problems? Right to same benefits, etc. as “comparable” perm Proposal that comparator must be: – real person – performing “same job” as individual who has been “recruited directly” by the user organisation CBI proposal: – same job description – same skill level – same workplace – same shift pattern Pay scale? – same treatment as new starter No real comparator = no equal treatment? © Blake Lapthorn 2009
  12. 12. Who is an "agency worker"? Directive definitions – “..worker with a contract of employment or an employment relationship with a temporary-work agency with a view to being assigned to a user undertaking to work temporarily under their supervision and direction” – Temporary-work agency “…any person who, in compliance with national law [?], concludes contracts of employment or employment relationships with a temporary agency workers in order to assign them to user undertakings to work there temporarily under their supervision and direction” BIS proposes that the following types of worker will fall within scope: – PAYE temps engaged by employment business – anyone who undertakes “personally” to work for the end user – umbrella company workers (how to define? payment threshold?) © Blake Lapthorn 2009
  13. 13. Who is an "agency worker"? BIS proposes to exclude: – personal service company contractors – genuinely self-employed e.g. scoped deliverable – agency workers working on “managed service contracts” = services controlled and delivered by service provider Unclear as to how “exclusions” will work – difficult to define – subjective assessment – uncertainty, particularly re limited company contractors, umbrella company workers and self-employed workers © Blake Lapthorn 2009
  14. 14. Summary: who is an “agency worker” and what rights will they have? Draft Regulations this month Four-week consultation period Regulations to apply from April 2010 (?) PAYE temps in scope but uncertainty re umbrella and limited company contractors 12-week qualifying period Occupational schemes excluded Real comparator? © Blake Lapthorn 2009
  15. 15. Agenda: likely workarounds and wider implications How will end users be affected? How will staffing companies be affected? Possible workarounds Wider implications © Blake Lapthorn 2009
  16. 16. How will end users be affected? Direct effects on end users? Administrative burden – agencies and end users will need [within 12 weeks?] to assess if agency worker is caught and if so compile data about pay – consultation thresholds Claims against end user? – (currently seems unlikely that end user will be deemed primarily liable in the event of claims) – failure by end user to provide correct up to date data could make the end user liable for claims made by agency workers © Blake Lapthorn 2009
  17. 17. How will end users be affected? Direct effects on end users? Higher cost of agency workers – widely reported concerns that equal "pay" requirements will lead to increased costs – lower paid agency workers? – higher paid professional/technical agency workers? Cost of providing other benefits, etc.? – holiday pay? (CBI suggestion of WTR already provided by staffing companies for PAYE temps) – facilities? Anti-natal etc. – training? (“dialogue to improve access to training”/access to Govt training schemes) – access to vacancies? (notice boards; redeployment?) © Blake Lapthorn 2009
  18. 18. How will end users be affected? Indirect effects on end users? May have to come to terms with new contracting models designed to avoid application of AWD e.g. discontinuity resulting from churn to exploit 12 week rule may: – reduce cost effectiveness of agency workers? – increase training/on-boarding costs Concerns about providing pay data about comparators to recruiters? Will be asked by staffing companies to sign new contract terms setting out obligations to provide data [Easier to take agency workers temp to perm?] © Blake Lapthorn 2009
  19. 19. How will end users be affected? Indirect effects on end users? Put off using agency workers! 71% of UK employers say they will be damaged by these measures (Manpower/ Personnel Today Survey) BUT – arguably the AWD now gives agency workers (and Tribunals) a framework under which a specific class of agency worker can claim (relatively) limited rights to comparable basic pay – …which is better than the current position under which various classes of agency worker assert rights as direct employees of the end user, and sympathetic Tribunals feel their only recourse is to “find” employment status – …which could trigger serious tax and class action employment claims for end user per US experience © Blake Lapthorn 2009
  20. 20. How will staffing companies be affected? Costs will all be passed on to staffing company? – Increased pay rates will get deducted from margin? – Cost of comparator exercise will be born by staffing company? – Indemnities will be requested from staffing companies? © Blake Lapthorn 2009
  21. 21. How will staffing companies be affected? Staffing companies will have to request "comparator" information: – if commercially sensitive: offer confidentiality/non poach undertakings and/or have chinese walls? – offer “comparator consultancy” as a value add? – at what stage will comparator information need to be provided? – contract terms may need to be re-written to include obligations of end user to co-operate and provide data Not yet clear how compliance will work in practice – may have to change working practices and contractual arrangements at short notice – what about temporary workers already under contract? © Blake Lapthorn 2009
  22. 22. How will staffing companies be affected? Some may move away from supplying lower paid workers Some may be attracted to new contracting models, moving away from “casual” agency worker relationships of the past – will have to be implemented quickly More “churn”: – helps margin where sliding scales apply, but more work finding new candidates and potential loss of contract every 11 weeks? – helps arguments about the tax efficiency of travel, subsistence and accommodation expenses (not a “permanent place of work” if moved from end user to end user) – elaborate systems of agency worker swaps between end users? Immediate issue: education of clients © Blake Lapthorn 2009
  23. 23. Likely workarounds Swedish derogation: – employed contractors: employed by supplier – paid between assignments? – staffing company factors employment costs into margin? – (tax efficiency: tax free travel, subsistence and accommodation expenses ?) Umbrella workers? – no “employment relationship” or contract with staffing company = not an “agency worker” under the Directive? – debate about inclusion of umbrella workers below a payment threshold – interplay with Swedish derogation © Blake Lapthorn 2009
  24. 24. Likely workarounds Limited company contractors – (how this exemption will work depends on final draft Regulations – will HMRC be happy to see BIS make limited company contracting more attractive?) Working on a “project” basis without end user “supervision or direction” – paid for delivering pre scoped deliverable – substitution rights: not personal service – (helps employment risk as well) – (helps IR 35) – (EU model, and growing in US) © Blake Lapthorn 2009
  25. 25. Likely workarounds 11-week appointments: – what will break continuity? – there will be anti-avoidance mechanisms – end user concerns about churn? – (may help employment risk as well but beware discrimination claims) Pay structure – focus on basic pay means end users will look ever more at benefits/bonuses/etc. for perms – (problems at lower paid end of market) © Blake Lapthorn 2009
  26. 26. Likely workarounds Comparator tactics: appoint agency workers as trainees for comparator purposes – French model Workplace agreements – override AWD rights – what will Union appetite be? – (will some Unions become employers of lower paid temps?) © Blake Lapthorn 2009
  27. 27. Wider implications Employment rights risk and AWD challenge may lead to: – trend towards employed model for many types of workers in many sectors? Allows use of travel, accommodation and subsistence expenses – trend towards end users setting up their own umbrella companies: allows VAT mitigation, and staffing company becomes margin-only introducer of candidates (some end users are considering employment claims risk is worth taking in return for VAT saving) – umbrellas directly contracting with end users in respect of certain types of worker (as part of trend away from regarding staffing companies as “owners” of candidates)? – reduction in use (on longer assignments) of PAYE workers paid under ss44-47 ITEPA? © Blake Lapthorn 2009
  28. 28. Wider implications Employment rights risk and AWD challenge may lead to: – trend towards shorter term engagements and “churn” amongst lower paid? Long-stayers managed out? – use of limited company contractors/project agreements (specialist higher paid contractors are likely to be relatively unaffected, especially if not “controlled”)? – staffing companies being asked to provide consultancy support re pay rates as part of comparability exercise: chance for more sophisticated suppliers to build deeper relationships? © Blake Lapthorn 2009
  29. 29. Wider implications Pensions Act - contribution obligations relating to agency workers from 2012. May add to trend towards employed models via umbrellas? Not clear whether tax implications of AWD have been considered. HM Treasury may insist on changes if the Regulations encourage contracting models which reduce HMRC’s tax take – churn assists exploitation of tax free payment of expenses via “employed” models – renewed attraction of personal service company contracting if all umbrella workers are within the AWD regime © Blake Lapthorn 2009
  30. 30. Wider implications Litigation? – BIS seem not to have been given sufficient time to draft the regulations tightly enough to avoid uncertainty – uncertainty will therefore have be resolved in the Tribunals and Courts – it will cost agency workers nothing to bring a claim in a Tribunal – class actions led by US style law firms? BUT proper planning should mean that staffing companies and end users can set up contracting models avoiding major risk, and allowing safe use of agency workers © Blake Lapthorn 2009
  31. 31. Conclusions Now EU law UK Regs have yet to be finalised but will be finalised soon Don't panic - a lot of scaremongering out there – unlikely to apply to all agency workers, and little effect in many cases Identify which, if any, of your temporary workforce may be affected and break down by skill sets and pay grades Staffing companies and end users need to start talking to each other about possible “workarounds”: no single solution will suit one and all – different industries will adopt different solutions for different skill sets and pay grades BUT there will be solutions Keep an eye on updates throughout the Autumn and Winter (Drafting problems may lead to delay beyond Spring?) © Blake Lapthorn 2009
  32. 32. If you have questions on this or other related topics, please contact: Blake Lapthorn is an English law firm regulated by the Solicitors Regulation Authority under SRA number 448793 whose rules can be accessed via This presentation is protected by copyright and is not a substitute for detailed advice on specific transactions and problems and should not be taken as providing legal advice on any of the topics discussed. A full list of our partners is available on our website at or at any one of our offices © Blake Lapthorn 2009