Our last alert on the Agency Workers Regulations 2010 focused on the key legal points for employers to be aware of in relation to the Regulations. Following the Government’s recent publication of the guidance on the Regulations, this alert focuses on the steps employers may wish to consider in managing the impact of the Regulations on their workforce.

Are there any circumstances in which agency workers will not be entitled to equal treatment in relation to basic working and employment conditions?  

Yes. As we mentioned in our last alert on this topic, an agency worker will have the right to the same basic working and employment conditions as equivalent permanent employees (“equal treatment”) only if he/she has been working in the same role with the hirer for 12 continuous calendar weeks (although he/she will be entitled to ‘day 1’ rights even if they have not been working for 12 continuous calendar weeks). Therefore, an agency worker will not be entitled to such equal treatment where he/she:  

  • has not completed the 12 week qualifying period; or  
  • is genuinely self employed, engaged or employed directly by the hirer with no contractual relationship with anyone else, finds direct employment with an employer through an agency or is on secondment from one organisation to another.  

In addition, the Regulations contain an exemption in relation to the right to equal treatment but only insofar as it relates to pay. The exemption allows an agency to be able to derogate from the right to equal pay under the Regulations where an agency worker does complete the 12 week qualifying period.  

If the exemption is used, the agency worker will still be entitled to equal treatment in relation to duration of working time, length of night work, rest breaks and rest periods, and annual leave. The agency worker will also be entitled to ‘day 1’ rights.  

How does the exemption in relation to the equal treatment provisions on pay work?  

Where an agency worker completes the 12 week qualifying period, he or she will not be entitled to the same pay as if they had been recruited directly if the following apply:  

  • the agency worker has a permanent contract of employment with the agency which meets certain criteria (see ‘Permanent contracts of employment’ below);  
  • during any periods in which the agency worker is not working for a hirer, the agency takes reasonable steps to seek suitable work for the agency worker. For alternative work to be suitable, the nature of the work, and the terms applicable to the agency worker while performing the work, must not differ from the nature of the work and the terms included in their employment contract with the agency; and  
  • the agency pays the agency worker between assign• ments, i.e. during the periods when the agency worker is not working due to there being no available suitable assignments (see ‘How should pay between assignments be calculated?’ below).  

The agency should explain the exemption to the agency worker so they can make an informed decision as to whether they are willing to agree to forgo the entitlement to equal treatment in relation to pay and enter into a permanent contract with them. The purpose behind the exemption is to enable an agency and an agency worker to agree the minimum and maximum number of hours that they consider reasonable and a true reflection of their requirements in order to agree the terms of the permanent contract.

Permanent contracts of employment

To qualify for the exemption, the agency worker must:

  • be given a permanent contract of employment with the agency before the beginning of the first assignment; and  
  • agree the terms and conditions that will apply across assignments including the level of pay between these assignments.  

The employment contract must include the following:  

  • the minimum scale or rate of remuneration or the method of calculating remuneration;  
  • the location or locations where the agency worker may be expected to work;  
  • the expected hours of work during any assignment;  
  • the maximum number of hours of work that the agency worker may be required to work each week during any assignment;  
  • the minimum hours of work per week that may be offered to the agency worker during any assignment provided that it is a minimum of at least one hour;  
  • the nature of the work that the agency worker may expect to be offered including any relevant requirements relating to qualifications or experience; and  
  • a statement to the effect that entering into such a contract means that the agency worker does not, during the currency of the contract, have any entitlement to equal pay under the Regulations.  

When does pay between assignments apply?  

If an agency worker works for the whole or part of any week, they are counted as having been on an assignment for the full calendar week. Therefore, pay will not need to be made between two short assignments which fall within the same week. For example, if an agency worker has an assignment on Monday and his/her next assignment is on Friday during the same week, the agency worker is not entitled to be paid for the time he/she has not worked on Tuesday, Wednesday and Thursday.  

If, however, the agency worker has one assignment in a particular week and the next, say, after a period of two weeks, then he/she will be entitled to receive pay between those assignments calculated as set out above.  

How should pay between assignments be calculated?  

The rate of pay between assignments must not be below the National Minimum Wage and must be at least 50 per cent of assignment pay based on the highest level of basic pay which fell:  

  • within the 12 weeks immediately preceding the end of the previous assignment, where the assignment lasted for longer than 12 weeks; or  
  • during the assignment, where the assignment lasted for 12 weeks or less.  

Terminating a permanent contract providing pay between assignments  

If pay between assignments has reached an aggregate of at least 4 weeks, the agency can legitimately terminate the contract without having to make any further payments under the Regulations. The 4 weeks’ pay must be paid before the contract can end, unless the agency worker resigns. Therefore, if this obligation has been met during the contract, the agency worker does not have to be paid again at the end of the contract. So, for example, if a contract has been running for 6 months during which the agency worker has been paid 4 weeks’ pay between assignments, then the agency will not need to make another payment of 4 weeks’ pay if the contract is terminated at 6 months.  

If an agency terminates a permanent contract providing pay between assignments, it needs to bear in mind that other contractual obligations such as notice pay will still apply. In addition, if the agency worker has accrued one year’s service, he/she will have unfair dismissal rights.  

Anti-avoidance measures

A ‘zero hours’ permanent contract will not meet the requirements of the exemption under the Regulations and the guidance on the Regulations confirms this. The guidance also states that agencies and hirers should not structure arrangements in a way that deprives agency workers of protection provided by pay between assignments because this could lead to a legal challenge.

How might a hirer take advantage of the exemption under the Regulations?

A hirer could engage agencies that use the exemption, which could save costs that might otherwise have been passed on to the hirer as a result of the agency having to provide equal treatment in relation to pay.  

A hirer could also reach an agreement with an agency to share any costs of having to pay the agency worker the minimum pay between assignments. As long as an aggregate of not less than 4 weeks’ minimum pay is made to the agency worker during his/her contract and the agency has taken reasonable steps to find a suitable assignment, an agency could terminate its contract with the agency worker without being caught by the equal treatment provisions on pay. In such circumstances, a hirer could find itself in a situation where it only has to share the costs of the agency having had to pay the 4 weeks’ minimum amount between assignments.  

What other measures could a hirer take to avoid or mitigate the impact of the Regulations?

Hirers could take one or more of the following other measures to avoid or mitigate the impact of the Regulations:

  • Limit the use of agency workers to assignments lasting less than 12 weeks. However, it is important to bear in mind that there are anti-avoidance provisions in the Regulations that address situations where a pattern of assignments emerges that is designed deliberately to deprive an agency worker of his or her entitlements.  
  • Engage self-employed contractors instead of agency workers. The Regulations do not apply to those who are in business on their own account where the status of the hirer is that of a client or customer (i.e. a genuine business to business relationship).  
  • Increase the use of employees on fixed-term contracts.  
  • Create an “in-house” bank of casual staff or workers on zero-hours contracts. Such staff are unlikely to be caught by the Regulations where a hirer employs its temporary workers directly and they are only supplied to work for that same business.  
  • Increase overtime available to existing staff.  
  • Use fewer agencies to keep costs down and attempt to negotiate exclusivity deals in exchange for agencies agreeing to absorb some of the additional costs.
  • Outsource any discrete services that are performed by agency workers, although additional issues and costs may arise as a result (for example, as a result of TUPE). Bear in mind too that, if the service provider uses agency workers who work under the supervision and direction of the hirer, those workers will still be caught by the Regulations.