The landscape for agency workers is about to change. On 1 October 2011 UK regulations implementing the EU Directive on temporary agency workers will come into force.

Key changes

There are two types of rights under the Agency Workers Regulations 2010 and it is not possible to contract out of these rights in advance.

Day 1 rights

These will apply from the first day of an agency worker's assignment, on or after 1 October 2011.  

The employer hiring agency workers (and not the agency) is responsible for providing:

  • access to information about relevant vacancies
  • access to collective facilities and amenities.

Week 13 rights

These apply once a worker has worked for 12 weeks in a particular role, ignoring any time prior to 1 October 2011. The rights are to pay and certain working conditions as if the worker had been recruited directly by the employer hiring them.

The employer must provide information about the rights to the agency, and the agency is responsible for paying the worker appropriately. There are potential remedies against both the employer and the agency, depending on who is responsible for any breach.  

Business impact

Both agencies and employers hiring agency staff will face an increased administrative burden and potential additional cost. Employers will be affected whether they use temporary staff only to cover employees on leave or as a permanent part of their staff resource. The supply of temporary workers may also be caught even if the supplier is not a traditional agency, but rather a group company. So all employers should be considering which of their arrangements may be covered and taking steps to prepare now.

Government Guidance on the new rights is available (see links), but bear in mind that this is not binding on employment tribunals.  

(Note that the Regulations do not impact on whether an agency worker can claim that they should really be considered an employee of the agency or indeed of the employer hiring the worker.)

Who is covered by the Regulations?

Meaning of an "agency worker"

An agency worker is an individual who is supplied by an agency to work temporarily for and under the supervision and direction of an employer hirer AND who has a contract with the agency which is a contract of employment or a contract to perform work and services personally, BUT NOT where the status of the agency or employer is as client or customer of the individual's profession or business undertaking. The Government's Guidance suggests that this latter phrase excludes individuals in business on their own account. "Temporary" is not defined.

The use of intermediaries, such as a personal services company or an umbrella company, does not by itself take a worker outside the scope of the Regulations.  

From a practical perspective, those who are claiming self-employed status for tax purposes may be reluctant to claim rights under the Regulations for fear of damaging their tax status.  

Meaning of a "temporary work agency"

A temporary work agency ("TWA") is an entity whose activities include the economic activity of supplying individuals to work temporarily for and under the supervision and direction of the employer hirer (or dealing with payments for such individuals). The activity does not have to be for profit.

This potentially covers entities that are not traditional "agencies". It also covers intermediate agencies used to manage the process of recruiting temporary workers.  

Arrangements not covered

Arrangements which are outside the scope of the Regulations include managed service contracts, in-house staffing banks, and the employment of permanent staff by group service companies.

Intra-group staffing banks could be covered, if one group company is supplying temporary workers to another. Another area that was not intended to be caught, but which the drafting arguably does cover, is secondment to a client. The Guidance states that the Regulations only apply where the entity supplying the workers is doing so as its main activity, which will not usually be the case for client secondments. However this 'main activity' test is not set out in the Regulations themselves.

Day 1 rights

These rights only apply where there is an actual comparable employee or, if no employee, worker. For access to collective facilities, there must be a comparator at the same or another establishment of the employer hiring the workers; for vacancy information there must be a comparator at the same establishment. The comparator must do the same or broadly similar work having regard, where relevant, to whether they have a similar level of qualification and skills.

Access to collective facilities and amenities

This right only applies to collective facilities or amenities provided by the employer, not to benefits involving access to, or discounts in relation to, facilities provided by a third party. Examples of facilities covered include access to a staff canteen, workplace crèche, prayer room, and car parking.

The workers have the right to the same treatment as a comparator, so a waiting list can be applied to agency workers in the same way as the comparator employees. There is also a defence that refusal of access is objectively justified. The Guidance suggests that practical and organisational considerations will be relevant to justification, as may costs (although probably only in conjunction with another factor). The Guidance also suggests that employers may wish to provide partial access rather than exclude agency workers altogether, as a matter of best practice.  

"Treatment in relation to collective facilities" could arguably include more than access to those facilities, for example it might include subsidies for employer-provided facilities for which employees pay. However, the Guidance indicates that this was not the intention, as it expressly states that whilst access to a staff canteen is covered, the ability to buy subsidised meals in the canteen is not. This is supported by the exclusion from week 13 pay rights of monetary value attaching to any benefits in kind (save for luncheon vouchers, which do have to be matched – see below). Of course the practical burden of having two sets of prices may dissuade an employer from seeking to deprive agency workers of such a subsidy.  

The Guidance notes that most facilities covered will be on-site, but off-site facilities could also be covered if provided by the employer, for example transport between sites, or a canteen shared with another company.  

Employers will need to prepare a list of relevant amenities and ensure that from day one of their assignments agency workers have the same information about and access to these as is given to direct recruits. Employers wishing to use the agency to provide this information to agency workers should ensure they obtain an indemnity for claims arising from the agency's failure to pass it on.

Access to information on job vacancies

Agency workers have the same right as their comparator to be informed by the employer of any "relevant" job vacancies with the employer. There is no objective justification defence here, but the right only relates to information about "relevant" vacancies. This is not defined, but the Guidance suggests that it would not cover posts which have been ringfenced for redeployment of internal staff otherwise facing redundancy or to an internal restructuring of roles.

The Guidance also makes clear that this right does not impinge on an employer's ability to set a qualification or service requirement for a post, nor on how they treat applications – so an employer might still decide to give preference to applications from internal employees.  

The right is to parity of information, not to the same means of communication of the information as the comparator. The Regulations state that a general announcement in a suitable place in the employer's establishment can be used.  

Employers may wish to include details of how to access vacancy information (eg, details of an intranet page) in an induction pack which they or the agency gives to workers. Employers using the agency to provide this information should seek an indemnity for claims arising from the agency's failure to pass it on.  

Week 13 rights

Once an agency worker has completed 12 continuous weeks in the same role with the same employer, they will be entitled to the same basic working and employment conditions (reflecting the worker's own qualifications and skills as appropriate) as if they had been recruited by the employer directly to that role at the start of the 12 week period (whether as an employee or worker).

Only terms and conditions that are "ordinarily included" in an employee's or worker's contract with the employer are covered. These terms may be written or oral, express or implied (eg, through custom and practice), and may be set out in standard contracts, pay scales or structures, collective agreements, company handbooks or other agreements. One-off arrangements will not need to be matched.

There is no requirement for an agency worker to point to an actual comparator if they can establish in some other way what the terms would have been had they been recruited directly. However, an employer will have a defence to a claim if it can show parity of treatment with an actual comparator. A comparator is someone engaged by the employer to do the same or broadly similar work (having regard, where relevant, to whether they have a similar level of qualification and skills) at the same establishment as the agency worker or, if there is no-one at the same establishment, a different establishment. There is no objective justification defence.  

The only types of terms and conditions covered are those relating to:  

  • pay
  • duration of working time
  • night work
  • rest periods
  • rest breaks
  • annual leave
  • paid time off for ante-natal care.

The EU Directive allowed member states to define pay for these purposes and the UK has chosen to link it closely to pay for actual work done rather than benefits intended to reflect the different nature of a permanent employment relationship (see further below). It is the agency that will be responsible for paying the worker correctly; the employer hiring the worker will be liable only if it has failed to provide the agency with the correct pay information.  

An agency's contract with the agency worker will need to reflect the appropriate terms on breaks, working hours and leave, and the agency will be responsible for ensuring the worker is paid appropriately in respect of these. The employer hiring the agency worker will need to confirm the terms to the agency, and allow the agency workers to take the relevant breaks and leave in practice.  

Taking annual leave as an example, if comparable direct recruits would be entitled to contractual holiday in excess of the statutory minimum, so will agency workers, although this excess can be paid in lieu at the end of the assignment or as part of an hourly/daily rate.  

Pay

Pay is defined as sums "in connection with the worker's employment, including any fee, bonus, commission, holiday pay or other emolument referable to the employment, whether payable under contract or otherwise" subject to the following exceptions:

  • company sick pay
  • employer pension contributions (but note that pension auto-enrolment in force from October 2012 will apply to agency workers)
  • company family-related leave pay
  • notice periods and redundancy pay
  • other benefits or payments in kind, except exchangeable monetary vouchers (which do have to be matched)
  • bonuses which are not directly attributable to the amount or quality of the worker's work and given for a reason other than the amount or quality of their work, such as to encourage loyalty or reward long-term service (eg, bonuses based on overall company performance with no recognition of individual contribution)
  • pay advances, loans, expenses
  • payments for statutory paid time off, guarantee payments
  • financial participation scheme payments eg, phantom share schemes

Bear in mind that pay which is not ordinarily included in contracts of direct recruits will not have to be matched, eg, one-off truly discretionary bonuses.

In relation to pension, the assumption is that employer contributions are excluded, but there is a note of caution. The wording in the Regulations excludes "any payment by way of a pension, allowance or gratuity in connection with the worker's retirement". Arguably that could be read as only excluding payment of the pension itself, rather than the presumed intention of excluding all employer contributions to pension schemes.

This position is further obscured by the reference in the Guidance to the exclusion of "occupational pension contributions", which some would understand as meaning occupational schemes and not contributions to personal pensions; again occupational should probably be understood as meaning employer-related contributions whatever the type of scheme.

The position for allowances such as car allowance or luncheon allowance is slightly unclear. These are presumably covered by "payments in kind" (at least if there is an expectation that the employee will provide a car for business use/have lunch during working hours, so that the allowance is not viewed as basic salary under another name) and therefore do not have to be matched. In contrast, monetary luncheon vouchers would have to be matched.  

Items that do have to be matched will include:  

  • basic salary (including any annual increases)
  • contractual holiday pay
  • overtime pay rates (though these would only have to be paid for hours over the standard hours threshold, not simply working a shift that direct recruits tend to do as overtime)
  • unsociable hours payments (shift allowances, danger money)
  • exchangeable monetary vouchers eg, luncheon or childcare vouchers (though the Guidance states that these need not be matched if they are paid for by salary sacrifice, rather than being additional to basic pay, presumably because there will be an obligation to match the unreduced original pay level)
  • commission/bonus based on the amount or quality of the individual's work. The Guidance suggests that this will include hybrid bonuses where company performance determines the bonus pot which is then divvied up according to individuals' personal performance. Employers will need to consider carefully whether and to what extent their particular bonus arrangements are covered by the Regulations, particularly if bonus is determined by a number of factors, only one of which is individual performance, or where part of the bonus is paid in cash and the rest in some form of share incentive.

The obligation is to treat agency workers as if they had been employed directly, so it is perfectly acceptable to impose the same service level qualification (eg, for bonus eligibility) on both agency workers and employees, even if in reality few agency workers' assignments would last long enough for them to benefit. Once an agency worker has completed the 12 week qualifying period, they must be treated as if they had been directly recruited at the start of their assignment – which means that service from the first day of the assignment (on or after 1 October 2011) is counted to determine such eligibility. Similarly, if bonus is paid pro rata for the period of the bonus year served, presumably all time from the start of the assignment (on or after 1 October 2011) is counted once the agency worker has accrued the right to bonus.

This raises an issue where an agency worker's assignment starts shortly before the end of the bonus year –an employer may not know at the end of the bonus year whether an agency worker will go onto complete 12 weeks, and only if he does will he be entitled to bonus for the last few weeks of the bonus year when he was working. Employers may wish to start thinking about the design of their bonus schemes to minimise the issues, eg, imposing a minimum six month service requirement for eligibility or an obligation to be in post at the bonus payment date. As long as these are imposed equally on agency workers and employees, this is permitted.

The obligation to match performance-related bonuses means that agency worker performance will have to be assessed in some way, as agency workers must be given the same opportunity to achieve a bonus. The Guidance notes that it will not be necessary to fully integrate agency workers into the employer's performance appraisal system, but that this may be easier. Where an appraisal covers career development as well as assessment for bonus purposes, an employer could modify the process and use a shorter appraisal for agency workers.  

Given that inclusion in an appraisal system can be seen as an indicator of employment status, employers including agency workers in their process should expressly state that this is solely pursuant to the Regulations.

Term-by-term or aggregate approach

One key question is whether agency workers are entitled to have each constituent of pay matched, item by item, or whether an aggregate package comparison can be made. This is particularly important for those sectors where agency workers tend to be paid higher basic pay but none of the add-ons. The Regulations themselves (and the EU Directive which they implement) do not expressly set out whether elements of pay can be offset against each other and therefore many commentators take the view that a term-by-term comparison will be required. Supporting this view is the fact that (i) fixed term employee legislation specifically provides for an aggregate approach, providing that less favourable treatment is regarded as justified on objective grounds if the terms of the fixed term employee's contract of employment, taken as a whole, are at least as favourable as the terms of the comparable permanent employee's contract of employment – there is no such equivalent in these Regulations, and (ii) because there is only a right to partial equality (ie some terms do not have to be matched), it has been suggested that this supports the idea that each individual term does have to be matched directly.

Prior to issuing the final Guidance, the Government's view was that a term-by-term analysis was required. Despite representations that the issue should be directly spelt out in the Guidance, the Government chose not to do so. The Guidance does contain a table indicating that basic pay must be matched, which it states means annual salary, then notes that "to this may be added some or all of the other contractual elements below and includes shift/unsocial hours/pay and risk payments for hazardous duties". There is no explanation of this ambiguous comment. It is possible that the Government is suggesting that the Regulations permit a half-way house of aggregating pay terms which are a rate for specific types of hours worked, but not other pay terms (such as holiday pay, or vouchers). For example, where the relevant time would be overtime/unsocial hours for an employee, is the agency worker getting an hourly rate at least equal to the total hourly rate the employee would receive for those hours? There is no definitive answer in the Regulations themselves and the Guidance is not binding on tribunals; we will not have a definitive answer until there is tribunal case law. On a practical level it is perhaps less likely that an agency worker will feel sufficiently aggrieved to bring a claim in relation to, say, overtime uplift where their basic pay already exceeds a comparable employee's basic pay plus overtime uplift.  

The 12 week qualifying period

An agency worker acquires these new rights once they have worked for 12 continuous calendar weeks in the same role for the same employer, counting time on/after 1 October 2011. This could be through more than one agency, and could be in one or more departments or worksites for the same employer. Any week during which the worker carries out some work counts as a calendar week. The Guidance suggests that weeks are counted starting from the day of the week on which the assignment begins.

The worker will be treated as carrying out the same role unless the work or duties making up the whole or main part of the role are changed to become substantively different AND the agency has informed the worker in writing of the type of work for the new role. The Guidance suggests that relevant factors in deciding whether a role has changed include: differences in skills and competences used, pay rate, location/cost centre, line manager, hours, training requirement, and equipment. It gives the example of a move from a production line to a packing line, which is probably not a substantively different role where both require little training and use the majority of the same skills. This is contrasted with a move from a production line to an administrative role.  

There are anti-avoidance provisions which apply on the third assignment with an employer or one of its connected companies (companies are treated as connected if one company directly or indirectly has control over another or a third person directly or indirectly has control over both), or on the third role during an assignment with an employer. If the most likely explanation for this structure of assignments/roles is an intention to avoid the worker accruing week 13 rights, then the changes to the employer entity/role are ignored in calculating whether the worker has accrued the 12 week qualifying period.  

There are also provisions pausing the clock or allowing it to continue during breaks in assignments/absences.

The clock pauses during:  

  • breaks or absence of up to 6 weeks
  • up to 28 weeks' illness
  • leave entitlement (including statutory holiday, and maternity leave not covered by the intended assignment period – see below)
  • up to 28 weeks' jury service
  • regular planned company shutdown
  • strike, lock out, industrial action at hirer.

The clock continues to tick for the intended or likely length of the assignment during:

  • breaks due to pregnancy, childbirth or maternity taking place while pregnant or in the period up to 26 weeks after childbirth
  • breaks due to statutory or contractual maternity/adoption/paternity leave (where the worker is an employee of the agency).

Pregnant workers

Pregnant workers who have worked the qualifying period are entitled to paid time off to attend ante-natal appointments. Once an agency worker has notified her pregnancy, there are also new obligations on the employer to carry out a risk assessment and make reasonable adjustments to hours or working conditions if necessary to avoid identified risks to health and safety while the worker is pregnant, has given birth in the last six months or is breastfeeding. If the risk would remain notwithstanding any reasonable adjustments, the employer must notify the agency which must then end the assignment. It is then for the agency to offer any suitable alternative assignment (at the same or a higher rate of pay) or, if none, continue to pay the worker for the duration of the terminated assignment.

Remedies

Basically agencies and employers will be liable to the extent that they are responsible for breaches of the Regulations. This will be the employer with regard to day 1 rights. In relation to week 13 rights, a claim to comparable pay will be against the agency, although the agency has a defence if it took "reasonable steps" to obtain relevant information about the employer's basic working and employment conditions and any comparator, acted reasonably in determining the terms applicable to the agency worker, and (to the extent responsible) has treated the agency worker accordingly; in that event the employer will be liable.

Agency workers have the right to (but are not obliged to) request information about their rights from the agency or employer prior to making a tribunal claim. Responses have to be given within 28 days and a tribunal can draw an adverse inference from the response. There is a three month time limit for tribunal claims, or longer if just and equitable.  

Tribunals can made a declaration, recommendation, or award just and equitable compensation to reflect the nature of the breach and any consequent loss of earnings (subject to a usual minimum of 2 weeks' pay for breach of week 13 rights). They can also make an additional award of up to £5,000 for breach of the anti-avoidance provisions.  

Compensation can be reduced if the agency worker has contributed to the breach (for example by failing to alert the agency that they have accrued the qualifying 12 week period as a result of a previous assignment through a different agency).  

Agency workers are also protected from being subjected to detriment or unfair dismissal for asserting these new rights.

Other changes

Agency workers will be included in applying certain statutory thresholds, eg, in relation to a request to an agency to form a works council or health and safety body, and statutory recognition and derecognition of unions.

There is also a new obligation to provide agency worker information to employee representatives with statutory information and consultation rights (eg, on a TUPE transfer, collective redundancies, works councils, collective bargaining). They must be provided with details of the total number of agency workers engaged by the employer, the areas of the employer's business in which they are engaged, and the type of work they are carrying out.

Avoiding the new rights?

Steps employers could take to minimise the impact of the Regulations include:

  • limit the use of agency workers to a maximum of 12 weeks, or 12 weeks followed by a break of more than 6 weeks followed by a further period of no more than 12 weeks – but remember that anti-avoidance provisions will apply on the third assignment, and employers need to be confident of their record-keeping to ensure a worker does not slip through the net, eg, by being supplied by a different agency or to a different department
  • change workers between hirers (eg, group companies) or roles – but note that the anti-avoidance provisions apply on the third change
  • use only agency workers for certain roles, outside existing pay structures (so there is no actual comparator
  • use their own in-house staffing bank – eg, fixed term employees, zero hours contracts
  • use self-employed contractors/outsource
  • increase overtime offered to existing staf
  • seek workers through an agency which employs its workers directly on a permanent contract of employment with a minimum level of pay between assignments – the "Stockholm derogation" – in this case the workers do not have the right to parity of pay (but the other rights to holiday etc still apply).
  • reduce the number of agencies used to keep costs down and negotiate a better deal on fees and indemnities; it will be down to individual negotiation whether any required increase to pay/provision of holiday etc is paid for by the employer or agency.

Practical steps

Impact assessment

The first step for many employers will be to carry out an impact assessment for their business. This will involve an analysis of:

  • how many agencies do you use?
  • are there any intermediaries?
  • how many agency workers do you have (taking a broad approach) and what is their employment status (are they employed by an agency, self-employed, engaged through an umbrella company or personal service company)?
  • what is the typical length and pattern of assignments? If assignments are short, are they regularly extended or repeated? What is the average break between assignments? Do you use agency workers seasonally?
  • what areas of business use agency workers
  • are agency workers moved around the business/group or do they tend to return after breaks?
  • are there direct comparators for these roles?
  • are there pay structures for these roles?
  • what are the ordinary contractual terms re overtime pay, commission, bonuses, holiday, working hours, breaks?
  • how are bonuses appraised?
  • what collective facilities do you offer to staff and who has access to them?
  • how is vacancy information made available to staff?

Systems

Employers should review or create systems for:

  • recruiting agency workers
  • dealing with information requests from agencies
  • updating agencies' information when terms change eg, annual pay review
  • recording periods worked by individuals (NB different areas of business, group companies)
  • providing workers with access to vacancy information
  • providing workers with information about and access to collective facilities
  • dealing with requests from workers for information about their rights and dealing with complaints about breach to try and avoid tribunal claims.

Relationship with agencies

Employers will also need to review the number of agencies they use and their terms of business. One issue may be whether the employer wishes to provide the required week 13 information from day 1 and agree that the fee will be charged and workers paid as if these rights applied from day 1 – although potentially more expensive, it could avoid inadvertently breaching the Regulations by failing to appreciate when the 12 week point has been reached.

The terms of business may need to address the apportionment of liability for claims arising from:  

  • failure to spot that a worker has accrued 12 weeks (eg, if through a different agency or where a change of role turns out not to be substantially different from the previous role)
  • failure to provide comparable rest breaks etc
  • failure to provide accurate pay information
  • if bonuses are paid, a challenge to a worker's appraisal rating
  • if a worker thought to be in business on their own account turns out to be in scope
  • failure to pass on facilities/vacancies information (if appropriate)
  • maternity claims

Policies and training

Employers should also take this opportunity to:

  • review policies applicable to collective facilities
  • review appraisal schemes - consider including express provision for agency workers
  • review the status of alleged self-employed workers
  • if there are unions, liaise with regard to implementation plans
  • communicate the changes to the workforce
  • train managers involved in recruitment.

Conclusion

The Regulations are likely to have the greatest impact on agencies themselves but there will also be a direct impact on employers hiring agency workers. Employers will have to provide more information to agencies about the terms and conditions of their employees, but will also potentially face a significant indirect impact if agencies seek to pass on extra costs to the employers. Now is the time to review your use of agency workers - time is running out…..