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The Agency Worker Regulations came into force on the 1st October 2011. They essentially regulate the working conditions of temporary workers by affording them the same pay, working hours and holiday allowances as regular employees. The agency worker qualifies for this equal treatment after working in the same job for 12 weeks. You can accumulate these weeks even if you only work a few hours a week.
AWR only affects only umbrella company contractors of those working inside of IR35.
Firstly we need to establish who the Agency Workers Regulations apply to, these are:
Contractors, freelancers and consultants who are in business on their own account will generally not be within the scope of the regulations.
A temporary work agency (TWA) supplies agency workers to work temporarily for a third party (the hirer). The agency worker works temporarily under the supervision and direction of the hirer but only has a contract with the TWA. Under the AWR a TWA is a person (individual or company) in business, involved in the supply of temporary agency workers. This could be an agency, but also an intermediary such as an umbrella company.
An individual is not prevented from being an agency worker under the AWR simply because they work through an intermediary body. For example, an individual working through an umbrella company, who finds work via a TWA, is covered by the AWR. The individual will usually have an overarching employment contract with the umbrella company with full employment rights and the employee’s income generally being treated as employment income. However, that will not prevent the individual from benefiting from the AWR.
An agency worker is someone who has a contract with the TWA but works temporarily for and under the direction and supervision of a hirer. The relationship between agency worker, agency and hirer is a key feature of the AWR and who is covered by them.
The key elements required for someone to be an agency worker are:
The hirer (end-user) is a ‘person’ – e.g. company, partnership, sole trader, public body – which is engaged in economic activity and which uses agency workers via a TWA. The hirer is responsible for supervising and directing the agency worker while they undertake the assignment.
Day 1 rights for all agency workers
Agency workers must have access to site facilities (such as canteen, childcare facilities, etc.) and be able to access information on job vacancies from the first day of the assignment.
After 12 weeks in the same job
The equal treatment entitlements relating to pay and other basic working conditions (annual leave, rest breaks etc.) come into effect after an agency worker completes a 12 week qualifying period in the same job with the same hirer. After completing the qualifying period, pregnant agency workers will now be allowed to take paid time off for ante-natal appointments during an assignment.
It is not retrospective and for those agency workers already on assignment, the 12 week qualifying period will start from 1 October 2011.
What this means for:
Temporary Work Agency
If you are involved in the supply of temporary agency workers, you need to ask the hirer for information about pay and basic working conditions (when it is clear that the agency worker will be in the same job with the same hirer for more than 12 weeks) so that they are treated as if they had been directly recruited to the job.
Temporary Agency Workers
From 1 October 2011, after you have worked in the same job for 12 weeks, you will qualify for equal treatment in respect of pay and basic working conditions. You can accumulate these weeks even if you only work a few hours a week. Your temporary work agency is likely to ask for details of your work history to help establish when you are entitled to equal treatment.
Hirers of Agency Workers
If you are an employer and hire temporary agency workers through a temporary work agency, you should provide your agency with up to date information on your terms and conditions so that they can ensure that an agency worker receives the correct equal treatment, as if they had been recruited directly, after 12 weeks in the same job. You are responsible for ensuring that all agency workers can access your facilities and are able to view information on your job vacancies from the first day of their assignment with you.
There are only two exemptions to the Agency Worker Regulations:
Contractors and freelancers operating through their own limited company and are genuinely in business on their own account will generally be out of the scope of the Agency Worker Regulations. Although IR35 is part of tax legislation and AWR is employment legislation, if the contractor is outside IR35 then it is highly likely that the contractor will also be outside of the AWR. Please refer to our Guide to IR35 for more details.
Having completed the 12 week qualifying period, the agency worker is entitled to the same basic terms and conditions that he or she would have received if recruited directly. This includes terms and conditions relating to key elements of pay. Pay for these purposes means sums of money paid to the worker in connection with the worker’s employment.
This guide explains what is included and excluded in the definition of ‘Pay’.
Pay between Assignments
There is an exemption from equal treatment provisions on pay where a TWA can offer an agency worker a permanent contract of employment and pay the agency worker between assignments i.e. during the periods when they are not working when there are no available suitable assignments for the agency worker. This means that after 12 weeks in a given job, the agency worker will not be entitled to the same pay as if they had been recruited directly.
The TWA should explain this to the agency worker so they can make an informed decision as to whether they are willing to agree to forgo this entitlement and enter into a permanent contract with them. In any event, the contract of employment has to contain a statement to the effect that entering into such a contract means that the agency worker does not have any entitlement to equal pay as set out in the regulations.
The rate of pay between assignments must be at least 50% of on assignment pay, at least National Minimum Wage and calculated using a reference period. The reference period is usually the 12 weeks immediately preceding the period of pay between assignments.
To qualify for this exemption, the agency worker must be given a permanent contract of employment with the TWA and agree the terms and conditions that will apply across assignments and the level of pay between these assignments. There is no requirement to pay the agency worker before the first assignment under the contract has begun.
These contracts must comply with the requirements in the regulations regarding certain specified conditions such as:
Anti avoidance measures
The Regulations refer to contracts of greater than ‘one hour’ per week in order to demonstrate that providing a ‘zero hours’ contract will not meet the requirements of the derogation contract.
The pay between assignments derogation is designed to be used where an agency worker has a contract of employment with a TWA and is paid during the weeks when the worker is not assigned to a hirer. It is because of this pay, when the worker is not assigned, that the Regulations provide for the derogation from equal treatment on pay. TWAs and hirers should not structure arrangements in a way that deprives agency workers of the protection provided by pay between assignments. This could put them at risk of a legal challenge.
If there is no permanent contract of employment between the TWA and agency worker which complies with the requirements of the derogation then the agency worker could be entitled to the equal treatment provisions under the Regulations. In the event of a successful claim, the TWA (and/or the hirer) will be responsible for any breach (and associated penalties) to the extent that they are responsible for the infringement.
Rate of pay between assignments
The agency worker will need to receive at least 4 weeks of pay between assignments (at the 50% rate or at least NMW) before the contract can be terminated. The agency must take reasonable steps to find a suitable assignment and where it does this, the agency worker will not be able to complain of a breach of the agreement or allege that a right to equal treatment on pay.
A suitable offer of work
From the outset, and before the first assignment, the TWA and agency worker will need to discuss, agree and note in a written contract what the agency worker is willing to accept on any particular assignment. If an agency worker refuses a suitable assignment then, depending on the circumstances and the contract between the agency worker and the TWA, the agency worker may not be available for work and therefore not entitled to receive pay between assignments.
Ending a pay between assignments contract
If the TWA wants to terminate the contract it must first satisfy the requirement for the TWA to give 4 weeks pay to the agency worker. The 4 weeks pay must be paid before the TWA can terminate the contract.
Umbrella companies and the AWR
Contractors who work through umbrella companies will generally be caught by the AWR, as they would find it impossible to demonstrate that they are in business on their own account, as they do not own a stake in the umbrella company.
Umbrella contractors who can clearly demonstrate that they do not work under the direction and supervision of the hirer may be outside the scope of the AWR.
Umbrella companies appear to have decided to opt for one of the following options, or even a mixture of them, although it seems unlikely that umbrella companies will exist as we know them in a few years time.
Umbrella contractors will be excluded from the right to equal pay if the umbrella uses the ‘Swedish Derogation’ model.
Several of the umbrella companies have announced that they will offer the ‘Swedish Derogation’ model to their clients and contractors. In our view, the ‘magic’ solution of the ‘Swedish Derogation’ model has some major flaws. To fund an effective 2 weeks pay for contractors who are out of contract will be very expensive, it is the elephant in the room that no-one wishes to bring up.
Time will tell who will pay for this, be it the umbrella company, the agency, the end client or the worker themselves. Umbrella company margins probably mean that they will be unable to fund this pay from their current fees. Agencies will probably strongly resist a reduction in their margin and end clients will also resist an increase in their costs, especially as this could probably be avoided if the worker operated through their own limited company.
So that leaves the worker at the end of the line and, most probably the person who will have to foot the bill if they continue to work through an umbrella company.
The worker will effectively receive less pay over the period of the contract if they use an umbrella operating a ‘Swedish Derogation’ model. This is because the umbrella company will have to hold back enough funds to pay for the ‘out of contract’ pay.
One or two umbrellas have suggested that they will treat each contractor like an insurance company would, and assess the risk of the contractor not being able to move to another contract straight after the previous one has ended. The problem with this is that who will end up paying the insurance premium?
Matched Permanent Pay
Matched Permanent Pay (MPP) will prove to be an expensive option and in reality will probably only be used for lower paid agency workers.
We have already seen some umbrella companies trying to move their contractor clients to a limited company option. Since the start of AWR we have seen more limited company formations by the accounting arms of the larger umbrella companies.
It goes without saying that this is clearly to be avoided. If the umbrella company that you deal with has not yet communicated with you about your options, you should be actively considering changing your umbrella provider or indeed if you are a contractor, you should consider your trading options.
If you’re looking to take your first step into the world of self-employment, an umbrella company could be the solution for you. At Nixon Williams, we specialise in contractor accountancy, however, our sister company Parasol are one of the UK’s leading umbrella companies. They will be right by your side to guide you through the process, to take care of your finances and to box off your admin. To find out more, just fill in the form below and a member of the Parasol team will be in touch.