Despite the assistance provided by the guidance, it is important to remember that the guidance is neither a statement of the law nor does it necessarily state or interpret the law correctly in all areas. We refer in this bulletin to some of the guidance's interpretations of the AWR with which we disagree. However, it is our understanding that, as a minimum, the section in the guidance on 'Pay between assignments'/the Swedish derogation will be revised. Ultimately, however, it will be for the courts to determine how the AWR are interpreted.
There is no substitute for reading the guidance (or indeed the AWR). However, the following sets out some of the key concepts explained in the guidance and identifies some interpretations with which we disagree.
'PAYE agency workers' will be 'agency workers' as defined under the AWR, but what about other types of engagement?
Umbrella company workers
The guidance confirms (on page 6) that individuals who work through umbrella companies can be 'agency workers' within the scope of the AWR. The guidance also confirms that umbrella companies (and any other intermediary company, such as a master or neutral vendor, if they are involved in the supply of an agency worker) can fall within the definition of a 'temporary work agency' (TWA) and, if so, must comply with the AWR. It is worth noting that the confirmation provided by the guidance is that an individual is not prevented from being an 'agency worker' simply because he or she works through an intermediary, such as an umbrella company. In our view, if an umbrella company worker does not work under the direction and supervision of the end user client when on assignment, he or she will not be an 'agency worker' as defined and therefore will not be within the scope of the AWR.
Individuals in business on their own account
Self-employed individuals in business on their own account are excluded from the scope of the AWR. The guidance warns (on page 9) that 'simply putting earnings though a limited company would not in itself put individuals beyond the possible scope of the Regulations'. There must be a genuine business-to-business relationship. Establishing whether someone is genuinely in business on their own account will be governed by existing case law. The guidance directs the reader to this Directgov link for an explanation of status tests.
Under the AWR, for company contractors engaged via TWAs to be excluded from scope there must be a contract which has the effect that the end user of the individual's services has the 'status of a client or customer of a profession or business undertaking carried on by the individual'. If an individual has a direct contract with a TWA, the AWR provide that the effect of the contract must be that the TWA (not the end user) has the 'status of a client or customer of a profession or business undertaking carried on by the individual' for the individual to be excluded from the scope of the AWR.
Managed service contracts
Individuals working on what the guidance calls 'managed service contracts', where the managed service contractor has responsibility for managing and delivering a specific service (for example catering or cleaning) rather than just supplying staff, will be outside the scope of the AWR. The guidance explains (on page 10) that the managed service contractor must be genuinely engaged in supervising and directing its staff on site on a day-to-day basis and must determine how and when the work is done. If it is the end user that determines how the work is done, it is more likely that the staff will be covered by the AWR.
The statement in the guidance (on page 10) that 'merely having an on-site presence (e.g. a named supervisor) would not necessarily mean that there is a Managed Service Contract' is not particularly helpful. Presumably the intention behind this statement is to say that, for there to be a managed service contract, an on-site supervisor must be actively involved in the provision of the service and supervise and direct the contractor's staff.
In-house temporary staffing banks
Clarification is provided by the guidance (on page 10) that in-house temporary staffing banks, where a company employs or engages temporary staff directly and they are supplied to work within its own business, are likely to fall outside the scope of the AWR. However, it should be remembered that temporary bank staff directly employed by the end user of their services will still benefit from protection under the Fixed Term Employees (Prevention of Less Favourable Treatment) Regulations 2002. In addition, where in-house temporary staffing banks are used, for example, by a group of companies and a temporary worker is employed by one group company, but assigned to work for another group company that supervises and directs the worker, such arrangements will be within the scope of the AWR. Such temporary staff must work in the business of the company that employs or engages them if they are to be outside the scope of the AWR.
Access to collective facilities and amenities
An agency worker will have the right to be treated no less favourably than a comparable employee or worker in relation to access to end user client site facilities and amenities, such as the staff canteen, childcare facilities and transport services, from day one of an assignment. The guidance provides (on page 13) an indicative list of the kind of facilities this includes.
The guidance explains (on page 14) that the end user client does not have to give agency workers 'enhanced' access rights. It provides the example of where there is a waiting list for places in a crèche and explains that an agency worker would have to join the list and would not have an automatic right to a place. It also explains that the right does not extend to off-site facilities that are not provided by the end user client, for example, subsidised access to an off-site gym.
The guidance contains a useful reminder that this is the only element of the AWR where less favourable treatment of an agency worker can be justified on objective grounds and expands on this point. In addition, the guidance confirms that, if there are no comparable employees or workers, this right does not apply.
Right to be informed of vacancies
From day one of an assignment an agency worker has the right to be informed by the end user client of any relevant job vacancies with the end user client that would be available to a comparable employee or worker. The guidance explains (on page 15) that the end user can choose how to publicise vacancies to agency workers, via the internet, an intranet or on a notice board in a communal area. The key point is that agency workers know where and how to access this information. This guidance adds that this right does not constrain end users' freedom regarding any qualifications or experience requirements such as time in service with the organisation or how they treat any resulting applications from agency workers. The guidance explains that this right will not apply where there is a genuine headcount freeze and posts are ring-fenced for redeployment purposes or internal moves that are a matter of restructuring and redeploying existing internal staff in order to prevent a redundancy situation.
Liability for day one rights
The guidance provides a reminder (on page 15) that the end user client (and not the TWA) is responsible for providing equal treatment for the day one rights and is liable for any breach of these obligations. It adds that end users could provide agency workers with information about access to facilities, for example, as part of an induction pack or provide the information to TWAs to pass to agency workers as part of the information about the assignment. For full information on liability and remedies under the AWR, we recommend that you read the section on 'Information requests, liability and remedies' on pages 41 to 47 of the guidance.
The 12-week qualifying period
The 12-week qualifying period is completed by an agency worker working in the same role with the same end user client for 12 calendar weeks, regardless of the number of days or hours worked during a given week. The AWR do not define 'calendar week'. The usual interpretation of calendar week would be Monday to Sunday. However, the guidance states (on page 16) that 'a calendar week in this context will comprise any period of seven days starting with the first day of an assignment'. This seems to us to create an unnecessary complication that ignores the fact that the AWR use the word 'calendar' to describe a week in this context.
A question we are often asked is whether weeks when an agency worker is on assignment before the AWR come into force will count towards the 12-week qualifying period. The answer (also provided in the guidance on page 17) is no. An agency worker will only start to accrue weeks towards the 12-week qualifying period from when the AWR come into force on 1 October 2011 even if the assignment started before that date.
Where an agency worker has been engaged to work for an end user via one TWA and is later placed on assignment with the same end user via a different TWA (with any break between assignments being six weeks or less), the 12-week qualifying 'clock' will 'tick' from the beginning of the first assignment, pause during any such break, and continue to 'tick' during the second assignment. For this reason, it is essential that TWAs ask each agency worker for information about their work history before an assignment begins in order to ensure that the TWA knows whether the agency worker has already accumulated some or all of the 12-week qualifying period. If a TWA does not do this, the TWA will potentially be liable if an agency worker brings a claim for failure to provide equal treatment. However, as the guidance points out (on pages 17 and 46), if an agency worker brings an AWR claim against a TWA, a tribunal can take into account, when making any award, the fact that the agency worker did not inform the TWA that he or she had previously worked for the end user client in the same role via another TWA and had therefore already partially or fully completed the 12-week qualifying period when he or she started the assignment via the TWA against which he or she has brought the claim. Note that the AWR do not require workers to notify TWAs of any qualifying weeks that have already been acquired. We therefore recommend that staffing companies put in place processes to ensure that their staff ask workers about previous similar assignments with end user clients and keep a dated written record of the questions asked and the responses given.
Be aware that several qualifying periods may run at the same time, for example, when an agency worker works for more than one end user during a calendar week.
The guidance is useful in its explanations and examples (on pages 18 to 23) of reasons for the qualifying period 'clock' to reset to zero, the types and lengths of break that will only cause the qualifying period "clock" to pause and breaks where it continues to tick. However, the guidance states (on page 18) that the qualifying clock will reset to zero 'if there is a break between assignments with the same hirer of 6 weeks or more'. We disagree that a break of exactly six weeks will reset the clock. The AWR provide that a break that is 'not more than six calendar weeks' only pauses and does not reset the 12-week qualifying clock. Therefore a break of six calendar weeks or less will only pause the clock, whereas a break of more than six calendar weeks will reset the clock.
Identifying 'basic working and employment conditions' and the relevance of a 'comparator'
On completion of the 12-week qualifying period, an agency worker is entitled to the same 'basic working and employment conditions' as the agency worker would be entitled to for doing the same job had the agency worker been recruited directly by the end user at the time the qualifying period commenced.
'Basic working and employment conditions' are:
(a) where the agency worker would have been recruited as an employee, the relevant terms and conditions that are ordinarily included in the contracts of employees of the end user client;
(b) where the agency worker would have been recruited as a worker, the relevant terms and conditions that are ordinarily included in the contracts of workers of the end user client,
whether by collective agreement or otherwise, including any variations in those relevant terms and conditions made at any time after the qualifying period commenced. The AWR define 'relevant terms and conditions' as terms and conditions relating to pay (subject to exclusions set out in the AWR), the duration of working time, night work, rest periods, rest breaks and annual leave.
The guidance introduces (on page 24) the notion of the 'as if' test: when providing equal treatment in respect of basic working and employment conditions, a TWA is required simply to treat the agency worker 'as if' the agency worker had been recruited directly to the same job. The guidance explains that 'basic working and employment conditions' are those that are 'ordinarily included in relevant contracts (or associated documents such as pay scales, collective agreements) of direct recruits'. It goes on to explain that this means terms and conditions normally set out in standard contracts, a pay scale or pay structure, a relevant collective agreement, a company handbook or similar. The guidance adds that this 'would not apply if there were genuinely no 'basic working and employment conditions' that apply generally'. This means that where a TWA places an agency worker in a unique position where the end user does not have anyone doing the same job and does not have pay scales or collective agreements, the TWA would be free to remunerate the agency worker at a market rate. However, if, for example, the end user's workforce is entitled to six weeks paid annual leave, the agency worker would be entitled to equal treatment in this respect. Useful illustrative examples are set out in the guidance on pages 25 and 26.
The 'as if' test means that it is not necessary to look for a comparator. The guidance says (on page 24) that it is possible to identify the appropriate 'basic working and employment conditions' without one. However, if a TWA ever needs to defend an agency worker's claim that he or she has not received equal treatment in respect of basic working and employment conditions, the guidance explains that the TWA (although confusingly the guidance uses the word 'hirer') will be deemed to have complied with the AWR if the TWA identifies an appropriate comparator and treats the agency worker in the same manner. In these circumstances, the comparator must be an employee not a worker and engaged in the same or broadly similar work, although account can be taken of whether the agency worker and the employee have a similar level of qualification and skills because this may justify a higher level of pay for the comparator. The agency worker and the employee must work at the same workplace or, where there is no comparable employee at the same workplace, at another of the end user's workplaces. An employee is not a comparable employee if that employee's employment has ceased.
Pay
The guidance includes (from page 27) comprehensive lists of what is included in and excluded from the definition of 'pay'. Note, however, that the last bullet point in the list of what pay includes (on page 27) is incorrect. As correctly stated in the summary chart on page 32 of the guidance, additional discretionary non-contractual bonuses are not included in 'pay'.
Bonuses
There has been some debate about what bonuses will constitute 'pay' under the AWR and how performance is to be assessed for the purpose of awarding bonuses to agency workers. The guidance adds (from page 28) some clarity on the subject of bonuses. The AWR exclude from the definition of 'pay' 'any bonus, incentive payment or reward which is not directly attributable to the amount or quality of the work done by a worker, and which is given to a worker for a reason other than the amount or quality of work done such as to encourage the worker's loyalty or to reward the worker's long-term service'. Accordingly, bonuses that are directly attributable to the amount or quality of work done by an agency worker are included in the definition of pay. Any bonuses not directly linked to the agency worker's performance, such as bonuses based on company performance, as well as bonuses designed to encourage loyalty or reward long-term service are excluded. The guidance explains (on page 29) that, where an agency worker qualifies for a bonus, he or she will not be entitled to receive exactly the same amount of bonus as any particular directly recruited employee or worker, but should have the same opportunity to achieve a bonus, subject to the agency worker's personal performance.
The guidance goes on to say (on page 29) that there is no requirement for integration of agency workers into the end user's performance appraisal systems and that, although the agency worker is entitled to the bonus that he or she would have been entitled to if hired directly by the end user to do the same job, this does not mean the same process for assessing performance needs to be followed. The guidance suggests that appropriate modifications to the assessment process are made. It also suggests possible alternative approaches such as creating simpler systems to appraise agency workers or utilising the TWA's existing appraisal/feedback system to keep track of the agency worker's performance through regular discussion between the TWA and the end user client.
Payment in lieu of holiday
The guidance suggests (on page 33) that in order to simplify the administration of any entitlement to paid annual leave above the statutory minimum entitlement under the Working Time Regulations, the TWA could make a one-off payment to the agency worker at the end of the assignment or the TWA could 'roll up' payment as part of the hourly/daily rate in respect of this additional payment only. The guidance issues a reminder of the existing law that payment of the statutory minimum entitlement to paid annual leave under the Working Time Regulations should be made when the leave is taken to ensure that agency workers take the leave to which they are entitled. It is unlawful to 'roll up' this element of holiday pay.
Pay between assignments (the 'Swedish derogation')
The AWR exemption from equal treatment provisions on pay for the 'pay between assignments' model (also known as the 'Swedish derogation' model) has attracted a lot of commentary throughout the AWR consultation process. This model involves a TWA engaging an agency worker on a permanent contract of employment and paying the agency worker between assignments. The guidance provides a detailed explanation of this model (on pages 37 to 40).
There has been speculation about adopting a one hour a week contract model so that a TWA can take full advantage of this exemption. The guidance indicates (at page 38) that paying an agency worker for a short period, which might be as little as one hour, when there is in reality no assignment available, is likely to be viewed as an avoidance measure.
The guidance states (on page 37) that all agency workers, including those on 'pay between assignments'/'Swedish derogation' contracts of employment, are entitled to equal treatment in relation to 'the duration of working time, night work, rest periods and rest breaks and paid annual leave after 12 weeks'. It is clear that agency workers employed on 'pay between assignments'/'Swedish derogation' contracts are entitled to equal treatment in relation to any entitlement to annual leave above the minimum entitlement under the Working Time Regulations.
However, there is currently some debate over whether agency workers engaged under these contracts are entitled to be paid when taking any such leave.
One interpretation is that such agency workers are not entitled to be paid when taking any additional holiday entitlement above the Working Time Regulations minimum entitlement because the 'pay between assignments'/'Swedish derogation' model exempts the TWA from having to provide equal treatment in respect of 'pay' and the definition of 'pay' in the AWR expressly includes 'holiday pay'. The alternative interpretation (which the guidance alludes to) is that such agency workers are entitled to be paid when taking any such leave because the 'pay between assignments'/'Swedish derogation' model does not exempt the TWA from having to provide equal treatment in respect of 'annual leave' (and any terms and conditions relating thereto) and therefore, if a direct hire is entitled to paid annual leave above the Working Time Regulations minimum entitlement, so is the agency worker.
Under this interpretation the 'pay between assignments'/'Swedish derogation' model therefore only operates to exempt the TWA from paying the agency worker for such holiday at the same rate as a direct hire; it does not provide a total exemption from the obligation to pay for additional holiday. We understand that BIS is revisiting this aspect of the guidance.
A statement in this section of the guidance with which we do not entirely agree is that 'If the agency worker refuses a suitable assignment…, the TWA can terminate the contract, subject to the requirement for the TWA to give 4 weeks pay' (see page 39). The AWR require a TWA not to terminate a 'pay between assignments'/'Swedish derogation' contract of employment until the TWA has complied with certain obligations set out in the AWR for an aggregate of not less than four calendar weeks during the contract.
These obligations are that, during any period under the contract in which the agency worker is not working temporarily for and under the supervision and direction of an end user client but is available to do so, the TWA must take reasonable steps to seek suitable work for the agency worker; offer the agency worker to be proposed to the relevant end user client if suitable work is available; and pay the agency worker a minimum amount (as set out in the AWR) in respect of that period. Our view is that if, for example, the TWA's disciplinary and dismissal procedure for the agency worker specifies that the agency worker's refusal to obey a lawful instruction in connection with the employment, including the refusal of a suitable assignment offered by the TWA, constitutes gross misconduct, then depending on the situation, it may be appropriate for the TWA to terminate the agency worker's contract by reason of his or her gross misconduct with immediate effect and not pay the four-week minimum amount (to the extent it has not already been paid previously).
This is not without risk and the TWA will still need to follow a procedure to dismiss the agency worker from employment fairly. The TWA will need to evaluate in all the circumstances whether the refusal of any one particular assignment is so unreasonable as to constitute gross misconduct. The draft guidance to the AWR stated that if a TWA dismisses an agency worker due to gross misconduct, the agency worker is in breach of contract and forgoes the entitlement to the four-week minimum amount of pay between assignments. For some reason this is not included in the final guidance.
It is our understanding that, as a minimum, this section in the guidance on 'Pay between assignments' will be revised in advance of 1 October 2011, the date the AWR come into force.
Next steps
What should you do now?
- Staffing companies and end user clients should conduct impact assessments, including reviewing their supply and use of temporary contract workers, identifying which workers will be in scope and which will be outside scope of the Agency Workers Regulations and assessing any cost impact.
- Staffing companies and end user clients should work together to consider options to minimise risk and cost when supplying and engaging workers in and outside scope of the Agency Workers Regulations and agree how to work together going forward.
- In due course and where necessary, put new contracts in place with appropriate agreement on risk apportionment and any increased payments.
- Train your staff on the Agency Workers Regulations and put in place appropriate processes and systems.
- Inform agency workers of their new rights and entitlements and ensure that they know whom to go to in your organisation with any queries or concerns.
