The Agency Workers Regulations (AWR) came into effect on Oct. 1, heralding the most profound regulatory change ever seen in the U.K. staffing market.
The aim of the AWR is to protect temporary agency workers by ensuring they have a right to equal treatment in basic working and employment conditions, as if they were employed on a permanent basis after 12 weeks’ service in the same job.
In the lead-up to the implementation date, there was much speculation about what the controversial regulations would mean for staffing agencies, employers and temporary workers. Supporters say the AWR will prevent exploitation and improve working conditions for hundreds of thousands of people.
“Some rogue employers have used temps to undermine the terms and conditions of existing workforces, replacing permanent staff with agency workers on lower pay, with no security, no training, no sick pay, minimum holidays and no pension provision. But thanks to hard campaigning by unions this is all about to change,” said Brendan Barber, general secretary of the Trades Union Congress (TUC). “Now, after 12 weeks in the same role with the same hirer, the law will require agency temps receive equal pay for the job they do and to receive some of the same rights as permanent staff working alongside them. Recruiting and treating our agency workers fairly will make them more motivated and more loyal to the companies they work for, which will benefit employers and make temping a more attractive option for working people."
Its critics, however, view the AWR quite differently. They say the AWR will add to the cost of business, undermine demand for agency workers and harm the very people the legislation is supposed to protect. John Cridland, director general of the Confederation of British Industry, said the AWR will act as a “further brake on jobs when the priority should be creating opportunities."
The introduction of the AWR could hardly have come at a worse time for U.K. staffing companies. According to Staffing Industry Analysts’ estimates, the U.K. is among the worst-performing staffing markets in Europe this year, with dramatic cuts in the public sector now being exacerbated by increasing uncertainty in the private sector. Meanwhile, staffing companies have had to invest heavily on upgrading IT systems, retraining staff and adjusting internal processes in order to comply with the new regulations. And the reward for all this effort may well be lower levels of demand for their services.
One of the key requirements of AWR is that the hirer provides staffing agencies with information about the pay, holidays, overtime and, in some cases, bonuses of existing permanent staff doing the same or similar jobs. For many companies, the additional bureaucracy associated with maintaining this data will be more onerous than any obligation they may have to increase temporary worker pay. To avoid this, employers appear to be looking at three alternative strategies.
1. To cut bureaucracy by paying temporary agency workers the same rates as permanent workers from day one of the assignment. Research from law firm Eversheds suggests that 25 percent of employers are introducing equal rights for all agency workers from day one in order to reduce risk and administration costs. For those employers using mostly highly skilled agency workers, such as IT contractors and engineers, this is a rational and practical choice, because these types of temporary workers are probably already paid comparable or even higher rates than equivalent permanent staff.
2. To take advantage of so-called Swedish Derogation. While this has been misleadingly referred to as a loophole within some parts of the British media, the derogation is a legal option under the AWR. The term refers to an opt-out negotiated by Sweden when the AWD was debated within the EU. It means that AWR rights to equal pay do not apply when the agency worker is directly employed on a permanent basis by the temporary work agency. However, under the AWR, derogated agency workers must be paid at least 50 percent of their contract rate when between assignments — based on the highest rate of pay received in the previous 12 weeks of work. One employer opting for Swedish Derogation is Yell Group PLC, the multinational directories company. Andrew Groves, head of national resourcing at Yell, told Recruiter Magazine that Yell opted for Swedish Derogation, with Pertemps employing Yell’s 300 agency workers on permanent contracts of employment. “This includes paying them 50 percent of their pay for up to four weeks between assignments,” he said. “While these workers would not receive the same pay as Yell’s permanent staff, it would be sufficient to attract good quality agency staff. I don’t think we need to pay any more.”
3. The third strategy is for the employer to set up their own in-house temporary agency, as the AWR only applies to agency temporary workers who are supplied by a third party. One high-profile employer going down this route is the Royal Mail, the U.K.’s postal service. It has created its own agency called Angard Staffing Solutions. While the move is controversial, a Royal Mail spokesman told The Daily Mirror newspaper: “Through Angard, our costs are lower than we’d pay to external agencies,” he said, adding that “its main job would be to recruit 18,000 temporary staff for the busy Christmas period.”
Using Swedish Derogation or creating an in-house agency should not be regarded as either cost-free or risk-free methods of avoiding compliance with the AWR. Agencies supplying workers under Swedish Derogation will justifiably charge clients a premium above the cost of a "normal" temporary agency worker to meet the additional obligations they face by employing these workers themselves. And while the use of in-house agencies is not a new phenomenon, in the past, it has rarely been successful. The U.K.’s largest employer, the National Health Service, announced in October 2010 that it would privatize its in-house agency, NHS Professionals. If the largest employer in the country was unable to sustain an in-house agency that could compete effectively against private agencies, it is difficult to envisage how smaller employers will succeed.
There’s one other approach that some companies will adopt, although it is probably a little bit too radical for employers concerned about maintaining employee morale. It’s a fairly simple strategy: Rather than raise pay rates for temporary workers, pay your permanent staff less. Park Cakes, a supplier to major supermarkets throughout the U.K., is doing just that. To avoid paying temporary workers more, the bakery is breaking a union-negotiated wage agreement and introducing an hourly rate for new staff that is between 8 percent and 50 percent lower than previous pay rates. Not surprisingly, unions have reacted angrily, describing the new employment contracts as “slave labor.” On Oct. 3, the union was scheduled to ballot workers at the bakery regarding industrial action.
Some employment lawyers predict that the AWR will lead to a rash of Employment Tribunals, with trade unions poised to support cases where employers have sought to circumvent the legislation. For example, employers that as a matter of policy dismiss agency workers before the completion of the 12-week qualifying period face a £5,000 fine per incident (approximately US$7,800) — it is illegal to artificially structure assignments to avoid the entitlement.
Mike Emmott, an employment relations advisor at the Chartered Institute of Personnel and Development, warned that one result of the AWR would be the relocation of high-skilled technology projects overseas. “Many large employers have already made changes to the way they recruit staff — and it’s likely that they will have considered offshoring that work,” he said.
Government estimates put the costs of the new regulations at £1.5 million per year. According to data gathered in the government’s Labour Force Survey, the average agency temporary worker gets five fewer holiday days a year than a permanent employee and earns on average 68 percent of the pay of permanent workers — a 32 percent pay gap. A recruitment consultancy, Reed, carried out an analysis of 30 companies and 30,000 agency workers across 1,300 roles to assess the impact of the AWR and concluded that employers will face a 5 percent increase in annual pay costs.
The adoption of the AWR is a direct result of the Agency Workers Directive agreed within the European Union. It directs all EU countries to ensure their legislation meets the minimum standards laid out in the directive by Dec. 5, 2011. However, most EU member states already meet the equality principles of the directive. In fact, many exceed it by granting equal pay to agency temporary workers from day one of their assignment.
So, for better or worse, the AWR is now in effect. Despite some high-profile exceptions, the vast majority of employers will not be considering exotic alternative arrangements and will be meeting their obligations under the new rules established by the legislators. One interesting outcome of the adoption of this legislation is that it means the U.S. is the only major staffing market in the world where employers can legally pay a lesser wage to an agency temporary worker compared to a permanent employee working in an equivalent role.