Agency Workers Regulations (AWR).
What is it and how will it affect you?
The Agency Workers Regulations have been around for nearly three years now and it is perhaps time for a quick look at what they were brought in to do and how they now affect the working lives of contractors.
The Agency Workers Regulations (AWR) were brought in on the 1st October 2011, were applicable to all ‘agency workers’ and were aiming to give them all the exact same work and employment conditions that they would have been given if they had been working directly for the end client (rather than through an agency) doing the same job. This was to be adjudged in relation to a ‘comparable permanent employee’ of that employer, meaning a member of staff who would be doing similar (it doesn’t have to be exactly the same) work at the same place. The regulations were written with the intention of protecting lower paid agency workers but the wording of the legislation also seemed to cover the higher end of the sector – contractors.
The most important section of the regulations states that:
– If you are an ‘agency worker’ you have a right after 12 weeks service with a client to equal pay and equal working hours, rest breaks and holiday provisions, and the right to paid time off for ante-natal appointments, that a ‘comparable’ permanent employee of your client receives (full details in Appendix 2)
– These 12 weeks do not have to be continuous (see Appendix 1)
And what this means in practice is that if a worker is only getting the basic minimum legal entitlement to holidays and days-off (and many other things) whilst they are being employed through an agency they can claim the same entitlements as the permanent staff of the end-client if they fall within the scope of the AWR. But it is whether a contractor falls ‘within the scope’ of the AWR that is the crucial question.
Am I the Right Kind of Worker for AWR?
The first question a contractor must ask is whether they are the sort of worker that the AWR applies to. This will be dependent on whether the worker is seen to be a ‘contractor’ or a ‘temp.’ The difference will be obvious to most contractors but it is worth restating. Temps work solely through agencies and the work that they do will be completely under the control of the client, as if they were a permanent employee. This means their work will be fully supervised and they will be told when to start and when to finish their work as well as what (precisely) to do. Temps are normally transitional and short-term and often there to stand in for a permanent member of staff who may be on leave. Temps are therefore eligible for equal treatment under AWR in most cases. Contractors however are independent and responsible for their own business. They will have ultimate control of the when and how they get their work done. They might be sole traders, working under a limited company or working through an umbrella company. They might be working through an agency or they might not, and they can have a number of jobs on the go at once. They are also able to hire substitutes to take over the job on their behalf. However, whether they qualify under AWR is a lot more complicated than temps – it will depend on whether they come within the ‘scope’ of the AWR.
What Exactly is the Scope of AWR?
Some contractors are considered to be ‘in scope’ of AWR (and therefore entitled to equal treatment) and others classed as out-of-scope.
In Scope Contractors:
– Agency workers who have been supplied through a TWA (temporary work agency) such as recruitment agencies, staffing agencies and temp agencies, so long as those workers have agreements or contracts with that TWA and are doing temporary work for an end-hirer and will work under that end-hirer’s supervision.
– Workers who offer their services through umbrella companies and find their work through a TWA. These workers will normally have employment contracts with their umbrella companies.
– Agency workers who are working indefinitely, not temporarily for the end-hirer
– Agency workers or contractors who are already being treated equally or in a better manner than comparable employees.
– Contractors operating in business in their own right and normally through limited companies (outside of IR35 legislation.)
– (Genuine) self-employed sole-traders working in business on their own (also outside of IR35)
– Contractors operating through umbrella companies using the full-employment / Swedish Derogation model (although they may still be entitled to equal treatment for holidays and rest breaks).
– Workers from in-house staffing banks who have been employed by hirers directly.
– Workers who end up in direct and permanent employment after coming through an agency
– Workers from MSCs (Managed Service Companies) such as catering staff or cleaners in which the MSC has the responsibility of providing the service and supervising the workers whilst they are at the premises of the hirer.
What Options Do Contractors Have Then, When It Comes to AWR?
(1) Working through an agency or umbrella company that is offering full (and permanent) employment for their contractors (using the Swedish Derogation Model discussed below). This would remove the right to equal pay treatment but still leave the right to equal treatment when it comes to maternity leave, sick leave, holiday entitlements and rest breaks.
(2) Working through an agency or umbrella company that is offering a contract that manages to match the permanent pay being offered and also gives full employment rights – though this may affect the expenses that can be claimed. And as above, this would remove the right to equal pay treatment but still leave the right to equal treatment when it comes to maternity leave, sick leave, holiday entitlements and rest breaks.
(3) Working through an agency or umbrella company that does not offer any AWR solutions whatsoever, leaving the contractor in the scope of the AWR (unless the contractor already receives equal or better benefits).
(4) Working through a limited company.
(5) Working as a sole-trader (self-employed.)
(6) Working through an umbrella company that uses a professional services contract exempting the contractor from AWR. (This is the method employed by Hamilton Bradbury and a number of other respected umbrella companies.) Should this prove to be unacceptable to the agency in question or to the end-hirer then the umbrella company can simply engage under either Match-Pay or Swedish Derogation to suit their preference.
Umbrella Companies and the AWR
Strictly speaking contractors working through umbrella companies are to be classified ‘agency workers’ through AWR and given equal treatment rights with their clients. In practice however, this is rarely the case and umbrella companies have opted for a number of different ways to avoid putting this responsibility on their clients. All of the responsible and reputable umbrella companies are aware of the AWR rules and have adjusted their rules accordingly with most opting for the SDM (Swedish Derogation Model – discussed below) offering permanent employment to their contractors or the professional services contract with exemptions mentioned above.
What Is This Swedish Derogation Model?
Despite sounding like a Scandinavian dominatrix the phrase ‘Swedish Derogation Model’ (SDM) actually refers to a clause in the Agency Workers Directive that was negotiated at the EU level by the Swedes. The clause states that when agency workers get employed by their agency (or umbrella) on a permanent contract and they get paid in-between their assignment, then they no longer qualify for AWR rights to equal pay.
However, for the SDM to correctly apply the permanent contract of employment with the agency or umbrella company needs to be already in place before the beginning of the worker’s first assignment – and that employment must be deemed ‘genuine.’ Additionally, an umbrella company or agency using the SDM has a legal obligation to pay their workers between each assignment a minimum amount at no less than four weeks. And the minimum that can be paid is half of the average workers basic pay for the previous 12 weeks. Finally, the umbrella company or agency must also take ‘reasonable’ steps to then look for the more employment for that worker after their assignment has ended.
It should also be noted that this doesn’t mean the contractor’s employment can be ended by the agency or umbrella after four weeks if there is no more work and that the SDM also only specifically applies to the pay, not to rights of holidays, maternity leave, hours of work etc
What About Clients and Businesses – Have They Stopped Hiring Contractors?
Not at all. Contracting is booming and there has been no drop off because of the AWR. When the regulations were first mooted many commentators were convinced that the AWR would cause massive cuts in the number of contractor jobs out there. But a year after the introduction of the changes in 2012 the REC conducted a survey which showed that demand for agency workers stayed solid and would even be expanding. Around the same time a PCG survey showed just a slight dip in contractor numbers with more than 77% of contractors revealing that it had not affected them in the slightest. Why is this? Mainly because employers have either decided to accept the AWR regulations where necessary, or have simply opted to take alternative routes when selecting contractors, only going through umbrella companies or agencies that employ their contractors via the Swedish Derogation model or which use professional services contracts that exempt the contractor from the Agency Workers Regulations, thereby sidestepping the issue all together. Additionally, most companies also find that contractors’ pay is nearly always on a par with or actually better than regular permanent employees.
As A Contractor, How Can I Ensure AWR Doesn’t Affect My Business?
Of course for contractors the only issue that is really important is making sure that the AWR doesn’t lead to a drop off in business. And it doesn’t look like this has happened overall judging by the rude health of the freelancing and contracting sector. However, contractors who want to make certain that clients will not have a reason to look elsewhere will want to be assuring those clients they are not in the scope of the AWR. One route is to go with a Limited Company and sidestep the issue altogether, although this is not ideal. Firstly, there is still a small possibility that limited companies may also fall within the scope of these regulations, though this has yet to be tested. But secondly, going limited is a rather large step to take to avoid the measure, particularly when it can lead you straight into the ‘scope’ of other legislation, such as the Onshore Intermediaries Act and / or even worse – IR35. Talk about out of the frying pan, into the fire! The far better method, and one which is working for most contractors at the moment, is to work through a reputable umbrella company that has taken account of the AWR and either uses the full employment / Swedish Derogation model, or better still, uses the professional services contract exempting all of their contractors from AWR, which is what Hamilton Bradbury does. If the umbrella company is halfway decent it will be providing its contractors with all the appropriate perks anyway and using this model, will be able to go out and get the contractors the best and most lucrative contracts on the market. If the clients are assured there will be no problems with AWR, then they will come back to that agency again and again.
If you ask most of the contractors who have been around for the last five or six years what they think of the AWR and how the AWR have impacted on their work you will probably find the common answer is that they hadn’t even noticed a change. AWR are a pain in the neck for agencies, but once they have put the right measures in place to ensure their contractors are hired out to clients free of any AWR burden, everything remains business as usual, both for client and contractor.