Agency Directive threatens 500,000 employment contracts

As many as 500,000 temporary employment contracts could be threatened by the new agency worker rules coming into force next month, according to a report, published yesterday, by Allen & Overy.

A third (33%) of medium to large UK businesses may be planning to avoid increased costs by terminating agency worker contracts before the 12-week qualifying period for equal pay and benefits kicks in.

As of 1 October 2011, agency workers will qualify for equal treatment to permanent employees in respect of pay and benefits after a 12-week qualifying period, which will impact a significant proportion of UK businesses (54%) which currently employ agency workers for more than 12 weeks at a time. The report estimates that this change could cost UK businesses £1.3 billion a year to provide equal benefits to agency workers- an average cost per worker of between £1,755 and £3,722, or £90,000 per business per year.

The regulations will also result in further red tape for businesses, requiring employers to provide a raft of information to agencies to determine what level of pay and benefits workers should be entitled to after completion of the 12 weeks qualifying period.

The report found 80% of businesses employ agency workers for fixed-term project work (86%) maternity cover (58%) or to meet seasonal / cyclical demand (48%). One in four businesses employ temporary workers to avoid increasing their official headcount. Over half of the companies questioned use agency staff for skilled roles (52%). Unskilled roles are performed by just 30% of agency workers.

While 93% of respondents felt they were prepared for the changes on the whole, one in four (28%) employers did not know how much the new rules will cost their businesses, the report also suggests 20% of bonus paying companies will face an increase to the annual bonus pool of between 5 and 15%.

The research shows over half (57%) of companies offer performance-related bonuses however 37% haven’t yet considered how they will appraise temporary workers once the new rules come into force. Employers also face an increased strain on their time as 42% plan to provide their temporary workers the same appraisals as their permanent staff.

Agency workers are covered by the 2012 auto-enrolment regime. Under the new rules, whoever is responsible for paying the individual in respect of work is also responsible for auto enrolling the worker into pension saving and making contributions on their behalf. A third (35%) of all respondents said that they haven’t yet considered the issue of auto-enrolment in relation to agency workers, while 59% of respondents have yet to consider the cost impact of auto-enrolment to their businesses.

As a halfway house many (52%) will employ more fixed-term workers believing this to be a better option to fill the gap. The research reveals the potential impact on the recruitment industry, with 37% aiming to set up their own in-house bank of temp workers – cutting out the middle-man. The survey also revels 38% of employers will only hire temporary workers subject to the Swedish derogation, while 36% will now deal with the work through a managed service company.

Commenting on the results, Allen & Overy employment partner Stefan Martin said: “The advantages of using a flexible workforce during the current economic climate will be compromised as employers feel the burden of additional rules & regulations. While businesses will undoubtedly continue to use agency workers, this will result in increased costs. Rather than strengthening their rights, this may actually make the position of agency workers much more uncertain, exposing them to early termination of contracts.

“Users of agency workers need to assess how they are going to manage their temporary workforce going forward and should review their contracts with agencies to minimise the scope for agencies to simply pass on increased costs to business”. Allen & Overy surveyed 200 HR practitioners from medium to large organisations across five UK sectors about their use of agency workers, the impact of the new rules on benefits and pay and what strategies companies plan to employ to minimise the cost and impact.

HR Magazine

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About elaineonyc

HR generalist who is passionate about the benefits of good HR practice. Experienced in delivering strategic and operational HR initiatives to clients in both public and private sectors. Specialises in working with SMEs.
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