AWR: Which way will the umbrella industry go?

With just a couple of months before the agency workers rights legislation comes into effect giving agency workers similar rights to employees, umbrella companies and others are talking of the various options and models available to them, including the strangely named 'Swedish Derogation'.

Here, Anita Whittle, Chief Operating Officer of umbrella group Parasol looks at the situation and explains why she believes a 'full employment' model offers the most efficient solution to the forthcoming AWR legislation.

Anita Whittle writes:

Anita Whittle Over the last 10 years our industry has experienced its fair share of shifting legislation and correctly structured businesses have consistently adapted and thrived. Good companies talk about working within new legislation, not around it, and the AWR will be no different. In fact, most 'good' umbrella company business models, the ones who work in partnership with the agency worker supply chain and have a robust contract of employment in place with their contractors, are eight tenths of the way to being a compliant solution to the AWR already. There is no need for any seismic changes.

The AWR is not as scary as some commentators have alluded to and it does provide opportunities for contractors to work with umbrella companies who offer added-value services and protection.

Full employment versus MPP

When we talk about a full employment model, we are talking about an evolved version of what became commonly known as the Swedish Derogation model, taking its best elements and improving them so that they can best service the UK market. We believe that it is this new incarnation of the Swedish Derogation model that can best serve both contractors and the UK staffing and recruitment industry alike. Essentially a full employment solution will see an umbrella company offering all the services it currently does plus pay between assignments for contractors and assistance in finding their next role.

For the hirer, this removes the contractor from the scope of the AWR when it comes to pay. However, the hirer will still have to take responsibility for day one rights, e.g. access to collective facilities, and week 12 rights such as rest breaks and rest periods etc.

The biggest advantage of the full employment model over matching permanent pay (MPP) is that it allows recruiters to continue to operate as they are. There will be no costly administrative burden, no need to compile comparator data and no additional cost or hassle to the recruiter which could otherwise have an impact on contractor rates as recruiters seek to protect their margin.

Any employment tribunals brought under the AWR will be brought against the umbrella company (just as they are now), again removing hassle for the recruiter and the hirer.

There are benefits for contractors too. For example, under the full employment model there will be no limit on the amount of legitimate business expenses the agency worker can claim. So under this model, workers are potentially better off in terms of take home pay.

There has been some discussion recently about how umbrellas can offer pay between assignments to agency workers without 'robbing Peter to pay Paul' and this is a smoke screen. The correctly structured umbrella companies with a pedigree for compliance and best practice have had elements of this in their business model for many years and are in a position to offer pay between assignments without an impact on the worker's take home pay or at a cost to the recruiter or hirer. We can't give too much away here to our competitors but we'd be happy to go through it with anyone who gets in touch with us.

Matching Permanent Pay

The MPP model is also a valid solution to the AWR and we will be offering this. However, MPP may require additional contract clauses and a significant amount of additional administration and data capture. Recruiters will have to compile data for a number of things including; pay, bonuses, commission, holiday pay, plus any other monetary award that a comparable worker receives.

Recruiters will also have to make a judgement call on what is excluded from pay and run the risk of a tribunal as a result. Are expenses included? Which bonus schemes are included? The AWR states that bonuses awarded for the amount of work done, or the quality of work completed, are included but everything else is open to interpretation and therefore a risk to the recruiter.

Under a MPP model, the umbrella company could require a contract clause to say that the agency would pay the umbrella at least the equivalent perm rate in all areas, plus employer's NIC, plus holiday pay, plus the umbrella's margin. In the event of a breach the umbrella company would be required to remove the worker from site with immediate effect and make a claim against the agency for the short fall. This adds an additional level of admin and hassle for the recruiter and a potential risk that could again, damage their reputation, that of their client, and have a negative impact on profitability.

Also, a number of systems, processes and checks will have to be developed and maintained that will monitor all of the above. There will need to be a billing process that uplifts pay after the 12 week qualifying period and all of this will have to be clearly and accurately communicated to the worker.

And don't forget the day one rights we talked about earlier either!

So while there will always be a place for MPP, and for some staffing business this will be the best option, in effect, under a full employment model the contractor is potentially better off with access to more benefits, there is no risk to the recruiter or end-client, and there is no administrative burden or additional cost either, it's a win-win model so why wouldn't you choose to go down this route?

Anita Whittle

Parasol Group