Impact of new agency rights rules

Up to half a million temporary employment contracts could be threatened by the new agency worker rules (AWR) which come into force in two weeks' time, according to a law firm.

The report by Allen & Overy shows that a third 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 October 1 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.

Freelancers operating as a 'genuine business' will be exempt from the new rules.

Costs

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.

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 and 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. Other key findings include:

Role of the agency worker

Eighty per cent of businesses employ agency workers for fixed-term project work, maternity cover or to meet seasonal/cyclical demand. 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, while unskilled roles are performed by just 30 per cent of agency workers.

The cost to businesses

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

Performance management for temporary staff

The research shows just over half of companies offer performance-related bonuses however 37 per cent 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 per cent plan to provide their temporary workers the same appraisals as their permanent staff.

Pensions – impact on auto enrolment

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 of all respondents said that they haven't yet considered the issue of auto-enrolment in relation to agency workers, while 59 per cent of respondents have yet to consider the cost impact of auto-enrolment to their businesses.

Strategies to minimise impact of new rules

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