Commonly asked questions on the legal issues relating to fixed-term work
The term ‘temporary workers’ is used to describe staff engaged on a non-permanent basis who may fall into a number of categories. For example, temporary workers may be:
- employees engaged directly for a short period
- self-employed workers engaged for a short period
- casual workers
- agency workers supplied by an ‘employment agency’ or by an ‘employment business’.
Some employers are understandably uncertain about which rights apply to temporary workers or employees. The rights of such individuals depend on whether they:
- have employee status
- have completed any required period of continuous employment in order to qualify for the right
- fall within the definition of ‘worker’.
See our Employee status Q&As for more information on distinguishing between a worker, an employee or an independent contractor.
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What are the key provisions in the Agency Workers Regulations 2010?
The Agency Workers Regulations 2010 (SI 2010/93) came into force on 1 October 2011 and implement the Agency Workers Directive. They apply to temporary agency workers, their agencies and their hirers (also known as the end-user).
An agency worker is someone who:
- is supplied by a temporary work agency to work temporarily for, and under the supervision and direction of, a hirer
- has a contract of employment with the agency, or any other contract, requiring them to perform work or services personally for the agency.
The overall effect of the regulations is to entitle agency workers to the same basic employment and working conditions they would have if they had been recruited directly, if and when they complete a qualifying period of 12 weeks in the same job. The aim is to protect low-paid workers from exploitation.
The key provisions are:
- Equal treatment for agency workers when they have been in an assignment with the same hiring company for 12 weeks.
- Entitlement to the same access to job vacancies as permanent staff from day one. (This means that vacancies made available to permanent staff through email, internet, intranet, a company newsletter or on notice boards should be made available to agency workers too. The only exception arises where an employer makes available opportunities for staff at risk of redundancy).
- Use of collective facilities, such as staff canteens, childcare facilities and transport services, from day one.
If an agency worker’s role changes substantially during an assignment, they may not be entitled to the equal treatment provisions.
The hirer (end-user) will be liable if it doesn't give the agency worker ‘day one’ rights, such as the use of collective facilities, but both the hirer and agency could be held liable for breaches of pay and conditions rights after 12 weeks.
The end user must identify what an equivalent permanent employee would be paid. This information is then given to the agency, which will then set the level of the worker's pay. If a worker does not receive equal treatment, the agency will be liable unless the information provided by the hiring company was not correct.
A breach of the regulations could lead to an agency worker claiming less favourable treatment and/or detrimental treatment, with a potentially unlimited compensation order. Tribunals can make an additional award of £5,000 against any employer attempting to circumvent the regulations (for example, by using a sequence of assignments for agency workers in order to avoid them building up the 12 weeks necessary in an assignment to qualify for protection).
The regulations do not make agency workers into employees – see our Employee Status Q&As for an explanation of the common law tests that regulate employment status.
Do agency workers accrue rights as employees against the employer or the agency?
Workers engaged through an agency or employment business can accrue rights against the employer, the agency, or both, depending on the facts of each case and the tests below.
At the heart of the issue is whether an implied contract has arisen between the worker and the end user, giving the agency worker employee status and all the rights which flow from that.
Employers should also remember the following:
- The Agency Workers Regulations 2010 give some rights once 12 weeks have gone by, but do not affect the ability of agency workers to claim rights as employees and to lodge unfair dismissal claims.
- Workers do not automatically accrue some employment rights after a set period of time.
- Some employment rights apply to workers, regardless of whether or not they can show an implied employment contract.
Workers engaged through an agency may be able to claim unfair dismissal if they can establish that they were an employee at the time they were dismissed. Most would have to show either one or two years’ continuous employment (depending on whether they started work on or after 6 April, when the length of the qualifying period for unfair dismissal changed) which may be a bar to claims. But some types of unfair dismissal do not require a qualifying period.
The Agency Workers Regulations 2010 provide certain rights but expressly exclude those in business on their own account. Some workers with limited companies will meet the definition of being in business on their own account and some will not.
Agency workers who are supplied to an employer by an agency or employment business may be:
- employed by the employer, or
- employed by the agency, or
A series of high-level cases have provided guidance concerning whether agency workers are employees or not and, if they are, whose employees they are. In some of the cases, the judges have commented that new legislation is needed to address this complex issue.
The lessons from the cases summarised below are that:
- As long as proper arrangements are in place for agency workers, and there is a clear contractual relationship and behaviour consistent with that relationship, it will not be necessary to imply a contract of employment with the employer or the agency.
- Sometimes agency workers will be employees, but not always.
- In some rare situations an agency worker will be found to have employment rights against the organisation where they have been working.
- Where there has been a breach of the Agency Workers Regulations 2010 the employer and or the agency can be individually or jointly liable.
Compensation for a breach of the Agency Workers Regulations 2010 can be apportioned between the agency and the employer, for example on a 50:50 basis. However, the apportionment can be reduced against the agency or the employer when it is just and equitable to do so.
This case confirmed that where there is a valid three-way contractual relationship between an agency, a worker and an end-user, the courts will rarely imply a contract between the worker and end-user. If the contractual terms are clear using an analysis of the elements of control, personal performance and mutuality of obligation, there is no need to imply a contract of employment.
The leading case on agency workers is James v Greenwich Council (2008). In this case and in Craigie v London Borough of Haringey (2007) the courts indicated that the passage of time alone is not enough to mean that a contract of employment should be implied between the worker and the end user, even if the arrangement continues for longer than originally expected – in these cases, for more than a year.
If the original agency arrangements are genuine, an implied contract will arise only where it essential to imply a contract between the worker and the end user – for example, if mutual obligations have arisen which are incompatible with the agency arrangements.
To decide if agency workers are employees, numerous cases have now followed the James decision and in many a three-stage approach is used:
- Do the express contractual arrangements adequately explain the actual relationship of the three parties involved at the outset?
- Have any subsequent words or conduct of the parties changed matters?
- Is it necessary to imply a contract of employment?
(See also East Living Ltd v Sridhar, 2008 and TSG Services Ltd, 2008.)
Here the Court of Appeal decided that it was not necessary to imply a contract for a blacklisted agency worker who had had management jobs in the construction industry.
When his agreement was terminated, Smith claimed he had been unfairly dismissed because of his trade union activities. The CA followed the decision in James and would not imply a contract between him and the end-user. It said that a contract cannot be implied merely because a court disapproves of the employer’s attempts to avoid its legal obligations.
The Court of Appeal also followed the James decision in this case and confirmed the principle that an employment relationship should be implied only if it is necessary to do so. The mere fact that the worker is significantly integrated into the organisation is not inconsistent with the existence of an agency relationship
The court emphasised that it is an error to think that because someone looks and acts like an employee, it follows that he or she is always an employee in law.
Where individuals are unable to claim unfair dismissal against the end-user, they may claim that the umbrella agreement which covers the relationship generally between themselves and the agency gives rise to employee status with the agency. This argument is unlikely to succeed unless there is:
- control by the agency, and/or
- mutuality of obligation with the agency.
The Conduct of Employment Agencies and Employment Businesses Regulations 2003 (SI 2003/3319) ensure that the precise contractual position between agency, end-user client, and worker must be agreed and set out in a single document before the hiring starts.
Workers who cannot establish employee status may still be protected by the Agency Worker Regulations 2010. These lay down a basic protective framework for temporary agency workers. From 2020 there will be some changes to these regulations especially regarding those agency workers who have a permanent contract with their agency and are paid between assignments. These workers are currently excluded from the principle of equal treatment in relation to pay under the 2010 Regulations.
For further details of the 2020 the Agency Workers (Amendment) Regulations 2019 see our Employee status Q&As ‘Future developments’ question.
What is the difference between an employment agency and an employment business?
The Employment Agencies Act 1973 and the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (updated in 2016) provide a framework of minimum standards for the recruitment industry in the UK. The regulations distinguish between employment agencies and employment businesses and generally regulate standards of conduct in both. (See also Agency Workers Regulations 2010 below.)
Workers supplied by an employment agency are introduced by the agency to the employer. In the vast majority of cases, the agency finds permanent work for the work-seekers, who will then be employed and paid directly by the employer as employees. There is no possibility of the agency and the worker having an employment relationship.
Workers supplied by an employment business are employees of the agency, temporarily seconded or supplied to a client end-user. The temps are usually paid by the employment business, not the end-user.
The expression ‘end-user’ denotes the organisation that engages the workers services by entering into a contract with an employment business. The end-user may, or may not, be found to be an employer of the worker depending on a number of factors, including the length of the relationship with the worker.
Protections for work-seekers
Both employment agencies and employment businesses cannot:
- Charge a fee to a work-seeker to find them work. Non-work finding services like CV writing is permissible but must be explained in a separate document beforehand.
- Prevent someone from working somewhere else or ending their employment with the agency or business.
- Withhold payments or wages due to temporary work-seekers.
- Supply a temporary worker to replace someone taking part in industrial action at the hiring company.
- Make unlawful deductions from pay.
Both forms of agency must set out terms for temporary staff including the status and nature of the relationship, pay rates, holiday and notice periods. Other detailed rules govern other aspects such as fees, working hours, minimum wage. This can all easily be dealt with using a statement of written particulars. Agencies are generally responsible for carrying out pre-employment checks (such as checking rights to work in the UK).
There are exemptions from some aspects of these regulations for employers such as entertainment and modelling agencies, local councils, certain educational institutions, trade unions, certain professional membership organisations, charities and services provided for ex-members of HM forces etc.
What is the legal status of agency workers?
The employment status of agency workers supplied by an employment business to an end user has been established by common law and the Agency Workers Regulations 2010 do not change this position (see Employee status Q&As).
It is a complex issue. In essence such people may be:
- an employee of the business/agency
- an employee of the end user
Two main issues arise:
- whether temporary agency workers are employees
- if they are employees, whether they are engaged by the business or agency or the end user.
A worker’s employment status is crucial for determining employment protection rights. Only those working under a contract of employment (employees) have the right to claim, for example, unfair dismissal, statutory redundancy payments, maternity leave and parental leave. Those working as independent contractors (self-employed) do not have all these rights in full.
The current position is regulated by a complex amount of Case law. The most recent guidance suggests that as a general rule the legal status of a temporary agency worker will depend on:
- whether an implied contract has arisen between the worker and the end user
- an implied contract will only arise when it is necessary.
(See the related Q: Can a contract between an agency worker and an end user be implied?)
The end user and the employment agencies should state in advance whether, in their opinion, the worker is an employee.
Can an employer avoid employment rights by using temporary agency workers who supply services through their own limited companies?
Some employers and employees may seek to avoid employment rights or tax obligations by using temporary agency workers who then supply services through their own limited companies. This may concern general employment rights dependent on employee status or rights arising under the Agency Workers Regulations 2010.
COVID-19: Temporary agency workers who supply services through one-person limited companies or personal service companies may be entitled to a grant under the Coronavirus Job Retention Scheme as a furloughed employee. Further special rules apply to contractors supplying their services to a public body through a personal service company within the scope of the off-payroll rules. In limited cases, public sector organisations may be able to furlough contractors by confirming this with both the personal service company and the agency.
See our Coronavirus FAQs for further details.
Many temporary agency workers have their own limited company and supply their services through that company either through an agency or directly to the end user. The use of such a company does not prevent employee status arising.
For example, in Cable and Wireless plc v Muscat(March 2006), CA it was made clear that the implied contract principle applied to an individual providing their services via their own service company. Such a worker can be the employee of the end-user under an implied contract even though the arrangement is set up through an independent employment agency and even though the contract expressly states that the individual is self-employed. In this case the employee had started out as an employee of the end user; the arrangements subsequently made for contracting out his services via an employment business did not obscure the continuance of that employment relationship.
The Agency Workers Regulations 2010
A temporary agency worker placed by an agency may put their earnings through a limited company for tax reasons. HMRC scrutinise these arrangements carefully. However the Regulations may still apply to that worker.
Under the Regulations the definition of an agency worker does exclude those who are in business on their own account. However some workers with limited companies will be in business on their own account and some will not. The Regulations do not apply if the hirer is genuinely a client or customer of a profession or business undertaking (that is, there is a genuine business to business relationship).
The key issue is the true relationship between the temporary agency worker, the agency and the hirer.
An accountant with their own limited company who is placed by an agency with a hirer for more than twelve weeks to help with various VAT matters whilst the hirer’s in house accountant is on sabbatical will probably not be in business on his own account and will be protected by the Regulations.
By contrast, a lawyer in business providing services to the same company would usually not be working under its superviion or direction, but will be in a client or customer relationship.
For further guidance on this issue especially the tax implications see the Q&A on supplying services through a one-man company in our Employee status Q&As.
Also, for details of the implied contract concept please see the related Q&A What is the legal status of temporary agency workers supplied by an employment business to an end user?
How do the Swedish derogation and breaks between assignments affect the legal protection of agency workers?
The term ‘Swedish derogation’ relates to a clause used by some EU member states (UK, Ireland, Sweden, Hungary and Malta) that had decided to opt out of part of the EU legislation on agency workers.
Potentially the clause could be used as a way around the Agency Workers Regulations 2010. It enabled agencies to pay their agency workers less than permanent workers employed by the end-user business after 12 weeks in an assignment, provided the agency:
- directly employed the agency workers on a permanent basis
- guaranteed to pay them for at least four weeks during the times that work for them was unavailable.
The case Bray and others v Monarch Personnel Refuelling (UK) Ltd (2012, ET) suggested that end users may be able to successfully avoid the Regulations and maintain a pay difference between temporary and agency workers by relying on the Swedish derogation.
However, the Swedish derogation is abolished from 6 April 2020 so, after that date, workers with a contract giving a minimum level of pay between assignments can no longer be excluded from the right to comparable pay with permanent employees.
In any case, no employer should be trying to circumvent the Regulations but should work with them. If an employer really wishes to keep a temporary worker, it should consider employing them. Some larger companies are replacing temporary staff with permanent ones with a degree of flexibility in the permanent employment contracts.
An agency worker regularly working on and off for the same employer over a long period of time may not build up any significant length of service, but breaks in temporary work assignments do not affect mutuality of obligation and employment status during those assignments (see our Employee status Q&As).
If a temporary worker works intermittently, even if there is no mutuality of obligation between assignments, that individual can still be an employee (see Cornwall County Council v Prater, 2006).
From 6 April 2020, agency workers who are considered to be employees will be protected from unfair dismissal or from suffering a detriment if the reasons are related to asserting their rights under the Agency Worker Regulations 2010.
The law provides that if an employee resigns or is dismissed in one week but is re-engaged by the same employer before the end of that week, there is no loss of continuity of employment. But a gap of more than a week can break an employee’s continuity of service.
Following the recommendations of the Taylor report, the ‘Good work plan’ accepted that the period of time required to break continuity should be increased from one week to four weeks, but legislation expected in April 2020 has yet to be produced.
If this change does come into force, employers would need to track temporary agency employees much more closely as they will accrue the two-year service necessary to qualify for unfair dismissal rights more easily. There would also be a significant impact on the rights of employees on low pay or zero-hours contracts.
What rights do temporary agency workers have?
If a temporary worker is unable to establish employee status, or perhaps does not have one or two year’s continuity of employment, they will still have some rights, just not as many as they would if they were employed.
Importantly, under the Agency Workers Regulations 2010, certain agency workers have rights to be paid equally when compared to permanent members of staff. The different types of rights are summarised under separate headings below.
COVID-19: Temporary agency workers may also have rights under the Coronavirus Job Retention Scheme, provided that they are paid through PAYE. Assuming the worker was on the payroll of the agency, they must have been notified to HMRC on or before 19 March 2020 (or 28 February 2020 if the worker is rehired and furloughed in certain circumstances). The agency worker must not do any work for the agency while furloughed. Special rules also apply to agency workers supplying their services to certain public bodies.
See our Coronavirus FAQs for further detail.
A 'non-employee' temporary worker will be entitled to all their contractual rights. This means that both parties are bound by the terms of what has been agreed between them.
A non-employee temporary worker will probably fall within the definition of ‘worker’. If so, they will be entitled to rights granted by the legislation to workers, for example, the right of all workers:
- to the national minimum wage
- not to have unlawful deductions made from their wages
- to paid annual leave, rest breaks, rest periods and a limit on average weekly working time under the Working Time Regulations (see below)
- to be protected against less favourable treatment if they work on a part-time basis
- to be accompanied at a grievance or disciplinary hearing
- to be protected if they make a public interest disclosure (that is whistle blowing)
- not to be discriminated against because of working part time
- to unpaid parental leave, statutory sick pay, statutory maternity pay, statutory adoption pay and statutory paternity pay if the necessary conditions are met
- to ask for flexible working if the necessary conditions are met
The Working Time Regulations 1998 provide that the organisation responsible for ensuring compliance with the Regulations (including providing the agency worker with paid holiday) is the person responsible for paying them.
They are also protected against sex, gender reassignment, pregnancy and maternity, marriage and civil partnership, race, religion and belief, sexual orientation, age, and disability discrimination. For further information see the related Q: Can a temporary agency worker bring a discrimination claim against the end user?
Agency workers' protection
The Agency Workers Regulations 2010 govern the terms and conditions of agency workers. Most importantly temporary agency workers have the right to the same basic employment and working conditions, such as pay and holidays, as permanent staff once they have worked for 12 weeks in the same role for the same hirer. For more information see the related Q&A on the provisions of the Regulations.
Other less important protection for temporary workers may arise under special regulations governing the conduct of employment agencies and employment businesses. The Conduct of Employment Agencies and Employment Businesses Regulations 2003 (SI 2003/3319) as amended essentially ensure that the precise contractual position between agency, end-user client and worker must be agreed and set out in a single document.
Also see the related Q&A 'Future developments'.
More information on agency workers' protection and the legislation is available in the related Q&As.
Do temporary agency workers become entitled to a permanent contract?
The Agency Workers Regulations 2010 give ‘agency workers’ the right to equal treatment (with permanent staff working at the same organisation) but this is not the same as a right to acquire a permanent contract.
Case law has been fairly consistent that most agency workers are not ‘employees’ – although there may still be circumstances where agency workers have become an employee of the end user.
Ultimately, agency workers do not have an entitlement to a permanent employment status but this can happen based on the reality of each case using the ‘normal’ employment status tests of mutuality of obligations, control over the worker, integration into the client’s organisation (see Employment status Q&As).
Agency workers do have the right to be informed about vacancies with the end user and should therefore have the same opportunity as a comparable existing permanent worker to find a permanent job with the hirer.
There is nothing in the Regulations that actually prevents employers from choosing permanent staff or new recruits over agency workers for the actual job vacancies. Agency workers do not get preference ahead of an employer's permanent employees, although obviously no discrimination on the grounds of a protected characteristic such as race or gender or religion etc should occur.
In Coles v Ministry of Defence (2015, EAT) the Employment Appeal Tribunal (EAT) held that for agency workers:
- the principle of equal treatment was restricted to working time and pay
- there was no general right to no less favourable treatment (as there is with fixed-term employees)
- there was a right for agency workers to be informed of vacancies, but this did not mean they also have to be offered interviews.
Can agency workers bring a discrimination claim against the end-user?
Agency workers can, and do, bring discrimination claims against the organisation where they are working temporarily. Anti-discrimination legislation widely defines the concept of employee so agency workers can be ‘employees’ of the agency for purposes of this legislation. However, under most discrimination legislation there must be 'employment' which means employment under a contract of service or a contract personally to carry out any work.
The organisation where they are working temporarily (the end user) is made specifically liable to compensate the worker for any unlawful discrimination under the Equality Act 2010.
For most discrimination purposes a temporary worker supplied by an employment agency to an end user may pursue a discrimination claim against both the end user and the agency. However claims in such circumstances will not always succeed.
In Muschett v HM Prison Service (2010, CA) the Court of Appeal eventually dismissed claims by a prison cleaner for unfair dismissal, wrongful dismissal and sex, race and religious discrimination. The claims failed against both the agency and the prison service because the cleaner was neither an employee of the prison service for unfair dismissal law, nor in the 'employment' of the prison service under the discrimination legislation. He wasn’t a 'contract worker' under the relevant discrimination legislation either.
This decision confirms that although in many cases agency workers can bring discrimination claims as they have a contract of employment with the employment agency, this will not always be the case.
Although Muschett suggests some agency workers might not be able to bring themselves within the contract worker definition. However the following case confirms a more generous interpretation.
In London Borough of Camden v Pegg (2012, EAT) the EAT decided that an agency worker could rely on the contract worker provisions in the Disability Discrimination Act (as replaced by the Equality Act 2010) to bring a disability discrimination claim against the end user. The claimant was obliged to perform work personally during assignments and was therefore 'employed' by the agency as a contract worker as far as discrimination law was concerned. She was supplied to Camden under a contract with an agency and Camden provided work for her to do.
Although there are arguments which employers can raise concerning the nature of the contract with the worker, the safest course of action is to assume that most temporary workers supplied by an employment agency to an end user may pursue a discrimination claim against both the end user and the agency. (To protect themselves employers could insist that agencies only supply workers who are not employed by the agency, to avoid the risk of discrimination claims).
Note that both the employment agency or business and the end-user can be joined as a party to tribunal proceedings depending on the facts. With employment agencies, there is often employee status with the end-user, and therefore less possibility of the worker claiming an employment relationship with the agency. Claims against an employment business as employer are more common.
The Employment Appeal Tribunal (EAT) has emphasised that where there is a triangular case involving status of a worker, an employment business and the end-user, a tribunal must examine what is going on in day-to-day practice at the end-user's premises. All three parties should be joined to the proceedings if all three are not included from the outset - see Astbury v Gist Ltd (2007, EAT) and Astbury v Bentley Motors Ltd (2007, EAT).
Can an employer dismiss temporary agency workers after eleven weeks to avoid the Agency Workers Regulations 2010?
The short answer to this question is ‘yes’. Employers can decide only to employ temporary staff for 11 weeks thereby avoiding the Regulations. This is within the law even if they are doing this deliberately. However if there has been more than one assignment then the anti-avoidance provisions may apply. There may also be other rights such as contractual rights or discrimination which protect the worker.
Although it may be legally permissible, it is not good practice to ensure that temporary staff never complete more than 11 weeks. For example, skills, training and induction time will be wasted. There may also be a negative impact on other staff or customers if the employer is seen to be taking such trouble to avoid paying temporary staff equally.
Basically special provisions apply to workers who have:
- completed two or more assignments with the hirer or
- completed at least one assignment with the hirer, plus one (or more) earlier assignments with connected hirers (for example, a parent company) or
- worked in more than two roles during an assignment with one hirer and on at least two occasions has worked in a role that was not the same role as the previous role.
Anti-avoidance provisions in the Regulations deal with situations where there is an attempt to structure assignments to avoid accrual of the 12-week period.
The provisions prevent assignments from being structured in a way that stops the worker from completing the qualifying period or from being entitled to the equal treatment rights. Otherwise agencies could deliberately limit agency workers’ assignments to fewer than 12 weeks followed by another assignment.
A number of factors are used to determine if a hirer was engaged in an avoidance scheme, including:
- the length and number of assignments
- the number of times the worker has worked in a new role with the hirer, and
- whether or not the role really was new, as well as the duration of breaks between assignments.
This means that if the most likely reason for the structure of an assignment is to prevent the agency worker from being entitled to, or from continuing to be entitled to, the equal treatment rights, then they will still be entitled to equal treatment.
If the special provisions are breached, then the tribunal can make an additional award of up to £5,000 against the hirer. For further information on this, see Q: How is the qualifying period for rights under the Agency Workers Regulations 2010 calculated?
What is the tax status of workers supplied through agencies and agency workers with their own service companies?
The taxation of some workers supplied through agencies has been a difficult issue for some time. HMRC considered that some agencies were avoiding the responsibility for deduction of income tax and employer and employee national insurance contributions (NICs). As a result, tax rules applying to workers supplied through agencies, or other intermediaries have been tightened.
COVID-19: Agency workers can be furloughed under the Coronavirus Job Retention Scheme, provided that they are paid through PAYE. Assuming the worker was on the payroll of the agency, they must have been notified to HMRC on or before 19 March 2020 (or 28 February 2020 if the worker is rehired and furloughed in certain circumstances). The agency worker must not do any work for the agency while furloughed.
See our Coronavirus FAQs for further detail.
The key points about agency workers and tax can be summarised as follows:
- Agency workers can be employees of the agency, or the client.
- If an agency worker is an employee of the agency or client, the employer will be responsible for PAYE and employer NICs as with any other employee.
- In many cases, agency workers are not employees of either the agency or the client.
- Even if an agency worker is not an employee, but does provide their services personally then specific ‘agency legislation’ requires the agency to pay employer NICs and deduct income tax and employee NICs.
- Agency workers have the right to the same pay and other ‘basic working conditions’ as equivalent permanent staff after 12 weeks, but that doesn’t determine their employment status.
This legislation relating to agency workers, commonly known as the 'agency legislation' is contained in:
- the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), and
- Social Security (Categorisation of Earners) Regulations 1978 (SI 1979/1689)
- the Social Security (Categorisation of Earners) (Contributions) Amendment Regulations 2014.
If the worker is genuinely self-employed the agency legislation does not apply. HMRC considered that agencies were avoiding this legislation which deems them responsible for deducting tax and NICs.
The Government’s intention wishes to prevent workers being put by agencies on a fake self-employed basis solely to avoid employment taxes and obligations when in reality the workers should be employed.
The legislation emphasises whether a worker is subject to control, supervision or direction on how the work is done and applies where:
- any worker provides their services personally to an end user, and
- there is a contract between the client and a third party, such as an agency, and
- as a result of that contract the services of the worker are provided, or the client pays for the services to be provided.
When these conditions are satisfied the worker is treated as holding an employment with the agency and the remuneration received by the worker is chargeable to income tax. PAYE must be deducted and the worker is treated as an employed earner for Class 1 National Insurance contributions purposes.
The agency legislation will not apply where:
- the worker is legitimately self-employed or
- the worker is not subject to a right of supervision, direction or control by anyone, as to the manner in which they provide the services
- the worker provides their services wholly in their own home, or on other premises which are not controlled or managed by the client, unless the worker is required to do so at those premises because of the nature of the services and work being provided to the client, or
- the worker provides their services as an actor, singer, musician or other entertainer or as a fashion, photographic or artist’s model.
Any substitution clause within the contract enabling the worker to theoretically send a substitute does not make any difference, as it is whether they actually do provide services personally that counts. There is no specific requirement for an agency contract to exist between the agency and the worker for the legislation to apply.
The exercise or right of supervision, direction or control must be over how the work is done. Supervision, direction or control over what is done, where or when the work is to be done is not important for tax purposes, it is control over the manner in which the duties are carried out.
Genuinely self employed
Agencies still have record keeping requirements for the genuinely self-employed to keep additional records and submit quarterly electronic returns. The records must include reasons why income tax and NICs have not been deducted. So if the agency thinks that that the individual is not subject to the supervision, direction or control they will need to keep evidence of this. If the agency is unable to provide satisfactory evidence when requested, HMRC may recover tax and NICs from them. The end client is protected to some extent because if the individual was wrongly classified as self-employed HMRC will seek to recover tax etc. from the agency, rather than the end client.
Personal service companies (PSC)
The situation involving agency workers adds another layer of complication as the worker has their own personal service company which is used to supply the services to the end client perhaps via the agency.
In summary, the most likely situation where a PSC is involved is that the IR35 regulations will still apply. This means that where the relationship between the worker and the client would be one of employment if the worker had contracted directly with the client, then a deemed employment income tax charge is charged on the PSC. This is easily calculated by reference to the actual payments made by the client.
Detailed information on the provisions is available on the HMRC website.
For further information on IR35 see our Employee status Q&A.
Can personal service or umbrella companies be used to avoid the Agency Workers Regulations 2010?
If an agency worker is issued with a permanent contract of employment with an umbrella company or their own service company, this can avoid the Regulations.
But while these strategies may work in some cases, they have high risks because:
- Only some temporary work agencies will genuinely be employers and satisfy the relationship of employer and employee; many will not. The usual tests of a sufficient degree of control and mutuality of obligation must always be satisfied.
- Whilst HMRC may accept umbrella companies as having employer status for tax purposes, an umbrella company may not be a proper employer for the purposes of avoiding employment liability under the Regulations.
It will be a question of fact in each individual case as to whether the arrangements amount to an employment relationship and are not merely a device to avoid equal pay under the Regulations.
If a temporary work agency or an umbrella company wishes to argue that it is a true employer, then it will need to satisfy the employment tests referred to in the related Q: How do breaks between assignments and the Swedish derogation affect the legal protection of agency workers?
COVID-19: Under the Coronavirus Job Retention Scheme, special rules apply, for example, to individuals supplying their services to certain public bodies, as well as those using umbrella companies and personal service companies and off-payroll workers.
See our Coronavirus FAQs for further details.
How is the qualifying period for rights under the Agency Workers Regulations 2010 calculated?
Most rights under the Agency Workers Regulations 2010 require a 12-week qualifying period.
The following points may assist with calculating the 12-week period:
- The 12-week qualifying period applies to both to both part-time and full-time workers, therefore even if the worker only does one day, half a day or two hours per week (or less) that work will still count as a week, entitling them to equal treatment after 12 calendar weeks.
- A temporary agency worker can qualify for equal treatment after 12 weeks in the same role with the same hirer, regardless of whether they have been supplied by more than one agency during that time.
- A temporary agency worker might work for more than one hirer over a period of weeks, with the result that more than one qualifying period is running at any one time with different hirers.
Breaks in the 12-week period
To prevent companies from terminating a worker's assignment just before the 12 weeks is up and then immediately re-engaging them, there are break period provisions in the Regulations. They provide that, for the purposes of calculating the 12-week qualifying period, continuity will normally be broken by:
- a break of six weeks between assignments in the same job, or
- an agency worker taking up a new role with the hirer, where the whole or main part of their new duties are substantially different from the whole or main part of the duties in the old role.
Breaks between assignments due to a number of specified reasons, such as illness, maternity or pre-determined closure periods do not break the qualifying period. The following points should help hirers to determine if the 12-week period has accrued:
- A break, for any reason, of fewer than six calendar weeks will mean that the 12 weeks can continue to accrue, taking into account the time before and after the break.
- A break between assignments with the same hirer of six weeks or more will break the accrual of the 12 weeks.
- If an agency worker remains with the same hirer, but not in the same role, the 12 weeks will not continue to accrue. The worker has to start again to accrue a fresh 12-week period.
- If there is a ‘structure of assignments’, where workers with under 12 weeks' service are moved to different roles, then the Regulations will still apply.
Other detailed provisions cover sickness, injury, annual leave, jury service, planned shutdowns, strikes or other industrial action at the hirer’s premises.
Special rules also govern pregnancy, childbirth or maternity so that basically the 12 weeks will continue to accrue up to the originally intended length of the assignment, if the break is due to maternity, adoption or paternity leave.
Can there be employment contracts between both the agency and the worker and the worker and the end user?
Some case law suggests that an employee could have more than one employer namely both the agency and the end user- but this would be very rare.
Following James v Greenwich LBC (2008 CA) the position is that where there is a valid tripartite contractual relationship between agency and the worker and the agency and the end-user, the courts will rarely imply a contract between the worker and end-user.
The issue of whether agency staff can become employees of the end user is governed by case law and arose in the following cases. The cases have different results due to subtle differences in the cases:
Cairns v Visteon UK Ltd (November 2006, EAT)
This case found that there was a contract of employment with the agency. The case addressed whether dual contracts of employment can exist both between agency and worker as well as worker and end user. An administrative assistant worked for a company for seven years but half way through this time her services were provided via a contract of employment with an agency. After allegations of falsifying time sheets (for which she was exonerated) the company refused her services. In the absence of other work she was dismissed and claimed unfair dismissal initially against the agency and then the company too.
The EAT held no contract of employment was implied between the assistant and Visteon Ltd because a contract of employment already existed between her and the agency. This was plainly a relevant factor in determining whether it was necessary to imply a second contract of employment. However, the judges agreed in certain circumstances an employee could have more than one employer.
In this case, the result was there was a contract of employment with the end user. It involved car-valeters who had contracts stating that they were self-employed, but the Supreme Court said this did not reflect their true employment status and found that they were in fact employees of the end-user. This decision suggested that those with agency staff were at risk of being found that they were actually employees. Autoclenz confirms that tribunals will look at the reality of the situation to decide if arrangements are fake, but if there is no evidence of a sham arrangement as in the Smith case then it is not necessary to imply a contract. Most other case law demonstrates that courts will only imply terms where this is strictly necessary.
The result in this case was that there was found to be a contract for services provided to the agency, and no contract of employment with the agency or the end user.
A cleaner was supplied by Brooke Street agency to work at a prison (HMP Feltham). Muschett brought employment tribunal claims for unfair dismissal, wrongful dismissal, and sex, racial and religious discrimination against both Brook Street and the prison.
The Courts found he was not an employee of either Brook Street or the prison. He worked in accordance with a contract for services for temporary work between him and Brook Street. He was paid by Brook Street and he had no contractual obligation to provide services personally to the prison.Accordingly, all his claims failed. The Court of Appeal held there was no implied contract for services with the prison as there was nothing in the evidence that necessitated the implication of such an agreement, and, following the case of James v Greenwich Borough Council only necessity will lead to a contract being implied.
The approach of looking to see if it is necessary to imply a contract has now been applied in many cases. However, a contract of employment will not be implied simply because the parties' conduct could be consistent with such a contract. For example, the case of East Living Ltd v Sridhar (2008) and TSG Services Ltd (November 2008, EAT) the EAT summarised a three stage approach:
- Do the express contractual arrangements adequately explain the actual relationship of the three parties involved at the outset?
- Have any subsequent words or conduct of the parties changed matters?
- Is it necessary to imply a contract of employment?. (This will take account the bare minimum mutuality of obligation test that is required for such a contract – for further explanation of this test please also see the Q&A on determining whether an individual is an employee or an independent contractor in our Employee status Q&As).
Other cases demonstrating when contracts will (and will not) be implied include the following:
Astbury v Bentley Motors Ltd (unreported, EAT/1844/06 9 May 2007, EAT)
An agency worker alleged that the contract of employment with the agency was fictitious and that there should be an implied contract between him and the company. The EAT said a contract of employment will only be implied where this is necessary and this will only occur in exceptional cases. An implied contract of employment will not arise if there is a contract of employment between the agency worker and the agency.
The Court of Appeal confirmed that the court would not imply a contract. Just because an agency worker is ’integrated’ into an employer's operations does not mean that the agency worker has automatically become an employee.
The Conduct of Employment Agencies and Employment Businesses Regulations 2003 ensure that the precise contractual position between agency, end user client and worker must be agreed and set out in a single document before the hiring starts. However, tribunals will continue to examine all factors when trying to ascertain an agency worker's employment status. What is contained in the documentation is one factor to take into account (see for example Royal National Lifeboat Institution v Bushaway, 2005).
See our Employee status Q&As for further information on agency workers accruing employment rights.
Can a contract between an agency worker and an end user be implied?
Yes, but the courts are now cautious about finding an employment relationship between an agency worker and an end user. The main issue is whether the reality of the relationship gives rise to the implication of an employment contract. A contract will only be implied when it is necessary to explain the work undertaken, not merely when it is desirable, and where this reflects the reality of the relationship.
Where the contractual terms are clear regarding the elements of control, personal performance and mutuality of obligation, there is no need to imply a contract of employment (see Muschett v HM Prison Service (2010, CA). For further explanation of these elements, see our Employee status Q&As).
In Smith v Carillion (JM) Ltd (2015, CA), a construction worker discovered his name was blacklisted and brought claims of detrimental treatment on grounds of trade union activities, and activities as a health and safety representative. He had to establish an implied contract that he was employed directly as a worker by the end user, even though he was placed through employment agencies with no written terms with those agencies. The Court of Appeal (CA) held that no contract could be implied between the agency worker and the end-users, as it was not necessary to do so.
The court followed earlier cases – James v Greenwich LBC (2008 CA) and Tilson v Alstom Transport (2011 CA) – which said a contract could be implied only if it was necessary. In both these cases agency workers were held not to be employees of the end-user.
The CA guidance summarised the main features that would point away from employment status. They were:
- The standard triangular arrangement (worker/agency/end user) must be genuine and accurately reflect the actual relationship between the parties.
- The end user must not insist on a particular agency worker.
- The end user must not pay the worker directly for the work done.
The passage of time on its own is not a reliable indicator of when an agency worker becomes an employee, and the passing of, say, a year or more does not, by itself, justify the implication of a contract. Generally, if there is a contract in place between the worker and the agency, it is less likely there will be a contract of employment with the end-user.
Two previous important Court of Appeal judgments on this issue were Franks v Reuters (2003, CA) and Dacas v Brook Street Bureau (UK) Ltd (2004, CA) which outlined the circumstances in which a contract of employment could be implied between the agency worker and the company. Whilst this case law may have suggested the period of one year is significant this is no longer the case. The qualifying period for unfair dismissal has increased from one year to two years in any case.
Why should employers monitor compliance with the Agency Workers Regulations 2010?
Employers should keep the use of agency workers under review, checking:
- how many are likely to reach the 12-week qualifying period
- their overall expenditure on agency workers
- compare the treatment of agency and comparable direct employees.
Employers should also give agencies they use agency current information on their terms and conditions to ensure that an agency worker receives the correct treatment. If an employer operates pay scales and standard terms and conditions then an agency worker's entitlement will in most cases be established with reference to those pay scales and terms and conditions.
Employers should also consider the following matters:
- Do they still wish to use as many agency workers?
- Is it preferable to use workers who are genuinely self-employed and fall outside the Regulations?
- What administrative arrangements need to be put in place to cope with the regulations. For example, do they want to limit the number of agencies used and establish computer systems to disclose levels of terms and conditions for comparator employees, without breaching any individual employee’s confidentiality.
- Can all agency workers access staff facilities such as canteens etc and access information on any job vacancies from the first day of their assignment.
- Whether having undertaken the above exercises, does the employer prefer to employ people directly rather than via an agency?
- Inserting clauses in their contracts with agency workers to allocate any liability, or reduce costs resulting from a breach of the regulations.
- Preparing to include information about the total number of agency workers employed, the areas of the business they are employed in and the type of work they do in future collective redundancy and TUPE consultations.
The Department for Business, Innovation and Skills (BIS) has published guidance for recruiters on the regulations.
The government’s 'Good work plan', following four consultations in response to the Taylor Report, resulted in draft legislation for some of the changes recommended including:
- The Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018.
- The Agency Workers (Amendment) Regulations 2018.
A number of changes are coming into force on 6 April 2020:
- The calculation of a week's pay for holiday pay purposes will use a reference period of 52 weeks rather than the current 12 weeks.
- Employers must provide employees with their written statement of terms and conditions on the first day of work (rather than within two months) and this right is also extended to include workers.
- Agency workers will have the right to be provided with a Key Facts Page, to include information on the type of contract they will work under, their rate of pay, which business is responsible for paying it, and any deductions or fees that will be taken.
- The 'Swedish derogation' is abolished. This allowed workers with a contract that provided for a minimum level of pay between assignments to be excluded from the right to comparable pay with permanent employees.
Other changes are expected to come into force at a later date, such as giving all workers a new right to request a more stable contract after 26 weeks’ service. This will particularly affect workers on variable hours or zero hours contracts. The right is simply a right to request a fixed working pattern; there is no obligation on the employer to agree. The right is expected to operate in a similar way to flexible working.
Currently, different approaches are taken to considering whether an individual is an employee, a worker or self-employed for employment law and tax purposes. An individual can be a worker for employment law purposes but self-employed for tax purposes. The Taylor review recommended that the same test is used for employment law and tax purposes and the government has agreed that these tests will be 'streamlined'.
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Frequently asked questions on the legal issues relating to part-time work
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