Commonly asked questions on the legal issues relating to fixed-term work
An assortment of legislation has an impact on temporary workers without mentioning them specifically. For example, many temporary workers will satisfy the statutory definition of ‘worker’ and accordingly legislation designed to protect ‘workers’ generally may have an impact upon many temporary workers, including:
- Trade Union and Labour Relations Consolidation Act 1992, section 296
- Employment Rights Act 1996, section 230(3)(b)
- Working Time Regulations 1998 (SI 1998/1833), Regulation 2
- National Minimum Wage Act 1998, section 54(3)
- Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (SI 2000/1551), Regulation 1
- Employment Rights Act 1996, sections 43K and 230(6), as inserted by the Public Interest Disclosure Act 1998, section 15.
A wide range of other legislation has an impact on the position of temporary workers, including:
- Employment Agencies Act 1973
- Trade Union and Labour Relations Consolidation Act 1992 , section 141
- Employment Relations Act 1999, schedule 7
- The Conduct of Employment Agencies and Employment Businesses Regulations 2003 (SI 2003/3319)
- The Conduct of Employment Agencies and Employment Businesses (Amendment) Regulations 2007 (SI 2007/3575)
- Employment Act 2008
- The Conduct of Employment Agencies and Employment Businesses (Amendment) Regulations 2010 SI 2010/1782)
- The Agency Workers Regulations 2010 (SI 2010/93)
- The Agency Workers (Amendment) Regulations 2011 (SI 2011/1941)
- The Agency Workers Regulations (Northern Ireland) 2011 (SI 2011/350)
- Small Business, Enterprise and Employment Act 2015.
Agency workers are affected by the Agency Workers Regulations 2010 (SI 2010/93) which implemented the Agency Workers Directive in Great Britain. The Agency Workers Regulations (Northern Ireland) 2011 (SI 2011/350) came into force on 5 December 2011.
The overall effect of these regulations is that agency workers are entitled to the same basic employment and working conditions as if they had been recruited directly, if and when they complete a qualifying period of 12 weeks in the same job. The Government has taken legal advice concerning possible future modifications to the Regulations and intends to review them in 2013. See the related FAQs on the provisions of the new Regulations and the related Q&A Are there any future developments expected in the area of temporary workers?.
For further information which concerns atypical workers generally and includes information of interest to those engaging temporary workers, see our Employee status Q&As.
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Q: What is the definition of temporary workers?
There are as yet no special provisions in UK statutes which specifically define all types of ‘temporary’ workers. The term is often used to denote staff engaged on a non-permanent basis who may be:
- employees engaged directly for a short period , or
- self-employed workers engaged for a short period, or
- casual workers, or
- agency workers supplied by an ‘employment agency’ or by an ‘employment business’.
At present the rights afforded to temporary employees depend upon whether:
- they enjoy employee status
- they have completed any required period of continuous employment for the particular right being claimed
- they fall within the definition of ‘worker’.
See our Employee status Q&As for more information on telling if an individual is a 'worker', an employee or an independent contractor (see below).
The Agency Workers Regulations 2010 define one type of temporary worker, namely agency workers. These are defined as individuals who:
- are supplied by a temporary work agency to work temporarily for and under the supervision and direction of a hirer, and
- have a contract with the temporary work agency which is a contract of employment with the agency, or any other contract with the agency to perform work or services personally for the agency.
For more information the Regulations see the related Q&As on the Agency Workers Regulations 2010.
See our Employee status Q&As for more information on telling if an individual is a 'worker', an employee or an independent contractor.
Q: What is the difference between temporary agency workers supplied by an employment agency and those supplied by an employment business?
The Employment Agencies Act 1973 and the Conduct of Employment Agencies and Employment Businesses Regulations 2003 make the distinction between employment agencies and employment businesses and regulate the agencies standards of conduct generally. This legislation may be amended in 2014 - see the related FAQ Are there any future developments expected in the area of temporary workers?.
- Workers supplied by an employment agency: These workers are introduced by the agency to the employer. In the vast majority of these cases the employee will enjoy employee status with the employer, and there is no possibility of the agency and the worker having an employment relationship.
- Workers supplied by an employment business: These workers are employees of the agency temporarily seconded or supplied to a client end-user who may be a ‘client employer’.
The expression ‘end user’ is used in this Q&A and related Q&As to denote 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.
Q: What is the legal status of temporary agency workers supplied by an employment business to an end user?
Temporary agency workers supplied by an employment business to an end user are often referred to as ‘temps’. Their status has generated a great deal of case law and is a complex issue. In essence such people may be:
- an employee of the business/agency
- an employee of the end user
- self employed.
Two main issues arise in such cases:
- whether temporary agency workers are employees at all and
- if they are employees, then are they engaged by the business/agency or the end user.
A worker’s employment status is crucial for determining which key employment protection rights they are entitled to. 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 under a contract for services, or as independent contractors, or who are self-employed do not have all these rights in full.
The current position is regulated by tests set out in case law as described below. The most recent guidance suggests that as a general rule when determining the legal status of a temporary agency worker, an employment tribunal should look to see if an implied contract has arisen between the worker and the end user. Such an implied contract will only arise when it is necessary. A number of points arise from the complex and vast amount of case law which may assist in determining the status of any particular worker.
To make it clear for the worker or employee, the end user and the agency itself, employment agencies should let the end user know in advance whether, in their opinion, it has engaged the worker as an employee under a contract of employment or under a contract for services. The Agency Workers Regulations 2010 govern the terms and conditions of agency workers. See the related Q&As on the provisions of these Regulations. However, the Regulations do not change the common law position set out in the Employee status Q&As concerning the employment status of agency workers.
Who will the claimant bring proceedings against?
Both the employment business and the end user will normally be a party to the proceedings. The Employment Appeal Tribunal (EAT) has emphasised that where there is a triangular case involving 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 (unreported, EAT/619/06 14 March 2007, EAT) and Astbury v Bentley Motors Ltd (unreported, EAT/1844/06 9 May 2007, EAT).
When will an implied contract arise with the end user?
Using a set period as a magic figure is not reliable as an indicator of when an agency worker becomes an employee.
Two important Court of Appeal judgments on this issue are Franks v Reuters  IRLR 423, CA and Dacas v Brook Street Bureau (UK) Ltd  IRLR 358, CA which outlined the circumstances in which a contract of employment could be implied between the agency worker and the client company.
One of the judges did say on the law as it stood, that for purposes such as unfair dismissal, most agency workers are likely to become an employee of the end user client where a period of around a year has elapsed. However, the law has moved on and the passage of a year or more does not, by itself, justify the implication of a contract according to the James and Craigie cases referred to below.
*Note: For information on the changes to the qualifying period for unfair dismissal see the Q&A What is the qualifying service period for unfair dismissal? in our Unfair dismissal Q&As.
Will an implied contract always arise with the end user?
No, an implied contract will not always arise with the end user. Despite the cases referred to immediately above there has been some good news for employers in that the EAT has recently been cautious to find an employment relationship often arising with the end user. The main issue is whether the reality of the relationship must give rise to the implication of an employment contract between the agency worker and the end user. A contract will only be implied when it is necessary to do so, and not where it is merely desirable.
Clear contractual terms - Where the contractual terms are clear by looking at the elements of control, personal performance and mutuality of obligation, there is no need to imply a contract of employment - seeMuschett v HM Prison Service  IRLR 451, CA. (For further explanation of these elements - see the FAQ How do I determine if an individual who already works for me is an employee or an independent contractor? in our Employee status FAQs).
In both James v Greenwich Council (unreported,  EWCA Civ 35, 5 February 2008, CA)and Craigie v London Borough of Haringey (unreported, UKEAT/0556/06 12 January 2007, EAT) agency workers were held not to be employees of the client company. The main features pointing away from employment status, summarised in the CA and EAT guidance are as follows:
- the standard triangular arrangement must be genuine and accurately reflects the actual relationship between the parties
- that the end user does not insist on a particular agency worker and
- the end user does not pay the worker directly for the work done.
Also see Cairns v Visteon UK Ltd 2006  IRLR 175.
Necessity - the position for some time therefore is that the law will only imply a contract between a worker and an end-user where it is necessary to explain the work undertaken.
In Smith v Carillion (JM) Ltd and Another (unreported, [2015 EWCA Civ 209 18 March 2015, CA) a construction worker was placed to work for the end users through employment agencies. He had no written terms with the employment agencies. He discovered that his name was included on an employment blacklist and brought claims of detrimental treatment on grounds of trade union activities, and activities as a health and safety representative. However to succeed he had to establish an implied contract that he was employed by the respondents directly, at least as a worker.
However the Court of Appeal (CA) held that no contract at all could be implied between him and the end-users, The court followed earlier cases (see James v Greenwich LBC  ICR 577 EAT and  IRLR 302 CA and Tilson v Alstom Transport  IRLR 169 CA) which said a contract could be implied only if it was necessary.
Importantly for employers with agency staff the case confirmed that another earlier case of Autoclenz v Belcher and others  ICR 1157 SC did not change the established approach. In this case car-valeters had contracts stating that they were self-employed, but the Supreme Court said this did not reflect their true employment status and found that the car-valeters 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. However the Smith case reconfirms that courts will only imply terms where this is strictly necessary.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.
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 and TSG Services Ltd (unreported, UKEAT/0476/07 4 November 2008, EAT) where 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 case law examples on implied contracts
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 from the first day of his employment he had been controlled by the end-user and that no mutuality of obligation had ever been intended between him and the agency. He argued that there should be an implied contract between him and the end-user. 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 an ostensible contract of employment between the agency worker and the agency.
Tilson v Alstom Transport  IRLR 169, CA - a fleet health manager was integrated into a transport company’s business and was subject to a large degree of control over his day to day work. A contract between his service company and the transport company did not accurately reflect the day to day working relationship. When the arrrangement was terminated he claimed unfair dismissal. However the 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.
Secretary of State of Business, Innovation and Skills v Studders and others (unreported, UKEAT/0571/10 17 May 2011, EAT) - an employment agency supplied individuals to work for an end user. The contract between them and the agency stated it was not an employment contract. There was no obligation to provide work and the claimants had no obligation to accept work when it was offered. The end user became insolvent and the workers stated they were employees for obtaining re-imbursement from the Secretary of State (under Section 188 of the Employment Rights Act 1996). The Employment Appeal Tribunal found that a contract of employment did not exist between the workers and the agency. The contract showed no intention to create an employment relationship and the two key requirements of an employment contract, namely mutuality and control were not present.
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  IRLR 674). See also the related FAQ How can an employer avoid a temporary agency worker supplied by an employment business or agency becoming an employee?.
See our Employee status Q&As for further information on agency workers accruing employment rights.
Q: How can an employer avoid a temporary agency worker supplied by an employment business or agency becoming an employee?
The short answer is that an employer cannot guarantee that any worker supplied by an employment business or agency will not become an employee if the reality of the relationship indicates that an implied contract has arisen.
Any contrived arrangements designed to escape employment obligations are likely to fail, for example engaging ‘consultants’ via an intermediary company. If the reality of the relationship has evolved into employment arrangement with the end user, then consider simply accepting that there is a normal ongoing or fixed-term employment contract with them.
However, there are some things an end user can do to minimise the risk of the worker attracting employee status. These must genuinely reflect the real arrangements. The end user should:
- ensure that the content of the contract between the end user and the employment business or agency does not suggest an employment relationship
- ensure that the content of the contract between the worker and the employment business or agency does not suggest an employment relationship with the end user
- ensure that the worker’s agreement with the employment business or agency states that they remain employed by them
- negotiate warranties or indemnities from the employment business regarding the worker’s employment status
- ensure that the employment business or agency pays the worker
- ensure that the employment business or agency taxes, appraises, disciplines and exercises day-to-day control over the worker
- ensure that any of the relevant arrangements expressly exclude mutuality of obligation arising between the worker and the end user
- require the employment business to provide a substitute where the worker is unavailable
- ensure that the worker’s assignment lasts less than 12 months
- limit the worker’s integration into the organisation
- exclude the worker from organisation charts and supervisory/management role and from wearing any uniform.
For information concerning employers trying to avoid protection for employees under the Agency Workers Regulations which came into force on 1 October 2011 see the related Q&A Can an employer dismiss temporary staff after 11 weeks to avoid the Agency Workers Regulations 2010?.
Q: Can an employer avoid employment rights by using temporary agency workers who supply services through their own limited companies?
The issue of employers seeking to avoid employment rights by using temporary agency workers who supply services through their own limited companies may concern general employment rights dependent on employee status and/or rights arising under the Agency Workers Regulations 2010.
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 ( IRLR 354, CA it was made clear that the implied contract principle in the Dacas case applied in the same way to an individual providing their services to an end-user via their own service company. Such a worker can be the employee of that end-user 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 and the arrangements subsequently made for contracting out his services via an employment business did not obscure that continuance of the 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. For example 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 it’s supervision or direction, but will be in a client or customer relationship.
For further guidance on this issue see also 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?.
Q: What is the effect of breaks in periods of temporary work assignments on the legal status of temporary agency workers generally and under the Agency Workers Regulations 2010?
Breaks in periods of temporary work assignments may concern the legal status of temporary workers generally, or concern rights for agency workers arising under the Agency Workers Regulations 2010. These are dealt with under separate headings below.
The effect of breaks on legal status generally
The fact that there are breaks in periods of temporary work assignments will not affect the basic points concerning mutuality of obligation, explained in our Employee status Q&As.
If a temporary worker works on an intermittent basis, even if there is no mutuality of obligation between assignments, that individual can still be an employee provided normal mutuality exists.
For example, in Cornwall County Council v Prater  IRLR 362, a tutor worked for Cornwall County Council's Home Tutor Service teaching children who were unable to attend school for example because of serious illness or injury injury. Tutors were always entitled to refuse a particular pupil. There was no contractual obligation on the Council to offer pupils to tutors. Over the ten years or so that Mrs Prater operated under the scheme she never once refused to take on a pupil. Apart from August, with isolated exceptions, she was paid for work in every month. The duration of the individual assignments varied from a few months to one lasting for five years. There was no close level of control over Mrs Prater and she had no right to substitute another teacher if she were unable to teach. Crucially, the Council asserted that she was not an employee. They said this because Mrs Prater was under no obligation to accept any further engagements once each engagement came to an end, and because there was no obligation on the Council to offer her further work, the essential mutuality of obligation needed to establish a contract of employment was missing. The Court of Appeal rejected the Council's argument and said that where that arrangement is one of a series there is no need to look for additional mutuality of obligation such as an agreement that further similar work would be offered and/or accepted.
The effect of breaks under the Agency Workers Regulations 2010
The Agency Workers Regulations 2010 (SI 2010/93) came into force on 1 October 2011. Most rights under the Regulations require a twelve week qualifying period. However some of these rights do not require a qualifying period. Under the Regulations there are two categories of rights.
The main rights
These apply after the twelve week qualifying period has accrued. These equal treatment entitlements relate to pay and other basic working conditions (annual leave, overtime, etc).
Day 1 rights
These are not as important, but apply to all agency workers from the first day of their assignment. These rights encompass access to facilities (such as canteen, childcare facilities and so forth) and information on job vacancies.
The agency workers therefore gain most of their protection for equal treatment after twelve weeks in the same role with the same hirer. The following points may assist with calculating the twelve week period:
- The qualifying period is not retrospective; therefore the twelve week qualifying period only accrues after the Regulations came into force on 1 October 2011, even if the assignment started before then.
- The twelve 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 and they will be entitled to equal treatment after twelve calendar weeks.
- A temporary agency worker can qualify for equal treatment after twelve weeks in the same role with the same hirer, regardless of whether they have been supplied by more than one agency over the twelve weeks.
- 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 twelve week period
To prevent companies from terminating a worker's assignment just before the twelve weeks is up and then immediately re-engaging them, there are break period provisions. The Regulations provide that for the purposes of calculating the twelve week qualifying period, continuity will normally be broken by:
- a break of six weeks between assignments in the same job, or
- if an agency worker takes up a new role with the hirer where the whole or main part of the duties in the new role 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 (that is, school closures during holidays) do not break the qualifying period. The following points should help hirers to determine if the twelve week period has accrued:
- A break for any reason where the break is of less than six calendar weeks will mean that the twelve 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 twelve weeks.
- If an agency worker remains with the same hirer, but is not in the same role the twelve weeks will not continue to accrue, but the worker has to start again to accrue a fresh twelve week period.
- If there is a ‘structure of assignments’ where workers with under twelve weeks' service are moved to different roles then the Regulations will still apply.
- In the following situations the worker can continue to accrue the twelve weeks before and after the break, provided that the break is:
- up to 28 weeks and attributable to sickness or injury of the worker
- for the purpose of leave to which the worker is entitled, (for example annual leave)
- up to 28 calendar weeks for jury service
- due to a regular and planned shutdown by the hirer (for example at Christmas)
- due to a strike, lock out or other industrial action at the hirer’s premises.
Special rules govern pregnancy, childbirth or maternity so that basically the twelve 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.
Q: If a temporary agency worker is not an employee what rights do they have?
If a temporary worker is unable to establish employee status or perhaps does not have one year’s continuity of employment (or two years for employees starting employment on or after 6 April 2012*see note) they will still have the benefit of some rights, just not as many rights as if they were employed. Importantly, from 1 October 2011, under the Agency Workers Regulations 2010, certain agency workers will also have rights to be paid equally when compared to permanent members of staff. These rights are summarised under separate headings below.
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 rights of all workers:
- to the national minimum wage
- to rights to paid annual leave, rest breaks, rest periods and a limit on average weekly working time under the Working Time Regulations
- to be protected against less favourable treatment if they work on a part-time basis
- to be accompanied at a disciplinary hearing
- to be protected if they make a public interest disclosure (that is whistle blowing).
An example of workers rights in the context of temporary agency workers is that the Working Time Regulations 1998 provide that the person responsible for ensuring compliance with the Regulations (including providing them with paid holiday) is the person responsible for paying the temps. If neither is technically responsible for making such payments then the duty falls on whichever of them actually pays in practice - Working Time Regulations 1998, Regulation 36(2).
There is also protection 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&A Can a temporary agency worker bring a discrimination claim against the organisation where they are working temporarily?.
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 FAQs 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) essentially ensure that the precise contractual position between agency, end-user client and worker must be agreed and set out in a single document.
The Conduct of Employment Agencies and Employment Businesses (Amendment) Regulations 2007(SI (2007/ 3575) brought in extensive amendments to the 2003 Regulations to ensure that work-seekers can cancel or withdraw from agencies' additional services without penalty and that there is a seven day cooling off period for contracts between agencies and work-seekers in the entertainment and modelling occupations. The paperwork is also reduced if a temporary worker is provided for five days or less together with other minor clarifications.
Agency workers are also protected by the Employment Agency Standards Inspectorate which has increased enforcement powers under the Employment Act 2008 from 6 April 2009. Inspectors are able to obtain financial records and documents from agencies and require banks to provide financial information regarding agencies.
The Conduct of Employment Agencies and Employment Businesses Regulations 2003 may be amended in 2014 - see the related Q&A Are there any future developments expected in the area of temporary workers?.
More information on agency workers' protection and the legislation is available in the related Q&As.
*Note: For information on the changes to the qualifying period for unfair dismissal see the Q&A What is the qualifying service period for unfair dismissal? in our Unfair dismissal Q&As.
Q: When does a temporary worker, including fixed-term and agency workers, become entitled to a permanent contract?
The starting point for finding out when a temporary worker becomes entitled to a permanent contract is to look at the contract. Issues which can arise with fixed-term and agency workers are discussed below.
Many temporary workers will be engaged on fixed term contracts. Under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (SI 2002/2034), a fixed-term contract is normally automatically converted by law into a contract of indefinite duration (that is a permanent contract) once the employee has completed four years continuous employment under it or renewals of it (unless an exception applies).
However in Hudson v Department for Work and Pensions (unreported,  EWCA Civ 1416 7 November 2013, CA) the Court of Appeal held that an employee’s previous employment on a series of fixed-term training schemes does not count towards the four years of continuous employment required to achieve permanent employment status under the Regulations.
The expiration and non-renewal of a fixed-term contract is a dismissal. If an employee has at least one year's service (or two years for employees starting employment on or after 6 April 2012) they will therefore also have a claim for unfair dismissal if the employer fails to renew their fixed-term contract without a fair reason and without following a fair procedure - see our Unfair dismissal FAQs for more information.
For more information on fixed-term contracts, see our Fixed-term work Q&As.
Agency workers have the right to be informed about vacancies with the hirer while on assignment with them and should therefore have the same opportunity as a comparable existing permanent worker to find a permanent job with the hirer.
For more information on compliance with the key provisions in the Agency Workers Regulations 2010 see the related Q&A What are the key provisions in the Agency Workers Regulations 2010 and what should employers do to comply with them?.
There is nothing in the Regulations that actually prevents employers from choosing permanent staff over agency workers for the actual job vacancies. Agency workers in a temporary job do not have a right to apply for that job and 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 (unreported, UKEAT/0403/14 31 July 2015, EAT) the claimant was an agency worker with the Ministry of Defence. The Ministry restructured and 530 direct employees were placed into a redeployment pool and were to be given priority consideration for vacancies over other applicants. The claimant's job was advertised. The advertisement was visible to any internal candidate and would have been visible to the claimant if he had looked. An internal candidatel applied for the post and was appointed, but the claimant did not apply.
Whilst the vacancy was available to the claimant as required by the Agency Workers Regulations 2010, he alleged that the failure to allow him to apply for the post and give him preference ahead of permanent employees breached his right to 'equal treatment' in basic working and employment conditions under the Temporary Agency Worker Directive.
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.
The EAT refused to refer the case on to the European Court of Justice.
Finally employers should remember that if a temporary worker’s contract is terminated, the organisation's disciplinary and dismissal procedures and the provisions of the Acas Code of practice on disciplinary and grievance procedures must be complied with in the usual way.
If a temporary worker’s contract is terminated, the organisation's disciplinary and dismissal procedures and the provisions of the Acas Code of practice on disciplinary and grievance procedures must be complied with in the usual way. See Unfair dismissal Q&As.
Q: Can a temporary agency worker bring a discrimination claim against the organisation where they are working temporarily?
Yes, temporary 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 supplying 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 execute any work or labour.
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.
(Confusingly, some case law and legislation uses the expression 'contract workers' as the definition of who is covered in discrimination cases. A contract worker is a person who works for an end user, but who is employed by someone else who supplies them under a contract made with the end user).
In summary, 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  IRLR 451, CA the Court of Appeal eventually dismissed claims by a cleaner at a Young Offenders Unit for unfair dismissal, wrongful dismissal and sex, race and religious discrimination. The claims failed against both the agency and the prison service. This was because the cleaner was neither an employee of the prison service as defined in the Employment Rights Act 1996 Section 230, nor in the 'employment' of the prison service under the Sex Discrimination Act 1975 or Race Relations Act 1976. Neither was he a 'contract worker' under the relevant discrimination legislation.
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. After Muschettemployers may think that 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 (unreported, UKEAT/0590/11 13 April 2012, EAT) the Employment Appeal Tribunal 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 she was working for.
The claimant was obliged to perform work personally in relation to assignments. She 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).
Q: Who is covered by the Agency Workers Regulations 2010?
The provisions governing precisely who are protected by the Agency Workers Regulations 2010 are complicated.
However in summary the Regulations are intended to apply to:
- Temporary agency workers (basically individuals who work as temporary agency workers hired through an agency)
To attract most of the protection the temporary agency worker must have been in the same role with the same hirer for twelve weeks. The twelve week issue is dealt with under the related Q&A on what is the effect of breaks on temporary work assignments.
Agency worker (or ‘temp’) - someone who has a contract with the agency. This can be either an employment contract or an agreement to perform work or provide services personally. The worker must work temporarily for and under the direction and supervision of a hirer.
The worker must not in a business on their own account (where they have a business to business relationship with the hirer who is therefore their client or customer).
It appears that even those individuals who have their own personal services company may be covered, unless they can establish genuine self-employed status. (Also see the related Q&A Can an employer avoid employment rights by using temporary agency workers who supply services through their own limited companies?).
(Employers should note that the agency worker must have a contract with the agency which is either an employment contract or ‘any other contract with the agency to perform work or services personally’. This replaces a previous error in the Regulations which suggested that the worker had to actually be working for the agency itself - see the Agency Workers (Amendment) Regulations 2011).
Temporary work agency - an agency which supplies workers to work temporarily for a hirer and the worker only has a contract with the agency.
Some agencies offer both temporary and permanent vacancies. The Regulations will only apply when the agency is acting in its capacity of supplying temporary agency workers, not permanent ones. The agency should always specify in what capacity they are acting on behalf of the worker (this is required by the Conduct of Employment Agencies and Employment Businesses Regulations 2003 anyway).
Hirer - the hirer may be referred to as the hirer (or end user) and is simply an organisation which books temporary agency workers via an agency.
Who are not protected?
The following individuals are likely to fall outside the application of the regulations, individuals who:
- find direct employment with an employer through an 'employment agency'
- work on arrangements which are permanent or indefinite in duration
- are on secondment or loan from one company to another
- use agencies to find work, but who are in business on their own account (that is, they have a business to business relationship with the hirer who is therefore their client or customer)
- work on Managed Service Contracts where the worker is not directed or supervised by the ‘hirer’
- work for in-house temporary staffing ‘banks’, where the company employs its temporary workers directly (and they only work for that business).
Agency workers who have less than 12 weeks service and are therefore genuinely temporary worker are also not protected by most of the provisions, unless there has been a sequence of assignments to try and avoid the Regulations (see the related Q&A Can an employer dismiss temporary staff after 11 weeks to avoid the Agency Workers Regulations 2010?).
For example in Moran and others v Ideal Cleaning Services Ltd and another (unreported, UKEAT/0274/13 3 December 2014, EAT), one of the leading cases on the meaning of temporary agency workers, some cleaners were placed by an agency with the end user. They then worked there for between 6 and 25 years, before being made redundant in 2012.
The agency invoiced the end user for the services and paid the cleaners each week for the work they had done. The cleaners wanted to prove they were agency workers within the meaning of the Agency Workers Regulations 2010 to achieve the same basic working and employment conditions as if they had been recruited by the end user directly. The Employment Appeal Tribunal held that the Agency Workers Regulations 2010 did not apply to agency workers placed with an end user indefinitely because the Regulations only apply to workers supplied by a temporary work agency to work temporarily for the end user. The arrangements under which the cleaners worked were indefinite and therefore permanent and they fell outside the scope of the Regulations
There are two important points to note:
- As individuals, agencies and companies get used to the Regulations there is expected to be more case law clarifying if some individuals fall within their scope. The courts and tribunals will look at the reality of the relationship and not what the parties label the relationship as.
- Whether the Regulations apply is a separate issue from ‘employee’ status. Although the expression ‘employers’ is used throughout these FAQs it is important to remember that the Regulations do not make agency workers into employees. Again the courts and tribunals will look at the reality of the relationship, using the usual common law tests to decide employment status – see our Employee Status FAQs for further information on who is and is not an employee.
The Agency Workers Regulations (Northern Ireland) 2011 came into force on 5 December 2011 and guidance on the Regulations is available on the Department for Employment and Learning website.
Q: What are the key provisions in the Agency Workers Regulations 2010 and what should employers do to comply with them?
The Agency Workers Regulations 2010 (SI 2010/93) came into force on 1 October 2011. They implement the Agency Workers Directive and apply to Great Britain.
From a UK perspective, temporary agency work is far more prevalent here than in any other of the EU member states. Therefore increased rights for agency workers has a greater impact here than in many other European countries. Although there have been some differences of opinion on the Regulations they seem to have had less impact on the demand for temporary workers and on many employers, than was originally anticipated.
In essence, at the outset of an assignment which is expected to last 12 weeks or more, the hiring company will need to 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. If the Regulations are ignored by an employer, the agency worker will be able to claim less favourable treatment and /or detrimental treatment with a potential unlimited compensation order.
The Regulations do not make agency workers into employees; the usual common law tests will regulate employment status – see our Employee Status Q&As. They aim to protect low-paid workers from exploitation. However, the right to parity in respect of pay means that it might become more expensive to use agency workers. If workers get a higher wage after 12 weeks, then the increase in costs caused by equal treatment may adversely affect some employers’ profit margins.
The key provisions are summarised as follows:
- Equal treatment for agency workers after they have been in an assignment with the same hiring company for a qualifying period of 12 weeks.
- From day one, agency workers are entitled to the same access to job vacancies as permanent members of staff. 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 in a redundancy situation where an employer makes available opportunities for staff at risk of redundancy).
- From day one, agency workers can use collective facilities such as staff canteens, childcare facilities and transport services.
- The hirer or agency should take account of the agency worker's qualifications, skills and experience, as well as the terms and conditions of comparable employees.
- Tribunals can make an additional award of £5,000 for anyone attempting to circumvent the Regulations.
- If an agency worker’s role changes substantially during the term of the assignment, then they may not attract the equal treatment provisions.
- The hirer will be liable if they don't give the agency worker the ‘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.
For information on the twelve week qualifying period see the related Q&A on the effect of breaks on temporary work assignments.
What is covered?
Equal treatment means that agency workers receive the same pay, benefits and working conditions as if they had been recruited directly to do the same work. The Regulations address all aspects of basic working and employment conditions including:
- working hours
- shifts/unsocial hours allowances
- risk payments for hazardous duties
- rest periods
- access to job vacancies (from day one* see note)
- possible improved access to training (from day one**see note)
- access to communal facilities, such as childcare (from day one*see note)
- luncheon vouchers or childcare vouchers which have monetary value and are not 'salary sacrifice schemes'.
By way of further explanation the provisions therefore cover:
- Holiday - if the employer gives enhanced holiday entitlement the agency worker is entitled to this, but it may be possible to pay in lieu regarding holidays over and above the working time minimum.
- Basic pay, plus any fee, bonus, commission, holiday pay or other payment directly referable to the employment.
- Bonuses and commission payments directly attributable to the amount or quality of the work done are included, for example commission linked to sales or production targets
- The length of working time, night work, rest periods, rest breaks and annual leave.
- Pay and benefits, including bonuses (including those which relate to performance in meeting short-term targets), commissions and holiday pay.
- Some maternity protections apply, including a right to paid time off for ante-natal appointments for agency workers.
- Access to canteen and similar facilities such as childcare and transport services*(see note).
- To be informed about job vacancies in the organisation*(see note).
*Note: These rights apply from the first day of working for the organisation, although access to the canteen and similar facilities could be refused if there are ‘reasonable grounds’ to do so.
**Note: Improved access to training deserves a special mention. The EU Directive makes it clear that member states should have banned any clauses which prevent agency workers moving from temporary worker to permanent employee. The Directive also provides other entitlements which aim to improve the situation for agency workers, For example, in terms of improved access to permanent employment and training. Article 6.5 of the Directive actually states that member states should take suitable measures to promote the same opportunities for agency workers as comparable employees of the hirer to find permanent employment with it.
The Regulations do not mention training specifically. Although the explanatory notes to these Regulations expressly say it is not necessary to give equal treatment with regards to the training an agency worker receives in comparison to a permanent employee.
Employers therefore do not have to give the same training to agency workers. However employers should be careful because if an agency worker is prevented from gaining a permanent position because they have been denied access to training then that worker is arguably being prevented from becoming a permanent employee. This area is perhaps one which will require further legislation in due course.
Of course the separate right to request 'time to train' for employees who work in an organisation with 250 or more employees does not apply to agency workers. See our Flexible working, parental rights and family-friendly provisions FAQs for more information on this.
What is not covered?
- Redundancy pay, both statutory and contractual.
- Contractual sick pay and occupational or contractual, maternity, paternity or adoption pay which are not included in the definition of pay.
- Notice pay (statutory and contractual).
- Bonus payments provided as share option or profit-share schemes which are not included.
- Share ownership schemes.
- Benefits derived from performance appraisals designed to motivate and retain staff are also excluded.
- Pension provision and occupational sick pay are not expressly covered by the Regulations. However the Pensions Act 2008 obliges employers to automatically enrol all 'eligible jobholders' including agency workers into a qualifying pension scheme.
- Genuinely self-employed workers.
- Salary sacrifice scheme payments.
- Payment for time off for trade union duties
- Advances in pay or loans, for example for season tickets.
- Expenses such as accommodation and travel expenses.
- Overtime, if the agency worker has not fulfilled qualifying conditions required of someone directly recruited.
- Some benefits in kind.
- Although contractual sick pay is not included, the Regulations do not affect an agency worker’s statutory entitlement to sick pay.
- Agency workers are covered by automatic pension rules from October 2012 so that employers or agencies are obliged to make pension arrangements for agency workers in the same way they will have to provide for the rest of their workforce, with automatic enrolment and compulsory contributions.
- Although occupational maternity, paternity or adoption pay are excluded, an agency worker may have the usual statutory entitlements.
- Any payments that require an eligibility period of employment will not be included if the requirements are not met by the agency worker
- Obviously employers do not have to give agency workers special payments in recognition of the long-term relationship between permanent employees and employer, such as annual loyalty bonuses.
- Similarly if the agency worker is no longer on the assignment when the bonus is paid, the bonus is not payable as long as the same would apply to other staff who are no longer working for the hirer.
Complying with the Regulations
The Regulations have gone ahead in their present form. For information on the Government's possible future attempts to modify the Regulations see the related Q&A Are there any future developments expected in the area of temporary workers?.
Employers should therefore carry out a comprehensive review of their use of agency workers. They need to check how many of their agency workers are likely to reach the 12 week qualifying period and their overall expenditure on agency workers and 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, as the flexibility of this is now likely to diminish?
- 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 new 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 on the Regulations which is available on the GOV.UK website.
The Agency Workers Regulations (Northern Ireland) 2011 came into force on 5 December 2011 and guidance on the Regulations is available on the Department for Employment and Learning website.
Q: 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, an employer can dismiss temporary staff after eleven weeks to avoid the Agency Workers Regulations 2010. Employers can decide only to employ temporary staff for eleven weeks thereby avoiding the Regulations. This is within the law even if they are doing this deliberately. However if there have been more than one assignment then the anti-avoidance provisions may apply.
If the employer stops using the agency worker before the 12 week qualification period then this is permissible. Anti-avoidance provisions in the Regulations apply to deal with situations where there is an attempt to structure assignments to avoid accrual of the 12 week period. 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 below and 'Day one' rights and how the twelve weeks are calculated in the related Q&A What is the effect of breaks in periods of temporary work assignments on the legal status of temporary agency workers generally and under the Agency Workers Regulations 2010?.
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.
The anti-avoidance 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 twelve weeks followed by another assignment. A worker will therefore be deemed to have completed the twelve week qualifying period from the time they would have completed the qualifying period, but for the structure of the assignment or assignments (Regulation 9).
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.
The factors which are taken into account in determining whether the structure of the assignments has been designed to avoid the regulations are:
- the length of the assignments
- the number of assignments with the hirer and where applicable, connected hirers
- the number of times the agency worker has worked in a new role with the hirer (and any connected hirers)
- whether the new role is not the 'same role'
- the number of times the agency worker has returned to work in the same role with the hirer and any connected hirers
- the period of any break between assignments with the hirer and any connected hirers.
Although it may be legally permissible, it is not best 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.
Q: What is the Swedish derogation and can it be used to avoid the Agency Workers Regulations 2010?
A potential way around the Regulations is referred to as the ‘Swedish derogation’. This relates to an opt-out clause which was originally negotiated by Sweden when the Agency Workers Directive was debated at EU level. The UK, Ireland, Sweden, Hungary and Malta also use this exemption clause.
The ‘Swedish derogation’ clause is an exemption which enables temporary workers to be paid less than permanent workers at the place where they work, when they are employed on contracts with employment agencies. Paying the same rate of pay can be avoided, as long as the agency directly employs the individuals and guarantees to pay them for at least four weeks during the times they cannot find them work.
The unions, including the TUC and the GMB, claim it is unethical and the TUC has launched a formal complaint with the European Commission concerning the use of the Swedish derogation and claiming that the Government has failed to properly implement the Agency Workers Directive.
A GMB supported claim involves a Swindon distribution centre where employees were paid £2 more an hour than agency staff employed.
Currently the Swedish derogation clause applies and is primarily a matter affecting agencies. If temporary work agencies use contracts with their agency workers which genuinely amount to a contract of employment this may mean that the hirer does not have to comply with the Regulations.
Alternatively if the agency worker is issued with a permanent contract of employment with an umbrella company or their own service company can this avoid the Regulations?
These strategies may work in some cases, but 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, an umbrella company may not be a proper employer for the purposes of avoiding 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 not merely a device to avoid equal pay under the Regulations.
Bray and others v Monarch Personnel Refuelling (UK) Ltd (unreported, ET/1801581/2012 28 September 2012, ET) is one of the first tribunal judgments looking at the 'Swedish derogation' exception. In this case a group of tank drivers employed by Monarch were supplied to BP Oil (UK) Limited . The Monarch tank drivers had worked on a series of continuous and regular assignments for BP for a number of years. Monarch paid the BP drivers £1 per hour more than their other drivers, but this was still 70p less than BP’s own drivers. As a result of the Agency Workers Regulations 2010, BP told Monarch to issue new contracts and employ drivers under Regulation 10, the Swedish derogation clause, which it attempted to do. Monarch issued all drivers with new contracts of employment which purported to comply with the requirements of Regulation 10. However there was a dispute about whether the contracts of employment were entered into before the beginning of the first assignment under that contract.
The tribunal held that a Swedish derogation contract did not have to be issued before the first ever assignment with a hirer and therefore an agency worker could be swithched from a 'standard' agency contract to a Swedish derogation contract, even if the agency worker will be working in the same place and in the same way. The decision is only an employment tribunal decision which is not binding on any other employment tribunal, but is one of the first decisions which suggests that end users who seek to rely on Swedish derogation types of contract may successfully avoid the Regulations applying to their temporary agency workers and maintain a pay difference between temporary and agency workers.
If a temporary work agency or an umbrella company wish to argue that they are true employers, then they will need to satisfy the employment tests referred to in the related Q&A What is the legal status of temporary agency workers supplied by an employment business to an end user?.
It is not enough that the temporary work agency and the employer just decide to label their relationship as an employer/employee one. Only if agency workers really are employed on a permanent basis by their temporary work agency then the hirer they are placed with may not be caught by the Regulations.
Some organisations are asking agencies to accept liability for agency workers’ claims under the Regulations by inserting indemnity clauses in their terms of business so that the agency will ultimately be liable for breach of the Regulations and any resulting tribunal claims.
However it is not best practice to try and circumvent the Regulations but to work with them. If an employer really wants to keep one particular worker then they should consider employing them. Some larger employers have already decided to replace agency staff by permanent hires. They have calculated that giving temporary workers pay and conditions equal to that of permanent staff after twelve weeks’ employment will be excessively expensive. For larger employers who use a lot of temporary agency staff it may also be administratively impractical to keep tabs on how often an employer has hired temps. Some larger companies are replacing some temporary staff with permanent ones with a degree of flexibility in the permanent employment contracts.
(Other defences in the Regulations which are really of relevance to the agency rather than the hirer ensure that an agency will not be liable for a hirer's breach of the Regulations if the agency has taken reasonable steps to obtain relevant information about the basic working and employment conditions in force in the hirer.)
Q: 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). Although this issue was first highlighted in the construction industry, HMRC felt it became widespread in other industries too. As a result, since 6 April 2014 new tax rules apply to workers supplied through agencies, or other intermediaries.
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.
HMRC considered that agencies were avoiding the ‘agency legislation’ which deems them responsible for deducting tax and NICs. This legislation relating to agency workers, commonly known as the 'agency legislation' is contained in:
- Part 2, Chapter 7 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), sections 44 – 47, and
- Social Security (Categorisation of Earners) Regulations 1978 (SI 1979/1689).
If the worker is genuinely self-employed the agency legislation does not apply. For the legislation to apply, a number of criteria had to be satisfied and issues arose around whether the worker had to provide their services personally. Some agencies put clauses in contracts stating that workers could send substitutes to do the work (even if this would never actually happen in reality) in order to pay tax and NICs on a self-employed basis.
The Government’s intention is to prevent employment agencies being used to engage workers on a fake self-employed basis solely to avoid employment taxes and obligations when in reality the workers should be employed.
The new rules
In summary, the government changed the legislation so that the emphasis is on when a worker is subject to the right of control, supervision or direction as to the manner in which work is done.
From 6 April 2014 onwards the new legislation applies where;
- any worker provides their services personally to another person know as the client (or 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 as employment income and PAYE must be deducted and the worker is treated as an employed earner for Class 1 National Insurance contributions purposes.
From 6 April 2014 onwards, the agency legislation will not apply where:
- if the remuneration the worker receives in consequence of providing the services would be chargeable as employment income before the agency legislation is applied, or
- when the worker is legitimately self-employed or
- where 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
- if 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
- if the worker provides their services as an actor, singer, musician or other entertainer or as a fashion, photographic or artist’s model.
This means that 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. By contrast to the pre-6 April 2014 position, 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 manner in which the duties are carried out.
The penalties for late or incorrect returns will be delayed until April 2015, one year after the rules came into force.
(The new rules are contained in the Social Security (Categorisation of Earners) (Contributions) Amendment Regulations 2014 which amends Part 2, Chapter 7 Income Tax (Earnings and Pensions) Act 2003, sections and Social Security (Categorisation of Earners) Regulations 1978 (SI1978/1689).)
Genuinely self employed
The new legislation will not affect those who are genuinely self-employed as they will not be subject to (or to the right of) direction, supervision and control.
If the worker is self employed or not subject to control there are still record keeping requirements on agencies 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 HMRC concludes that 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 old 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. The deemed tax charge then arises at the end of the tax year and HMRC guidance sets out how to calculate the deemed payment.
PSCs and the Agency legislation
Employers may think that the Agency legislation applies to any worker with a PSC. This is because the party described in the legislation as the ‘agency’ includes any legal structure interposed between the client and the worker and this includes a PSC.
However all of the Agency legislation criteria is not satisfied by a PSC. This is because most workers with PSCs get paid dividends through their own company rather than receiving remuneration as a consequence of providing their services.
Also the worker must get remuneration which is not already employment income, before the provisions of the agency legislation are triggered. Any salary paid to the worker by their PSC is already employment income, so this also suggests that the new Agency legislation does not apply.
In practice a worker providing their services through a PSC is likely to fall outside the scope of the Agency legislation.
Detailed information on the changes is available on the HMRC website.
As part of these anti-tax avoidance measures, legislation was strengthened to ensure the correct amount of tax and NICs are paid when UK workers are employed by offshore companies. Where there is a such foreign employer or agency then the tax and NIC obligations will fall on any UK agency in the contractual chain. If there is no UK agency in the contractual chain, the end client is responsible for operating income tax and NICs. More information is available on the HMRC website.
Q: Are there any future developments expected in the area of temporary workers?
There are a number of future developments which may affect the legislation governing temporary workers. These developments are discussed under the headings below.
Agency Workers Regulations
One of the contentious areas which involve temporary workers are the Agency Workers Regulations 2010 which came into force on 1 October 2011 to implement the Temporary Agency Workers Directive.
On the one hand the Regulations appear to have improved the pay and conditions for some agency workers, allowing them access to staff facilities, such as canteen or childcare facilities. Agency workers working for more than 12 weeks should be entitled to the same pay as permanent staff. On the other hand some commentators have claimed that employers have reduced their use of agency workers as a result of the Regulations.
The Conservatives have also always been unhappy with the proposed twelve week qualifying period which was not included in the Directive. However the Regulations were based on an agreement between the CBI and TUC and this would seem to make dilution of some aspects of them problematic.
Problems concerning temporary and agency workers are likely to lead to case law in 2015/2016 and beyond. For example the TUC, supported by some other unions, has called for a ban on the use of the Swedish derogation exemption (an exemption which enables employment agencies to avoid paying the same rate of pay as long as the agency directly employs the individuals and guarantees to pay them for at least four weeks during the times they cannot find them work). It claims that the UK government has failed to provide adequate protection against the misuse of these Swedish derogation contracts. In some cases it appears agency staff are paid up to £135 a week less than permanent staff, despite working in the same place and doing the same job. The TUC has launched a formal complaint with the European Commission claiming that the UK government has failed to properly implement the EU’s Agency Workers Directive.
Currently, it is legitimate to pay an agency to provide temps using the Swedish derogation model rather than face the hassle involved with complying with the directive.
For more information on the Swedish derogation see the related Q&A What is the Swedish derogation and can it be used to avoid the Agency Workers Regulations 2010?.
Future world of work and rights of workers inquiry
On 26 October 2016 the Business, Energy and Industrial Strategy Committee launched an inquiry into the future world of work focusing on a number of issues including the status and rights of agency workers. For more information see the Q&A Are there any future developments expected in the area of employee status? in our Employee status Q&As.
In a referendum on 23 June 2016 the UK voted to leave the EU. For information on what Brexit will possibly mean for employment law read the blog by our Public Policy Advisor (Employer Relations).
We have also set up a resource hub on our website where relevant resources and details of our ‘Brexit’ activities will be published.
Explore our related content
Frequently asked questions on the legal issues relating to part-time work
Commonly asked questions on the legal issues relating to employment status
Selected cases reported on disputed employment status.