Understanding AWR

AWR for Temporary Workers

The ABC of the AWR – what does it mean for contractors?

Anyone keeping an eye on the contractor press recently will have seen a step change in the amount of coverage being devoted to the Agency Workers Regulations (AWR), a relatively new piece of legislation which comes into effect in October 2011 and one that has the potential to make a significant impact on the contracting market. However, if any of the straw polls we’ve conducted at Parasol and our sister company ClearSky are anything to go by, then the majority of contractors remain in the dark over what the AWR is and what it means for contractors, interims and temporary workers in the UK.

So what’s it all about?
The aim of the AWR is to protect vulnerable workers from exploitation and ensure they get the same basic employment conditions as their permanent equivalents after 12 weeks of service – mainly the right to the same pay, working hours and holidays.

And when it comes to the AWR ignorance is definitely not bliss, so here is a brief potted history of the legislation and our thoughts on what it means for contractors.

A Potted History

To say the development of the AWR has been controversial is something of an understatement. It first came to light in 2000 when Greece (where temporary agency working is virtually illegal) was chair of the European Union. For the next eight years the AWR debate raged on, with a great deal of lobbying by UK industry and the trade unions, and finally, in October 2008, it was approved by the EU parliament.

There then followed a period of consultation in the UK, with organisations such as the CBI and the TUC doing a lot of horse-trading in order to ensure a compromise on the legislation and how it will be implemented.

One of the results of this horse trading was the implementation date of the legislation being delayed until October 2011, and the 12 week qualifying period added to the regulations.

Where are we now?

There are still a number of factors that need to be finalised before the AWR is implemented. These include:

• How the regulations will affect contractors who work on a regular basis for several different employers.
• How the regulations will affect contractors who run their own limited company
• How to limit the impact of the regulations on spe­cific sectors where repeat assignments are common, such as driving and social care.
• How to ensure a level playing field for public and private sector suppliers in relation to the new regulations.

The Government has promised a review and some guidance, however at the time of writing, these are yet to appear. What is known though is that there is not a great deal that the coalition can do to the legislation, it has been agreed at an EU level so it’s coming, ready or not!

Knowledge is Power

Like a lot of the legislation imposed on contractors in recent years (IR35, MSC etc), the legislation has not made a distinction between the two ends of the agency worker spectrum. The vulnerable agency workers who deserve the protection of the AWR, and the highly skilled, high-earning contractors who provide their services to end-users via a recruiter or their own limited company. It’s fair to say that most of the highly skilled, high paid agency contractors we work with do not see themselves as vulnerable or in need/want of protection.

In fact, when we polled our own base of 10,000 contractors, over 80% hadn’t even heard of the AWR, despite the impact it could have on the way they work. In addition, a survey of contractors by www.contractorcalculator.co.uk concluded that 75% of contractors don’t want employee rights in the first place.

That being said, there is no point being caught cold when the legislation is introduced so brushing up now will do contractors the world of good.

How does it all work with pay & bonuses?

It may seem obvious but, for the record, the AWR legislation defines ‘pay’ as the basic payment received for work undertaken; holiday pay, overtime, shift allowances, bonuses, commission and stamps given with a monetary value, e.g. luncheon vouchers.

Bonuses are a slightly tricky one because under AWR, bonuses that are given to encourage loyalty, or for other reasons not directly related to the work done, will not be included.

Also worth noting here is the Swedish derogation, a very grand sounding name for an opt-out clause negotiated by the Swedish delegation when the AWR was debated at EU level. It means that AWR rights no longer exist where agency workers are employed on a permanent basis by an agency and receive pay between assignments.

Basic employment conditions

After the 12 week qualifying period is over, under the AWR, agency workers will also be entitled to the same basic employment conditions as their comparable permanent equivalent.

In many debates this gets referred to as ‘equal treatment’ although equal treatment is not quite the same thing. The legislation is framed so that workers who would not previously have been afforded these rights will now do so. But it does not mean that those agency workers who enjoy better conditions have to be treated equally. For example, if as a contractor you are on a higher rate than a comparable permanent employee, this won’t be affected under the legislation.

What’s included in the AWR?

When referring to conditions, the AWR is referring to:

• Pay
• Holidays
• Hours of work
• Night work
• Rest periods and breaks
• The right to hear about vacant posts within the business
• The right to use collective facilities such as a canteen, childcare facilities or transport services

What’s excluded from the AWR?

The main employment conditions that are excluded from the AWR legislation are:

• Occupational sick pay
• Pensions
• Parental leave
• Redundancy payments
• Share schemes
• Long service award schemes

Comparable employees

Another confusing term we’ve come across during the AWR debate has been ‘comparable employee,’ and this lies at the heart of the AWR. Also known as the permanent equivalent, the comparable employee is the person in permanent employment with the hirer doing the same job as the agency worker and will therefore be the benchmark in any AWR hearing.

As a rule of thumb, the agency worker will be entitled to the same basic employment conditions as the comparable employee, assuming they are both being supervised and managed by the hirer, are doing the same basic work and usually work in the same place.

Any loopholes?

The draft of the legislation has been written in such a way that any potential major loopholes have been shut down before the regulations have been implemented. Examples being:

• Contractors will not be able to just keep renewing a contract every three months or change employer to a different parent company.
• Nor will contractors be able to move from Agency PAYE to an umbrella to avoid AWR.
• It can’t be avoided by paying contractors National Minimum Wage for a few days between assignments.

Expect to see more discussion on loopholes once the guidance has been published.

So what exactly does it mean for you?

The Recruitment and Employment Confederation (REC) estimates that between 50 and 60% of temporary agency assignments last fewer than 12 weeks, so potentially, workers on 40 to 50% of assignments are likely to be entitled to ‘employee’ rights.

According to some commentators, the definition of what constitutes a temporary or agency worker under the AWR is the same as that used for workers as part of the Working Time Regulations (1998), and according to the regulations: “This will exclude workers who are genuinely one of the following: the self-employed; those working through their own limited liability company; or those employed on Managed Service Contracts.” So on this basis, many believe that limited company contractors will not be affected by the AWR. However, in our view the language in the legislation document itself (section 3 for those interested in reading it) is not clear on this, so hopefully this will be clarified in the guidance notes.

On the other hand, umbrella company contractors are firmly within the AWR, with the regulations leaving no room for doubt: “The scope of the definition does, however, include agency workers contracted to an umbrella company.”

The status of contractors working on contracts inside of IR35 is, however, unclear. Those contractors “who operate a personal service company but are not genuinely self-employed” are considered to be included. This could be interpreted to mean that for some contracts, the contractor is covered by the AWR but for others they are excluded, potentially leading to a rerun of the IR35 debacle if this is not made clearer and hopefully this is something that will be addressed in the soon to be published guidance notes or covered in any review by the Government.

Potential scenarios

As the industry begins to reflect on the AWR, there are a number of potential scenarios coming to light as to what effect the legislation may have. For example, will more end clients employ contractors directly? Or conversely, will more agencies start to use their own PAYE systems.

Will we see more contractors deciding to set up their own limited companies? Will we see a polarisation of the market into short and long term contracts?

Somebody somewhere will have to pick up the extra administrative cost that will come with the introduction of AWR, so will this lead to an increase in staffing costs for end clients (and the consequence of that could be a depressed employment market) or will it lead to a decrease in rates for contractors, which, NMW withstanding, is surely the thing that the AWR is trying to combat?

What is clear though is that contractors, recruitment agencies and end clients need to be getting to grips with the AWR now. October 2011 is not that far away and no one wants to be caught cold when the legislation hits.

So engage, get involved, and do your home work.

We’ll be constantly updating this site with the latest news, analysis and opinion so please have a look around, leave us a comment, suggest an article and come back soon!