Contractors, clients and agencies will all face new risks when the Agency Workers Regulations come into force on 1 October 2011. The challenge will be to identify and manage those risks, to ensure they do not have an adverse impact on the contracting supply chain.
Both limited company and umbrella company contractors face the challenge of communicating to clients that contracting their services won’t present clients with increased risks and costs. This is already a ‘live’ issue, with agencies being pressured by clients to accept much of the compliance risk.
Clients, especially those with large contracting workforces, may suddenly discover that facilities such as canteens and crèches are in demand from contractors. Then there is the risk of damaging the morale of permanent employees when higher-paid contractors have access to the same facilities as staff.
Early understanding of the risks AWR poses will help contractors, clients and agencies mitigate any risk and ensure AWR is only used to protect those vulnerable workers who require, and want, such protection.
AWR: the risks for contractors
Contractors face the risk that many clients will be ‘spooked’ by the new regulations, or not make the effort to understand them. As a result, they could choose to use fewer contractors, or to move operations, and contracts, outside the UK.
The main AWR risks facing contractors include:
- Managing the perception that the AWR will result in contractors becoming more expensive, with the resulting reduction in the number of contracts being offered by clients as assignments go overseas to less regulated jurisdictions
- Limited company contractors must overcome the uncertainty of their status and ensure that they have the right contracts in place so that they are classed as a ‘business undertaking’
- Umbrella company contractors are automatically in the scope of AWR, and may wish to minimise risks to their clients by choosing umbrella solutions providers offering employment models that result in the equal pay requirements of AWR being removed.
AWR: the risks for clients
Clients potentially face a combination of financial and organisational risks, such as the impact on morale of agency workers gaining access to many of the same benefits as permanent employees. Clients may also end up footing the majority of the bill once AWR comes into force.
The main AWR risks facing clients include:
- Increased cost of hiring contractors who are in the scope of AWR and therefore must receive equal pay after 12 weeks on assignment
- Increased cost of making available shared facilities such as canteens and crèches from the first day that a contractor in AWR’s scope starts work on an assignment
- Increased cost of compliance and administering agency workers and contractors, determining ‘equal pay’ and potentially funding the defence of any tribunals
- Reputational risk of not implementing AWR according to its requirements, and of being perceived as a poor employer abusing vulnerable agency workers
- Organisational risk of the morale of permanent employees dropping when agency workers start to receive equal access to shared services and equal pay.
Both limited company and umbrella company contractors face the challenge of communicating to clients that contracting their services won't present clients with increased risks and costs
AWR: the risks for agencies
Agencies already perform a wide range of services in addition to their core brokerage role between workers and clients. This is likely only to increase, as clients will pressure agencies to take on the compliance burden of AWR and absorb some of the potential cost increases by reducing margins.
The main AWR risks facing agencies include:
- Increased cost of administering agency workers as the burden of compliance is passed from client to agency
- Reduced margins as clients insist agencies part-fund the hike in costs for agency workers and contractors in AWR’s scope who meet the equal pay requirements
- The cost of defending legal action by a client if the agency fails in its compliance duties and a worker has taken the client to a tribunal
- The cost of tribunal defence if a worker on the agency payroll claims not to have received the rights granted under AWR.
It is in the best interests of contractors, clients and agencies that the risks associated with AWR are understood and mitigated. The greatest threat to contractors is that clients put AWR in the ‘too hard’ basket and either choose to employ workers rather than hire contractors, or offshore roles completely to jurisdictions unaffected by AWR.
Published: Tuesday, August 09, 2011
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