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Agency workers directive - how will it affect UK contracting?

What are the consequences of the Agency Workers Directive which will impose employment on vast numbers of contractors?

The Directive is an attempt by the European Commission in Brussels to impose the same rules on all contractors and temp workers all over Europe, and these rules mean that contractors would be treated like employees, required to received holiday pay, sick pay, etc.--all the costly benefits employees get. The Directive was blocked in a meeting of the Council of Ministers (which makes all these laws), but it is clear that sooner or later it will be passed as the UK and only a few other Member States oppose it.

''While lobbyists such as the CBI, ATSCO and the Recruitment & Employment Confederation (REC) have worked tirelessly and successfully to put the British case across in Europe, it is by no means certain that the directive will not re- emerge,'' comments Barry Roback, chief executive officer of the Watford-based contractor specialist accounting firm JSA.

Status Could Change For Us All

Apparently, but this is not certain, the contractors affected are those that work for umbrella companies, or directly for agencies, but not those who have limited companies of their own. This is not clear yet as the British implementation of the law could be broad enough to include contractors with their own limited companies.

Says Alasdair Geater, a lawyer specialising in European Union issues in Brussels: ''The new law could be contract-based instead of status-based, and so could rope in all contractors regardless of their status. It all depends on how the Department of Work and Pensions decides to adapt the directive.''

Rates Will Drop

Much of the attention given to the proposed directive has been from business which expects to see cost increases. Yet the most logical consequence of the legislation is to drive down contractor rates so that they include the extra charges incurred in providing holiday pay, sick pay, maternity leave, and possibly pension payments. Some contractors at the top of the pay scale may be able to negotiate better rates, but the majority of us will suffer.

Forced To Take Holidays?

As John Cridland of the London-based Confederation of British Industry points out, the directive would 'deform the freelancing model.' As Cridland explains, one of the areas most affected would be the obligation to provide holidays for contractors. Many contractors already receive pay for holidays as part of their agreement with an umbrella company, but most contractors don't necessarily take the time off. If we were all to begin taking it, the cost of interim contractors to replace contractors would be considerable. But even more important: what would happen when holiday time added up? Would contracts simply become shorter to avoid this? Or will contractors simply be forced to take holidays?

Women Contractors Could Suffer

One of the most glaring uncertainties in all this, and one which has not been addressed by any trade organisation, is the effect this will have on women contractors. Umbrellas and agencies would be obliged to pay maternity leave if women contractors become pregnant. Certainly, discrimination against women for any reason is against the law, but surely the effect will be to limit hiring of women contractors to avoid the danger of having to pay maternity leave? Or will contracts simply become so short that accumulating maternity leave will become very difficult?

Penalties For Falling Sick

Helen Reynolds, the acting chief executive officer of the London-based Recruiting and Employment Confederation, also points to the effect of managing the paperwork for holidays and sick leave. ''How will agencies handle the vast amount of bureaucracy involved and keep their cost structures?'' Surely what will happen is that contractors who become ill will find that they lose out on renewed contracts. Pressure to stay on the job will become greater, and that is the exact reverse of what the original legislation intended!

Effect On Taxes?

It's not at all clear what the effect on taxes in contracting will be. The legislation could drive many more companies to use fewer contractors, since increasing overtime to employees might prove cheaper, as Reynolds explains. This would obviously involve a major loss of tax revenue from contracting, an area from which the Government expects increased monies thanks to its raft of attacking legislation against contractors.

We all need to see what form the Agency Workers Directive takes in its British version, and we will all have to take considerable steps to adapt. It certainly is good news for no one in our industry in this country.

Published: 11 December 2007

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