AWR six months on – demand for contractors holds up well
It’s now six months since the Agency Workers Regulations (AWR) came into force, which makes it a good time to reflect on what the impact of the regulations has been for recruiters, the wider economy and contractors themselves.
The regulations offer contractors and freelancers the right to equal treatment - the same basic working and employment conditions as permanent employees, after a twelve week probation period. That first twelve weeks passed during Christmas so, in theory, there are now thousands of workers up and down the country benefiting from the legislation.
So far it looks like business as usual, with no sign of employers being turned off using contractors. Indeed, the contractor market looks like it is holding up very well, with research from de Poel showing a 13% rise in the use of temps in January year on year, with the biggest rises is manufacturing (35%) and business services (33%). Meanwhile, Adecco has reported that 78% of hirers "have not experienced any discernible effect" of the AWR with only 16% saying that "the AWR had impacted on their plans".
One discernable impact of the legislation is that employers are increasingly turning to recruitment consultants to help them employ contractors and deal with the administration needed.
That demand for contractors has stayed buoyant is good news for contractors, employers and the wider economy. The UK uses a greater proportion of contract workers than any other country in Europe (4% of the total workforce) with more than 1.4 million currently in contract work. The main driver for using a contractor is rarely cost. In fact, in many professions a contractor can expect to earn more than a full time equivalent. Rather, employers turn to contractors to fill a short term need or to provide specific skills set at a specific time. These benefits have not been affected by AWR at all.
Likewise, there is a growing trend for increasingly risk averse employers to use contractors as a way to 'try before you buy' before offering a permanent contract. In this way, contracting is a form of probation that candidates, eager to prove themselves are happy to take. At FPS we've seen a 17% rise in the number of temporary workers who go permanent in the past few years.
There are others reasons too. In many cases contractors don't work beyond twelve weeks, meaning AWR doesn't kick in. Also, encouragingly, it seems that most employers were complying with AWR long before the legislation came in. A Randstad report in March found 78% of employers were doing just that.
The fact that AWR hasn't affected contractor employment is good news, but this doesn't mean that all contractors are benefitting. Some recruiters have decided to exploit a loophole in the legislation called the Swedish Derogation that, in effect, allows a contractor to become a permanent employee of the recruitment company.
This is risky for the recruiter as it leaves them liable to keep paying the contractor between placements and causes an administrative headache. It's also outside of the spirit of the legislation and undermines the very contractors they serve.
While AWR hasn't led to a string of legal action by contractors claiming unfair treatment, using 'solutions' that run contrary to the spirit of the law, or organisations simply resting on their laurels, creates undue risks for employers.
Agencies and employers should seek to comply with the regulations and the best way to do that is to use the comparator model - where a full time equivalent is used to benchmark a contractors terms. Not only should agencies use the comparator but they should be aware that the practice by umbrella companies of bunching contractors together in one large company for administration purposes is also potentially risky, as employees can bring claims of unfair treatment against the single employer, potentially leaving everyone within the umbrella liable. It is far better to use what is called a personal service umbrella where contractors are placed in their own company that is administered for them by the umbrella organisation. We like to think of this as a honeycomb principle, isolating each worker and their agency from risks from the practices of others.
As the AWR develops there will inevitably be twists and turns and cases brought to court where contractors feel they are not being treated fairly, and with liabilities accumulating over time, there seems little incentive for employees to bring cases early. However, the first six month of the act shows that demand for contractors is far more robust than many thought. Employers and recruiters just need to make sure they are on the right side of the law and have robust procedures in place to ensure they're not caught out later down the road.
Matthew Huddleston, chief financial officer, FPS