Agency workers form a growing part of the UK workforce, with many businesses viewing them as a key part of their workforce strategy - particularly as a route to recovery from the impacts of the Covid-19 pandemic. According to the latest JobsOutlook report from the Recruitment & Employment Confederation, covering the period from May to July 2020, the level of anticipated use of agency workers had already recovered to pre-pandemic levels. The report also showed that businesses were more likely to hire contingent workers than permanent staff during the following three months. 

Agency workers can be a highly flexible way of supplementing an existing workforce at a range of different levels. The agency often takes care of the onboarding process and businesses can stop and start supply to match demand. Below, we consider the issues that businesses should consider when choosing an agency, the terms that should be contained in the commercial agreement and common areas of negotiation. 

Use the right type of agreement for agency workers

Businesses should ensure that their commercial agreement with the agency is designed for the supply of people and, specifically, the supply of agency workers. Agreements that are drafted for the supply of services are not suitable as they do not typically contain clauses covering compliance with the statutory regulations applicable to agency workers (see below) or suitable provisions on data protection or employment status. 

Businesses should also be wary of using a single agreement for multiple types of labour supply which may include agency workers, freelancers/consultants and limited company contractors. Different rules apply to each category and agency workers have their own specific rights, which are discussed further below. If you use a single agreement, it is vital to use clear definitions to distinguish between the different groups. For more information about engaging limited company contractors, please see our recent article Engaging contractors through an agency.

If your business deals with several different agencies on a regular basis, it may be beneficial to put in place a suitable template agreement that is tailored for the purposes of your business. Agencies can then be engaged on broadly consistent terms, making management of the agency relationships and workforce a more straightforward process. 

Bear in mind the statutory regulations governing agency workers

All recruitment agencies are subject to a statutory compliance regime that is primarily set out in the Conduct of Employment Agencies and Employment Businesses Regulations 2003. These regulations are designed to protect both agency workers and the businesses seeking to engage them (known as hirers). For further information, please see our Inbrief on staffing solutions and the supply of labour.  

While there is no longer a statutory obligation on agencies to agree commercial terms with businesses before introducing agency workers, we strongly recommend this course of action to help avoid later disputes.

Further areas covered by the regulations which we recommend are included in the commercial agreement include the following:

• information which the agency is required to seek from the hirer before selecting a suitable agency worker (e.g. type of work, location and duration, experience/qualifications required, and risks to health and safety)

• suitability checks that the agency will conduct on potential agency workers before introducing them to the hirer

• information that the agency will give to the hirer about potential agency workers, including the type of contract the agency uses to engage them

• enquiries that the agency will make to ensure that it would not be detrimental to the agency worker or hirer to proceed with the supply

• steps to be followed if the agency has reasonable grounds to believe that the agency worker is no longer suitable.

Consider the areas for negotiation

Certain sections of the commercial agreement are therefore likely to closely reflect the statutory regulations, meaning there is little or no room for negotiation. In other areas, however, there is likely to be much greater scope for variation.

The calculation of charges and margin is often, for example, a fertile ground for negotiation. There are many different elements that make up the charges and businesses should normally seek transparency over those on which the agency is charging margin – for example, just the hourly rate or everything (including annual leave entitlements, employers’ NI contributions and the apprenticeship levy). 

The agreement is also likely to contain clauses dealing with liability, indemnities and warranties. Which party is liable for what will usually generate significant discussion, particularly if the business is seeking extensive protection against potential claims from agency workers and/or losses suffered as a result of assignments not being completed. The outcome of the negotiation will often depend on the level of insurance coverage the agency has and the key areas of risk for the business. 

Transfer fees for agency workers

The greatest source of disputes between agencies and businesses that we come across arises in the area of transfer fees, also known as “temp to perm” or “temp to temp” fees. These are fees which are incurred when businesses hire agency workers themselves directly, or through another agency. To avoid disputes, we recommend clear and careful drafting in the commercial agreement between the agency and the business setting out:

• the circumstances (if any) in which transfer fees will be payable

• the period during which the engagement must take place to trigger payment of fees

• the process to extend the period of hire, and the duration of extension required, to enable the agency worker to be hired for free as an alternative to paying a transfer fee.

Businesses often like to use a “sliding scale” approach, where the longer the assignment has continued the smaller the transfer fee due. This is a classic area for negotiation and can result in significant cost savings if managed well. 

Be aware of rights under the Agency Workers Regulations

Agency workers have specific rights and protections under the Agency Workers Regulations 2010. These include:

• the right to access collective facilities and amenities of the hiring business

• the right to access vacancies.

After 12 weeks working on assignment, agency workers are also entitled to be treated no less favourably than the business’s own employees doing the same role in respect of pay, working time, rest breaks and annual leave. Commercial agreements between the agency and business should set out clearly the process the parties should follow to share relevant information and ensure that agency workers are receiving their correct pay and entitlements.

In conclusion

Engaging agency workers can provide a useful, highly flexible solution for businesses that need to supplement their workforce without making long-term commitments or increasing headcount. Getting the right contract in place and agreeing its terms with the agency is crucial for ensuring a successful relationship and an effective supply of temporary workers.  

For specific advice about agreements for the supply of agency workers, please get in touch with us or your usual Lewis Silkin contact.