Companies offering temporary staff permanent jobs after rights are enhanced, research claims

A survey of 400 recruitment consultants has shown that whilst the number of individuals obtaining permanent employment has increased for the third month in a row, the number of temporary agency workers gaining work has dropped to its lowest level in over two and a half years. The result of the research was revealed by accountancy firm KPMG and the Recruitment and Employment Confederation (REC).

KPMG and REC said the recruitment consultants had "frequently indicated that employers had chosen to convert temp workers into permanent employees due to the effect of Agency Worker Regulations".

"This month’s data shows a slight decline in appointments of temporary workers," Tom Hadley, director of policy and professional services for REC said in a statement. "This may in part be linked to employer uncertainty over the Agency Worker Regulations, although it could mainly be due to the fact that increasing business confidence has resulted in more employers being prepared to take on permanent hires rather than temporary or contract staff."

Ronnie McCombe, partner at KPMG, said the Agency Workers Regulations (AWR) have provided "higher entitlements" to temporary staff than permanent employees.

"Some of the rise in permanent placements appears to stem from employers simply switching temporary workers to permanent status due to the higher entitlements that the Agency Worker Regulations have given them," he said. "And while it is heartening to see that overall vacancies are rising, salaries are stagnating meaning the economy is likely to carry on feeling the pinch from cost conscious consumers reluctant to part with their money."

The AWR were created to implement the EU's Agency Workers Directive and give temporary agency workers the same rights to "basic working and employment conditions", such as pay and holidays, as directly employed staff doing the same work. The regulations came into force on 1 October last year.

To be eligible for the equal rights agency workers must successfully complete a 12 week qualifying period. The Regulations apply to companies that hire agency workers and agencies that supply the temporary staff.

Under the Regulations employers must give agency workers access to facilities from the first day they are employed. The Department for Business, Innovation and Skills (BIS) said that the facilities include the staff canteen and car parking, even when the facilities are not on-site, but said that companies did not have to offer 'enhanced' access rights to some benefits permanent staff receive.

In May the Department of Business, Innovation and Skills (BIS) issued guidance on how businesses can identify what rights individual agency workers are entitled to. It recommended that employers compare agency workers to permanent staff in order to assess what they should be paid. It advised businesses to consult their existing documents, such as pay scales, contracts or company handbooks, to make sure the agency worker gets what they are entitled to.

"A comparator needs to be engaged in broadly similar work, but account can be taken of their skills and qualifications as this may justify a higher level of pay for the comparator. They must work at the same or, if there is no comparable employee in the same workplace, in another of the hirer's workplaces. They will not be a comparable employee if they are no longer employed by the hirer," the guidance said.

Employment law expert Simon Horsfield of Pinsent Masons, the law firm behind Out-Law.com, previously warned employers against the pitfalls of terminating and re-hiring workers on temporary contracts.

"Terminating temporary contracts to avoid the impact of the regulations is quite a drastic solution, as that is going to have a major impact on businesses in terms of interruption to the supply of labour," he said. "Employers should only terminate contracts if they are confident that they will not be hiring the same people in the future - operating a 'squad rotation' system to avoid the new laws kicking in is a clear breach, which will lead to a fine as well as employers having to pay compensation to workers."