Employers struggling to get to grips with agency worker rules one year on says expert

Simon Horsfield of Pinsent Masons, the law firm behind Out-Law.com, said that issues still causing problems for hirers included how to deal with performance-linked annual pay rises; whether contractors should be covered by the legislation, and the burden on companies to provide "extensive information" on the extent of agency staffing among their workforce during takeovers and collective consultation exercises.

"We would welcome any review which focuses on these issues, with the outcome being to make it easier for hirers to comply with their obligations under the legislation," said Horsfield.

However, he agreed with recent research by recruitment industry body the Recruitment and Employment Confederation (REC) which the group said showed that the rules had caused only limited problems for businesses, despite reported reductions in the number of temporary staff hired.

"The legislation has, to date, been something of a damp squib, as has been highlighted by the lack of claims being brought by agency workers," he said. "This lack of claims is not necessarily a result of agencies and employers wholeheartedly complying with the legislation, because in many cases they are not; rather, it is more likely a consequence of an unwillingness on the part of temporary workers to be seen to 'rock the boat'."

The Agency Workers Regulations (AWR), which came into force on 1 October 2011, gave temporary agency workers the same rights as directly employed staff doing the same work to "basic working and employment conditions", such as pay and holidays. To be eligible for those rights, agency workers must successfully complete a 12-week qualifying period. The AWR apply both to the companies that hire agency workers and to the agencies that supply the temporary staff.

According to the REC, its ongoing analysis of the impact of the rules showed that industry concerns that they would discourage employers from hiring temporary staff had proved unfounded. While acknowledging that 10% of employers had stopped or significantly decreased their use of temporary staff in the immediate aftermath of the new regulations - while a further 18% said they had "marginally reduced" their use of agency workers - only 4% of employers in total said that this was in direct response to the AWR.

"Of the minority of employers who reduced their use of temps most of them made that decision because of the wider financial climate, rather than it being a knee-jerk reaction to the new regulations," REC chief executive Kevin Green said. "So it makes sense that demand for agency staff will pick up as growth returns. In fact, our latest data shows that there's already been a turnaround and the outlook for temps is starting to improve despite the fact we're still officially in a recession."

Also included in the findings, which the REC said it was submitting to new Employment Minister Jo Swinson ahead of a Government review of the regulations, was an increase in satisfaction from temporary workers as a result of the new rules – from 43% to 52% after the first seven months of AWR's implementation. Employer satisfaction with staffing agencies remained high, it said, at 92%; while the evidence showed that agencies rather than employers were bearing the majority of the costs and administrative burden associated with the new rules.

"Jo Swinson has a key decision to make about the future of these regulations," Green said. "The Government should either hold a substantial review which looks at all the relevant issues including pay, assignment lengths, bonuses – or they should leave it alone. What we don't want is businesses' time and energy being wasted on a partial review that upsets the current system, creates uncertainty and could risk interfering with the work of agencies and employers making effective use of temporary staff and keeping the temporary labour market buoyant."

However, business body the Confederation of British Industry (CBI) disagreed with this analysis, stating instead that the AWR was a "drag on job creation". The regulations had, the CBI said, cost businesses more than £1.5 billion in their first year but the benefit had not been felt by eligible workers.

"We cannot afford to be complacent, given that we would expect increased demand for agency temps in uncertain economic times, not a drop," said Neil Carberry, the CBI's director of employment and skills. "The Government must not shy away from a review of all aspects of the regulations that are left to the UK to decide. Given the very significant costs of complying with [the EU's Agency Worker Directive], we should be bold in stripping out needless administration that threatens hiring and does nothing to benefit temporary workers."

Among potential simplifications identified by the CBI are a need to streamline the AWR's "highly complex" definition of pay to make it easier for employers to compare what temporary and permanent staff are getting, removing "gold-plating" introduced by the UK's implementation of the rules and simplifying the existing 12-week threshold to prevent workers on short-term assignments from being "needlessly caught up" in the regulations.