Workplace Report February 2015


Agency workers want umbrella pulled from above them

The number of agency workers has been on the increase, but legislation covering them has been accompanied by many employers seeking to skirt around the law to deny staff their rights.

There are around 1.15 million people employed via agencies in the UK, according to the trade body, the Recruitment & Employment Confederation (REC).

Its latest annual survey, based on 585 recruitment firms and published in October 2014 put the value of the UK’s recruitment industry at £28.7 billion in financial year 2013-14, an increase of 8% on the previous year; most of this revenue came from temporary/contract business (91%).

Workplace Report carried out a survey of workplace representatives to establish the experience of the use of agency workers in unionised workplaces and some 60 replies were received from union negotiators.

The use of agency workers is generally on the increase for a number of reasons. In the public sector, for example, agency workers are used to fill vacant posts, while longer-term reviews are carried out to meet budget cuts.

On the other hand, the number of agency workers used by Waverley Borough Council has increased as a result of permanent posts not being filled, increases in workloads and to help on specific projects. Around 15% of posts in the planning department are filled by agency workers.

In many of responses to the survey, the use of agency workers varied with many employers using agency workers to cover seasonal fluctuations in demand, sickness amongst permanent workers and skill shortages.

At Fylde Borough Council, agency workers are widely used in the parks department with the proportion of agency workers reaching 53% in summer, but only 25% in winter. For the first 12 weeks most agency staff are on the National Minimum Wage (the 2014-15 adult rate is £6.50 an hour), but after that they are paid the same as permanent employees. The majority of the agency workers are employed for six months over the summer.

In manufacturing, the Old Bushmills Distillery in Northern Ireland, part of the Diageo drinks conglomerate, uses agency workers to cover seasonal variations. The bottling and maturation areas have 25% agency workers at peak times, but while most agency workers are only employed for short periods, some have been with the company for six or seven years. Agency workers doing manual work, such as cleaning, lidding and putting cases on the lines for lidding, are paid the National Minimum Wage. Some agency workers doing more skilled work are paid higher rates.

The rep told Workplace Report: “The rights of the agency workers, to be paid equally and treated equally, are too easily circumvented by companies who know the agency worker is too scared to speak up for themselves. The law is not strict enough and the equality should be automatic after the 12-week period is completed.”

However, many respondents referred to the fact that use of agency workers was long-term and in many cases an intrinsic part of ongoing operations. For instance, at Fowler Welch road haulage in Washington, the rep said the company is “heavily reliant” on agency drivers with roughly half supplied by agencies. In this instance the agency drivers are apparently paid more than direct employees doing exactly the same work.

Some respondents referred to employers ceasing to use agency workers, but not always for positive reasons. At Heron Foods, agency workers have been replaced by directly employed staff on 16-hour contracts and when permanently employed full-time staff leave they are also replaced by part-time staff.

The result is de-skilling “as the former multi-skilled warehouse operatives are replaced by staff who are in work for six hours at a time and are only capable of one task”. The pay rates are the same for full and part-time staff and “this causes resentment amongst the full-time staff who are required to be multi-skilled and flexible for the same money”.

Legal position of agency workers

From October 2011, agency workers have had rights under the Agency Workers Regulations 2010 (AWR). These rights are divided between rights acquired from day one and those that are only available after 12 weeks in the same role with the same hirer. From day one, agency workers have the right to equal access to collective facilities provided by the hirer, including canteens, waiting rooms, vending machines, toilet facilities, crèches, transport services (such as local pick up and drop off services), car parking, mother and baby rooms, prayer rooms, rest facilities, accommodation for workers who have to sleep on site, plus information and the chance to apply for vacancies in the hirer’s workplace.

After 12 weeks in the same role with the same hirer, agency workers are further entitled to equal treatment on pay, holidays and working time and also to improved pregnancy rights.

It is also worth noting that, under the AWR, there is an obligation to provide information on the use of agency workers to trade unions. Such information must be provided where a union is recognised and reps request information for collective bargaining purposes. Since 1 October 2011 this information includes information relating to use of agency workers; reps must show that the information is relevant to the bargaining unit for which they have recognition. Also, where collective redundancies are proposed or in the case of a TUPE transfer the employer is required to provide information on the use of agency workers. The regulation relating to collective bargaining does not specify what information must be provided, but in the other circumstances it is specified as the number of agency workers, the parts of the employer’s undertaking in which those agency workers are working and the type of work they are doing.

The law surrounding agency workers can be found in Labour Research Department’s booklet, Casualisation at work.

In summary, their rights include:

• statutory paid holiday;

• statutory rest breaks and limits on working time;

• no unlawful deductions from wages;

• to be paid the National Minimum Wage;

• Statutory Sick Pay;

• Statutory Maternity, Adoption and Paternity Pay, if they meet the earnings, service and notice qualifications (but not maternity, adoption or paternity leave);

• protection from discrimination by the agency and the hirer;

• protection from victimisation on grounds of trade union membership;

• pensions auto-enrolment for agency workers meeting the earnings threshold;

• the right to be accompanied; and

• protection under health and safety laws.

Acas guidance on agency workers is available at:

Pay rates

The experience of agency workers varied considerably between industries. In many, agency workers received the same or similar pay as directly employed workers, but in a few cases agencies are reported as paying lower rates than direct employees receive.

Meanwhile, some respondents report that in areas where recruitment is difficult agency staff receive higher pay than direct employees. At Morrisons, Stockton, “agency workers are paid significantly less than core drivers”.

At Heatrae Sadia, agency workers, despite doing the same work as directly employed workers, are reported to have “much lower” pay. And at Weston College, the pay of agency workers is again reported as lower than that of direct employees. However, at BAE Systems, Rochester, the pay of agency workers is higher than that of direct employees despite doing the same work. At BP, it was reported that the company appear to be trying to use more and more contractors to drive tankers; the drivers’ union Unite were looking into this.

Agency workers at the Sellafield nuclear processing plant in Cumbria are either on higher pay rates because they are highly skilled and/or specialists or lower skilled agency staff are having their pay aligned with permanent staff of similar skills.

At Buckinghamshire County Council, the use of agency staff has increased sharply, especially among social workers for children’s services, and the agency workers are paid more than permanent staff for the same work.

At JaguarLandRover’s Solihull plant, agency workers comprise up to a maximum of 10% of the workforce. Although agency workers do the same jobs as direct employees they are paid 70% of the starter rate, but after 12 months they move onto JLR contracts subject to attendance and performance. A response from the DHL convenor made clear that, under the DHL Automotive (JaguarLandRover contract) agreement, new starters move up to the full rate after two years.

Umbrella companies

The often tortuous nature of the employment relationships arising from the use of agency workers is highlighted at the Marks & Spencer distribution centre at Swindon.

Although the distribution centre is owned and used by M&S it is run by DHL under contract. DHL then use a recruitment agency, 24-7, to provide agency workers. These agency workers are given employment contracts in the name of Tempay Ltd.

The issue of umbrella companies was raised by a number of our respondents. At logistics company Norbert Dentressange, the rep referred to “bogus self-employment through umbrella companies with one employee working at the same place of work for a decade”. The proportion of drivers supplied by agencies in this instance was over 70% of the workforce and, while agency drivers receive the same basic pay as direct employees, their overtime rates are lower.

At Nestlé Tutbury, Derbyshire, around a third (30%) of the workforce is supplied by a firm called PMP Recruitment Ltd, which is owned by the Ullmann family through the Cordant Group.

The number of agency workers at Heatrae Sadia has increased to around a third of the workforce. The agency workers are hired through The government has opened up the possibility of action against umbrella companies in the draft Finance Bill 2015. The government is expected to publish a discussion paper soon to inform possible action in the chancellor George Osborne’s 2015 Budget. However, this only involves the issue of home-to-work travel, a fairly minor aspect of the wholesale abuse involved in umbrella companies. And as Parliament will be dissolved on 31 March before the May 2015 general election period starts, even this small measure is unlikely to become law.

Meanwhile, the abuse by umbrella companies will continue unfettered. Construction union UCATT’s 2014 report, The umbrella company con-trick, sets out the scale of this abuse. One is to pass on to workers the cost of employers’ national insurance contributions with the result that workers are paid less than the agreed rate. According to the report, some UCATT members have been switched to payment via umbrella companies without their knowledge. By using umbrella companies employment agencies save the cost of employers’ national insurance contributions.

An example of an umbrella company mentioned in the UCATT report is Crest Plus Exchange Ltd, a subsidiary of Crest Plus Operations Ltd. In the year to 5 April 2014 the parent company reported turnover of £128 million and pre-tax profits of £0.7 million. They describe their activities as “a range of contracting projects and the provision of accounting services”.

It had 389 employees paid on average £25,175 in the year. However, the three directors received £261,988 between them with the highest paid getting £102,215 plus £33,705 in pension contributions. The company is owned by three people, Andrew Robertson, Russell Taylor and Derek Harling, who received £250,000 in dividends between them.

The NASUWT teaching union has published a report on supply teachers and the use of umbrella companies. It advised their members to seek advice on the terms of the contract with the recruitment agency and the umbrella company. If an umbrella company tried to make work conditional on an agreement with them members were advised to report this to their union rep.

The advice also covers the need to avoid claiming tax-related expenses without first obtaining legal advice, and to check payslips to ensure that PAYE and National Insurance contributions have been deducted.

The NUT teaching union has also issued guidance to members on agency supply teachers and umbrella companies. Its guidance was very concerned about some of the practices adopted by umbrella companies. It advises members to obtain appropriate advice before committing themselves to any contractual relationship with such organisations.

Members who are already in employment with an umbrella company are advised to always check their payslips carefully to confirm that the correct deductions have been made, and never to sign any document exempting an agency or umbrella company of any liability.

The NUT describes the umbrella company arrangement as involving four parties — the teacher, the school, the agency and the umbrella company. The teacher’s employment contract is with the umbrella company, not the agency.

Typically, says the NUT, the agency will agree an assignment and pay rate with the school and then contact the teacher about the assignment. The umbrella company receives the payment from the school for the work undertaken by the teacher. It processes the payment, deducting PAYE income tax, employee’s and employer’s National Insurance contributions and the umbrella company’s fee. The residual sum is then paid to the supply teacher as net pay.

The NUT says that teachers are frequently persuaded to agree to an umbrella company arrangement because they are attracted by potential tax savings on expenses and allowances. The legal change referred to above in the Finance Bill will close the loophole which umbrella companies were exploiting in relation to travel expenses.

Umbrella companies and agencies

Tempay are one of a large number of umbrella companies that, according to the GMB general union which organises the M&S workers, only exist for legal avoidance. Tempay is owned by Brian Pearce and in the year to August 2013 they reported that they supplied 2,252 staff with an average income of £3,637 for the year. The only director is Tony Turnbull whose pay was £24,093.

PMP Recruitment Ltd, part of the Cordant Group, which is itself owned by the Ullmann family, two of whom are the directors of PMP. In the year to June 2013, PMP had a turnover of £106 million on which they made pre-tax profits of £1.6 million. During the year the company had an average number of employees of 7,790 who were paid on average £10,482.

One of the larger umbrella companies is the appropriately-named Parasol. However, like many companies, it is part of a web of companies, the ultimate parent company being Optionis Holdco Ltd. One common factor is Robert John Crossland, a director of both companies.

The immediate parent company of Parasol is Paragroup Management Ltd, of which Crossland is also a director. Paragroup Management Ltd for the year to April 2014 reported turnover of £310 million and pre-tax profits of £1.3 million. The average number of full time equivalent employees was 7,768 who were paid an average of £32,092. The directors were paid £800,000 with the highest paid director receiving £263,000. Optionis Holdco Ltd has yet to file any accounts since incorporation in 2013.

A company called Boss Corporate Ltd owns two umbrella companies — Sprite Consultancy Ltd and Springboard Umbrella Company Ltd – and is itself owned by its three directors; Suzanne Crinson, Benjamin Sitch-Oliver and Peter Squire. Boss Corporate Ltd in the 18 months to 31 March 2014 reported turnover of £261 million and pre-tax profits of £10.3 million. The group had 1,580 employees (1,538 of them contract staff) paid an average of £19,325 for the 18 months. The directors received £90,300 between them, but dividends totalling £198,000 were paid out which would have been divided between the three of them.

Blue Arrow is one of the larger employment agencies. In 2013, on turnover of £377 million, it made a pre-tax profit of £13 million. The accounts record that the company had 668 employees, but also state that “the company employs some of the staff who are supplied to clients and whose costs are part of the company’s cost of sales. The average number of full-time equivalents of these for 2013 was 15,565.” Based on the staffing costs for these 15,565 workers their average pay was just £19,808.

Union agreements to end use of agency workers

In some workplaces unions have successfully negotiated agreements to ensure that all workers are directly employed, except for limited use during busy periods. One example is Nestlé Logistics where a local agreement has led to all workers being directly employed. The unions at Nestlé are seeking to reduce the number of agency workers in the factories.

Some of respondents to the Workplace Report survey reported that no agency workers were being used, following union pressure to ensure all workers were directly employed.

At BT, the CWU communication workers’ union has negotiated an agreement which has meant that 270 agency staff are being offered permanent contracts. It formed part of the Workforce 2020 agreement on pay, grades and terms and conditions. The company also committed to talks on a regular basis about further conversions.

CWU deputy general secretary Andy Kerr welcomed the conversions: “We have fought against this injustice in the workplace so this announcement from BT is a fantastic step forward.”

The UCU university and college staff union has been running a Stamp out casual contracts campaign, which seeks to get staff employed via agencies transferred to direct employment, and they have achieved some successes, including at Wiltshire College.

Swedish derogation

Under regulation 10 of the Agency Worker Regulations (AWR), there is an exemption from the right to equal pay (but not from the right to equal treatment on holidays and working time) for arrangements that meet certain qualifying requirements, known as the “Swedish derogation”.

For this exemption to apply:

• the individual must have a contract of employment with the agency which is not fixed-term and which includes terms governing minimum pay rates, location, hours, maximum hours expected on an assignment, minimum guaranteed hours (which must be at least one hour), and type of work;

• the individual must be paid between assignments — at least 50% of the pay received on the last assignment or the National Minimum Wage for the hours worked on the last assignment, whichever is the greater;

• the agency must try to find suitable assignments when between assignments; and

• the contract cannot be terminated until there has been an aggregate of at least four calendar weeks between assignments when the individual was not working but was being paid by the agency.

In 2013, an employment tribunal ruled that agencies and hirers were free to decide between paying equal pay under the AWR or offering contracts based on the Swedish derogation model (Monarch Personnel Refuelling (UK) Limited v Bray & Others Case Nos: 1801581/2012 and others (unreported) .

According to the TUC, around one in every six agency workers now works on a Swedish derogation contract designed to avoid the equal pay obligation. TUC research has identified that the Swedish derogation is widely used in call centres, food production, logistics and parts of manufacturing.

Unite’s report, The case for organising agency workers — dispelling the myths, sets out the arguments employers use in favour of using agency workers and systematically demolishes them. It argues that it is essential to organise agency workers and as an absolute minimum to close the loophole of the Swedish derogation (see box above).

In September 2013, the TUC submitted a formal complaint to the European Commission over the UK government’s flawed implementation of the Agency Workers Directive, which allowed the abuse of the Swedish derogation.

There has been a promise by the Labour Party to abolish the Swedish derogation if it wins the 2015 general election. It will come as no surprise that this initiative has not been well-received by the recruitment industry.

Kevin Green, chief executive of the Recruitment & Employment Confederation (REC), described Ed Miliband’s comments as “another episode of random business bashing”.