Jennifer Millins, partner, and Matthew Wood, associate, in the Mishcon de Reya Employment Department discuss Matthew Taylor’s review and reveal what it means for the industry
Non-traditional employment models are attracting an increasing amount of attention by politicians and the mainstream media alike, largely following a number of recent court cases concerning worker status in the gig-economy. Against this backdrop, Matthew Taylor has published his long awaited report focusing on modern employment practices which includes a number of recommendations likely to have a significant impact on the recruitment industry, both as employers and as providers of agency workers.
The use of expert consultants is becoming an ever bigger part of the recruitment industry, with UK SMEs now spending £60 billion per year to access expertise in this way. However, although consultants will often be badged as "self-employed", they will often in practice be a worker in the eyes of the law, entitling them to certain statutory protections.
Consultants are therefore likely to be affected by the main recommendation of the report to rebrand the term "worker" to "dependant contractor" and to widen the type of working relationships which fall within this category by, for example, ensuring that a right of substitution should no longer be a "get out jail free card" that permits businesses to circumvent worker status. This means that more consultants are likely to be classified as "dependent contractors" rather than "self-employed". Taylor's report also concludes that changes should be made to equalise the tax regime – at present, the self-employed pay far less in tax than employees. Moves in this direction were not well received in the last budget, but if changes are made then it is likely that the favourable tax treatment afforded to both businesses and consultants will be further eroded.
The use of agency workers has long been a key tool for businesses looking to fill short term vacancies or a temporary upsurge in demand. According to Taylor's report, there are approximately 1.2 million agency workers in the UK, and the number of individuals undertaking this form of work is only likely to increase.
Taylor recognises that zero hours contracts and agency work serve a useful purpose for both businesses and individuals, but also recognises that the system is prone to abuse leading to individuals being trapped in precarious jobs who would prefer to be in secure work. He therefore advocates that employers should be more forward thinking and, where possible, not rely on agency staff or zero hour workers to fill resourcing needs. To encourage employers to do so, Taylor recommends that it should be more financially advantageous for employers to place employees on secure contracts, using means such as putting in place a higher national minimum wage for workers on contracts with low guaranteed hours.
To help combat exploitation of agency workers, the Report calls for an abolition of the Swedish derogation (which currently provides an exemption from agency workers' rights to equal treatment with regard to pay) so that all agency workers will be entitled to the same basic rights as permanent staff after a short probationary-type period. Taylor has said that a number of recruitment agencies contacted his review panel to explain that they did not support the Swedish derogation, but were being asked by clients to implement it. However, the current provisions work well in Sweden for both agency workers and agencies, and it could therefore be considered odd that Taylor has proposed to abolish the derogation rather than introducing proposals to target abuse of this provision which, if properly regulated, has clear benefits.
Another suggestion is to give agency workers a statutory right to request a full time contract with an organisation if they have been placed with them for 12 months. Taylor also suggests that there should be an obligation on employers to publicly report on how many agency workers they engage, how many requests they receive from those workers for full time contracts and how many of those contracts are awarded. However, as reported by the REC, only 4.3% of assignments last longer than 12 months, and approximately one quarter of employers already give at least half of their temporary workers a permanent role each year. It is therefore unclear how much of an impact this will have in practice and there is a real danger that such proposals will lead to an increased level of bureaucracy for organisations, without any benefit to individuals.
Taylor also recommends that it should be possible to "roll up" holiday pay into the calculation of hourly pay. Whilst this could make it administratively easier for agencies to process payroll for agency workers, this comes at the expense of workers who will have no right to annual leave, which is why this is currently unlawful under EU law.
Other notable recommendations of the report include:
- Introducing further protections to zero hours workers who are pregnant or on maternity leave, as they are vulnerable to employers reducing their hours to zero without expressly dismissing them;
- A call for statutory sick pay to be universally available from the first day of employment;
- Extending the length of non-employment which breaks continuous service from one week to one month to make it easier to accrue continuous service and obtain statutory rights; and
- Giving more support to self-employed individuals.
Unsurprisingly, these proposals have generated a lot of debate within the recruitment industry, given the potential impact. Some have hailed the report as containing promising proposals which will provide further protection for workers, however many within the industry have expressed the view that, whilst certain recommendations may appear attractive, it is not clear how they would benefit workers in practice and are likely to lead to unnecessary bureaucracy for businesses.
The Agency Worker Regulations are likely to be amongst the first targets of change to employment law following Brexit, so it seems that at the very least changes to the rules and regulations surrounding agency workers in particular are inevitable. However, in the current climate it is almost certain that similar provisions would be introduced to protect vulnerable workers, perhaps as part of a larger piece of legislation.
The extent to which the recommendations in the report itself will be implemented remains to be seen. Theresa May said that she would consider the recommendations of the report over the summer recess. Before the election, it was likely to have formed the basis of legislation for years to come. However, given the focus of the political agenda is likely to be elsewhere for the foreseeable future, it may be a while before any concrete proposals are brought forward and make their way onto the statute book.