Agency workers: Understanding the law

This guide is designed to help employers understand the relationship that they have with agency workers and the rights that are afforded to them. It also provides information on the broader employment law context in which these relationships operate.

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Agency workers and an overview of the law

What is an agency worker?

The term ‘agency worker’ is often used in the workplace as a general way of describing a number of contingent workers (for example, self-employed contractors, zero-hour workers or fixed-term employees). However, it does have a specific legal meaning.

Under the Agency Workers Regulations 2010 (the ‘Regulations’), an agency worker is an individual supplied by a temporary work agency to work temporarily under the supervision and direction of a hirer.

The Regulations only cover a relationship where the agency worker has a contract with and is paid by the agency, not the hirer. They do not affect other casual workers, staff working on a service that is being provided by a managed service provider (for example a company that provides IT services to other companies), or employees who are placed into permanent employment via a recruitment agency.

Terminology

As explained above, an agency worker is someone who has a contract with a temporary work agency to work for a hirer. Agency workers are often referred to as ‘temps’.

The company they are supplied to is known as the hirer.

A temporary work agency can also be referred to as an employment business. However, in this guide, for simplicity, we call them agencies

Overview of the law

The Regulations give agency workers two types of rights:

Day 1 rights.
12-week rights.

Day 1 rights

Certain rights are afforded to agency workers on their first day of assignment. These rights are:

to be told of relevant vacancies in the hirer’s organisation – a general announcement in a suitable place, for example on the intranet, would be sufficient for this
to be treated no less favourably than a comparable worker in relation to ‘collective facilities and amenities’ – the Regulations state that this includes, in particular, canteens, childcare facilities and transport services. It would also include car parking, prayer rooms, common rooms, on-site gyms, shower facilities, and mother and baby rooms.
A written statement of particulars and an itemised payslip (since April 2020).

The agency worker cannot bypass any waiting list or membership fee – they just have the right to join the list or pay the fee.

Access does not need to be provided if a comparable worker would not have access, or if the less favourable treatment can be objectively justified – in other words, the hirer is seeking to achieve a genuine business objective and the treatment is a necessary and

appropriate way of achieving that objective. Cost can be taken into account, but hirers are unlikely to be able to rely on this alone to justify the less favourable treatment.

An example of less favourable treatment that might be able to be objectively justified is giving direct hires first refusal to use a work shuttle bus on the basis that places are limited and the reasons for providing the service (encouraging retention, recruiting the best possible staff, and so on) are better served by giving direct hires priority over agency workers (who are more likely to be temporary). However, this is untested and there is very little guidance on when you could objectively justify less favourable treatment in these circumstances.

Hirers are responsible for ensuring that all agency workers they use get their day 1 rights. The hirer is solely responsible for any breaches relating to these rights.

12-week rights

If agency workers have completed the 12-week qualifying period, they will have the right to the same basic working and employment conditions they would have received if they had been recruited directly by the hirer to do the same job. This covers terms and conditions relating to:

pay (see more below)
the duration of working time
night work
rest periods and rest breaks
annual leave.

In addition, pregnant agency workers who have completed the 12-week qualifying period are entitled to paid time off for ante-natal appointments. Agency workers who have completed the 12-week qualifying period and are in a ‘qualifying relationship’ with a pregnant woman or her expected child are entitled to take unpaid time off to accompany the woman to two ante-natal appointments.

It is the agency, not the hirer, which is responsible for providing these terms and conditions to the agency worker. For example, it is the agency which is responsible for paying the agency worker. However, in practice, the hirer is likely to need to provide certain information to the agency to enable it to provide the terms and conditions to the agency worker.

The agency is responsible for setting the agency worker’s terms and conditions, and will therefore be liable for any breach in relation to the 12-week rights, but this is only to the extent that it was responsible for the infringement. The hirer will also be responsible to the extent it was at fault. It will be the hirer’s responsibility, for example, to pass on the correct information to the agency about the basic working conditions of its comparable employees or update the agency about any change in pay. If the hirer fails to do this, or gives the agency incorrect information which means that the agency worker’s rights are infringed, liability will transfer from the agency to the hirer.

For example, if a hirer gives its employees six weeks’ holiday a year but incorrectly tells the agency that it gives statutory working time holiday only, the agency will not increase the worker’s holiday to six weeks once that worker has completed the 12-week qualifying period. This will be the hirer’s fault because the agency did not have the right information, and so the hirer will be liable for any claim from the worker.

Test to establish equal treatment

The test to establish equal treatment is: on what terms would the agency worker have been employed had the hirer employed the individual directly?

In other words, the agency needs to determine (based on information provided by the hirer) what that particular worker would have been paid if the hirer had recruited them directly, taking into account their qualifications, skills, experience or expertise. The test uses a hypothetical comparator. However, if the agency or hirer is able to show that the treatment of the agency worker is consistent with that of an actual comparator employee (doing the same or broadly similar work), it will be deemed to have complied with the Regulations. There is no requirement to have an actual comparator.

Agency worker pay – what does this include?

The Regulations interpret the term ‘pay’ widely as meaning all sums payable to a worker in connection with the employment (subject to specific exceptions). For example, the following types of ‘pay’ would need to be matched:

salary/wages
commission
holiday pay
overtime
shift allowances/car allowances
vouchers and stamps (if they can be exchanged for money, goods or services, and they are of fixed value expressed in £s terms, not percentages. But see below for vouchers provided through salary sacrifice, such as gift card vouchers.)

Benefits that are not ‘sums payable’ or close in concept to ‘pay’ need not be matched. For example, the following do not need to be matched:

benefits in kind
company car
percentage discounts
insured benefits
pension contributions
redundancy pay
share or option schemes.

Sick pay, family leave pay, notice pay and benefits provided through salary sacrifice also need not be matched.

Information requests

Reform

Following the Taylor Review, which made recommendations for reforming employment law with a particular focus on vulnerable workers (including agency workers), the government published its Good Work Plan and a range of standalone consultations. Some of those agency worker-related proposals have already been implemented in legislation (eg in April 2020 the Swedish derogation was repealed and the requirement to issue a Key Information Document was introduced). Other forthcoming developments will depend on the new Labour government's plans:

The previous government intended to expand the remit of the Employment Agency Standards Inspectorate to cover umbrella companies. This was to be included in a new single enforcement body, the 'Fair Work Agency.' This is likely to cover agency rules but details have not yet been published.
The previous government planned a new right for all workers, including agncy workers, to request a more stable contract after 26 weeks' service. Labour has confirmed that it is not going ahead with this proposal, but will be introducing a new right to an average-hours contract based on a 12-week reference period.

Key points for hirers:

A certain number of rights are afforded to agency workers from their first day of assignment.
Agency workers who have completed the 12-week qualifying period will be entitled to the same basic working and employment conditions they would have received if they had been recruited directly by the hirer to do the same job.

Key points for agency workers:

You should be aware of both the day 1 rights you have, and those that you will be entitled to after the 12-week qualifying period.
If you think that either the agency or the hirer has infringed the Regulations, you can make an information request.

Employment status

Where do agency workers fit in?

Typically, agency workers will be part of a tripartite arrangement, whereby the agency worker has signed up with an agency and then provides work for one of the agency’s clients, that is, to a hirer, during an assignment or assignments.

In this scenario, the agency worker will have entered into a contract with the agency. The agency will have entered into a separate contract with the hirer, but normally there will be no direct contract between the agency worker and the hirer. The agency will pay the agency worker and remains the intermediary between the agency worker and the hirer.

Although labelled as an agency ‘worker’, an agency worker can be a worker or employee of the agency (but is not likely to be either of the hirer). Determining whether an individual is a worker or an employee involves looking at the legal tests and will depend on the terms of their contract and the nature of the working relationship.

Agencies should be establishing the employment status of the agency workers they engage as a matter of good practice. Disputes about this can also arise. It is important because employees have more employment rights than workers (for example, workers usually do not have rights to sick pay, maternity and parental leave and pay, and redundancy payments – although some workers may be entitled to some of these benefits in certain circumstances), and certain employment claims such as unfair dismissal can only be brought by employees.

Determining whether an agency worker is a worker or an employee can be particularly difficult because their relationship is split between the agency and the hirer. For example, the agency will generally have ultimate control over the agency worker, but it is the nature of temporary work that during an assignment the hirer has day-to-day supervision and direction over the agency worker’s actions on a day-to-day basis.

It will be unusual for an agency worker to be found to be a worker or employee of the hirer and the courts are unlikely to come to this decision. On the basis of current case law (for example, the case of James v Greenwich LBC), an employment relationship will only be found to exist between an agency worker and a hirer where it is necessary to give effect to the reality of the relationship. Provided that the agency worker has a contract with the agency (and not the hirer), and the hirer has not incorporated the agency worker into its payroll and benefits schemes, the likelihood of the hirer being found to be the agency worker’s employer is low.

Key points for hirers:

Key points for agency workers:

Commercial context: pros and cons

What are the advantages and disadvantages of agency workers?

There are a number of reasons why companies look to use agency workers, including:

To provide temporary cover when there are gaps to fill in the workplace.
To avoid headcount restraints.
For flexibility when there are peaks and troughs in workload, for example seasonal work.
For ease of being able to hire or terminate labour.
Low-cost cover of work, although, as set out above, this may not always be the case, as agencies will need to ensure pay compliance under the Regulations.

Depending on the roles an agency worker is used to fill, there may be some disadvantages to using agency workers instead of permanent employees. These include:

Compliance with the Regulations: providing the required pay information to agencies has the potential to be administratively burdensome and there is a liability risk in instances of non-compliance.
Additional costs: the hirer will pay a rate to the agency which covers the agency worker pay, other agency overheads (for example holiday pay, pension contributions, and so on), and the agency’s mark-up. This can be more than the cost of directly employing the agency worker.
Discipline and compliance with policies: There is no contractual relationship between an agency worker and a hirer, and it is unlikely that an implied contract will be found. A company’s disciplinary procedures are likely to apply only to employees and so a company may find an agency worker is less likely to comply with its policies. It can therefore be difficult for hirers to have a way to deal with agency workers’ unacceptable behaviour other than ending the engagement under the terms of the contract with the agency.
Loyalty and commitment of staff: companies may find that agency workers are less engaged and committed to their work than a permanent employee, who has the chance for progression and promotion, and so on.

Common practical issues and pitfalls

Hirer managers requesting agency workers, but:

• not keeping HR/procurement updated when they are taking on agency workers for assignments

• not first considering whether a direct arrangement (such as fixed term, casual worker, independent contractor) may be a better arrangement

• signing agency terms and conditions without seeking advice from HR/ procurement

• entering into relationships with multiple agencies who have not been approved by HR/ procurement, leading to HR/procurement losing sight of the number of agencies being used

• not understanding the legal background of this type of staffing arrangement, and therefore not understanding important communications from the agency (for example that there is a requirement to update pay information following a pay review)

• not realising there will be a significant fee to pay if they allow the agency worker to go temp to perm (that is, hire them directly).

Hirers treating agency workers exactly the same as employees. For example:

• Permitting the agency worker to make expenses claims through the company system.

• Approving holiday requests.

• Hearing grievances and conducting disciplinaries in relation to the agency worker.

Hirers communicating about contractual matters with the agency worker directly rather than via the agency. For example:

• Telling an agency worker that their assignment is terminated, rather than telling the agency.

• Terminating an assignment directly with the agency worker without clarifying they’re talking only about the assignment (not about the agency worker’s relationship with the agency).

In both the above examples, the better approach would be to tell the agency, and leave the agency to tell the agency worker.

Agency worker who doesn’t fully understand that they are the agency’s worker, and not the hirer’s worker:

• This can mean that if they want to complain (or bring a claim), they don’t know who to complain to, and so they complain to (or bring a claim against) both organisations.

The agency relationship

Other regulatory considerations

In addition to the Regulations, the relationship between agency workers, hirers and agencies is also regulated by the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (the ‘Conduct Regulations’).

The Conduct Regulations dictate the terms that must be agreed between the agency and the agency worker. These are:

The type of contract the agency worker will be engaged under and the terms that will apply.
An undertaking that the agency will pay the agency worker for all work done, regardless of whether it is paid by the hirer.
The length of notice that the agency worker is required to give and entitled to receive.
The minimum rate of pay or the rate payable to the agency worker and when the payments will be made.
The amount of paid holiday the agency worker is entitled to.

The Conduct Regulations prohibit agencies from withholding or threatening to withhold the whole or part of any payment due to an agency worker in respect of any work they have done on the basis that:

the agency has not received payment from the hirer
the agency worker has not produced a time sheet, signed by the hirer, to confirm the hours they have worked. However, it is possible for an agency to delay payment for a short period of time while it makes enquiries to confirm this. If a hirer refuses to sign a time sheet because they are not satisfied with the work performed, the agency will still have to pay the agency worker
the agency worker has failed to work for a stated minimum number of hours
any matters that are within the agency’s control have prevented payment, for example an administrative issue with its payroll system. However, as long as any such issues are resolved in a reasonable period of time, the agency will not be considered to be in breach of the Conduct Regulations.

Exchange of information

Agencies must take steps to ensure agency workers assigned to hirers are the best match for the available work. They must not introduce an agency worker to a hirer unless they have obtained sufficient information from the hirer to select a suitable agency worker for the position. Such information will include:

The identity of the hirer and the nature of its business.
The date the agency worker will be required to start work and the likely duration of the assignment.
The position the hirer is seeking to fill, including the type of work the agency worker will be required to perform; the location of the assignment; the hours that they will be expected to be worked; and any health and safety risks known to the hirer related to the assignment, and the steps the hirer has taken to prevent or control such risks.
The experience, training, qualifications and any authorisation which the hirer considers are necessary, or are required by law or by any professional body for the agency worker to have in order to be able to fulfil the role. This could include whether the role requires the worker to have a DBS check or a licence to operate specific machinery, for example.
Details of any expenses paid by or to the agency worker.

An agency must not introduce or supply an agency worker to a hirer unless it has obtained confirmation of the following from the agency worker:

Their identity (through a passport, driving licence or birth certificate).
Their right to work in the UK.
That they have the necessary experience, training, qualifications and authorisations needed (through certificates or registrations with professional bodies).
That they want to fill the position.

Once it has obtained information from the hirer and from the agency worker, an agency must provide it to the other party.

This exchange of information can be done orally, but only if it is confirmed in writing as soon as possible afterwards, and in any event no later than the end of the third business day after the information was given. This is not a requirement for assignments where:

the agency worker is being offered the same position in which they have worked within the previous five days and the relevant information remains unchanged from when it was previously provided
the intention is that it will only last for five consecutive business days or less and the relevant information has already been given to the agency worker and remains unchanged.

Striking workers

The Conduct Regulations (regulation 7) stop employers using agency workers from an employment business to replace staff taking official industrial action. It is a criminal offence for any employment business to (knowingly) supply agency workers to replace workers during official industrial disputes.

Following train strikes in the summer of 2022, the previous government rapidly introduced new legislation to allow employment businesses to supply temporary agency workers to employers facing strikes or industrial action. However, this legislation was ruled unlawful by the High Court, and the new Labour government does not plan to reintroduce it.

Other changes to the Conduct Regulations

Since 6 April 2020, all agencies are required to provide agency work-seekers with a Key Information statement, before agreeing the terms by which the agency worker will undertake work. This will encompass some of the terms that an agency is already expected to agree with an agency worker in advance. The document must include information about:

the type of contract an agency worker is engaged under
the minimum expected rate of pay
how the agency worker is to be paid and by whom
any deductions or fees that will be taken from pay
an illustrative example of what this might mean for their take-home pay.

The document must be headed ‘Key Information Document’ and be separate from any other documents provided. Immediately under the heading the document must state that it:

specifies key information which relates to the relationship between the agency and the agency worker and, where applicable, any person to be supplied by the agency worker to carry out the work
where necessary, identifies documents where further related information may be found
includes the contact details of the Employment Agency Standards inspectorate if they are concerned about a breach by the agency of its obligations under the Conduct Regulations.

The agency will need to be able to demonstrate that the document has been given to the agency worker.

Acknowledgments

Lewis Silkin

This guide was written by Lewis Silkin.

Lewis Silkin is widely recognised as the leading specialist employment law practice. With a team of over 150 employment and immigration lawyers, based across the UK, Ireland and Hong Kong, the firm supports clients across the full spectrum of employment law and related HR needs. Lewis Silkin has been consistently top ranked for employment law for the past 15 years by independent legal directories, Chambers and Legal 500, and received global recognition from Who’s Who Legal having twice been named ‘Law Firm of the Year for Labour, Employment and Pensions’.