How should temporary staff be treated when it comes to reward? Victoria Furness looks at the moral and legal considerations
The UK is recognised as having one of the most flexible labour markets in Europe, which many business leaders attribute to the large proportion of temporary workers in the country.
The government estimates there are currently 1.3 million agency workers in the UK – nearly 5% of the entire working population. Guy Bailey, senior policy adviser at the Confederation of British Industry (CBI), says: “In other European countries, like France and Germany, that figure is nearer 1%. The reason temporary working is so important is that it allows organisations to match their resources to meet demand. By doing so, they can marshal their resources more effectively.”
Apart from the difference in their working status, most temporary workers are like any other member of the workforce in wanting to be recognised for their achievements and motivated to perform better. The challenge for employers is to balance the need to reward temporary workers with the requirement to distinguish clearly between permanent and temporary staff for tax and legal purposes. Complicating matters further is the huge disparity among this group, because a temporary worker could be anything from an interim HR manager to a specialist IT contractor, an agency worker in a food manufacturer or a freelance journalist.
Legal rights of temporary workers
Legally, all temporary workers are entitled to some rights under discrimination legislation, health and safety laws, and working time regulations in relation to holidays, breaks and how many hours they work. Agency workers may also receive some benefits from their agency. For example, recruitment firm Randstad offers temporary workers holiday accrual, training, access to a pension scheme and discounted rates to a sick leave plan. Jane Fielding, a partner at law firm Wragge and Co, says: “What they do not receive – because they are not an employee in the traditional master/servant role – are the lifestyle rights, such as maternity leave, adoption leave and paternity leave.”
Most temporary workers receive a higher salary to compensate for the lack of benefits, but this is less evident at the lower end of the market. Some employers also extend the benefits received by permanent workers to their temporary workforce, such as access to an on-site gym, crÀche, canteen or car parking. Many also invite temporary workers to their Christmas party, company social activities and training.
Flexible benefits schemes
Perks such as flexible benefits schemes and pensions are unlikely to be offered to temporary workers because most plans enable choices to be made only once a year, and the cost of managing the administration could be too high for employers. But voluntary benefits plans and instant rewards, such as vouchers, can be effective incentives, says Andy Philpott, marketing director at Capital Incentives and Motivation. “Things like multi-store vouchers or luncheon vouchers have some perception of value attached to them,” he explains. “They can be handed out quickly and there is no administration as such [for employers].”
Offering such benefits might seem a way to make this group feel more valued and motivated at work, but firms must be careful not to blur the line between temporary worker and permanent employee. John Brazier, managing director of the Professional Contractors Group (PCG), which supports freelancers, contractors and consultants, says: “Freelancers and contractors are not employees, and to treat them in a similar way would be highly problematic. For tax purposes at least, offering employee-style benefits would be anathema for a freelancer. Doing so contradicts their employment status and makes life difficult when demonstrating they are outside the IR35 tax legislation.”
IR35 (or intermediaries legislation) was introduced in 2000 to crack down on contractors avoiding tax and national insurance contributions (NICs) by setting up an intermediary one-man company and paying themselves a dividend instead of salary (dividends are not liable to NICs) when such contractors would otherwise be considered an employee of the company to which they provided services.
But it is not just the tax authorities that employers must be concerned about. Most employment tribunal cases deal with the question of employment status – often from disgruntled temporary workers claiming to be an employee and, therefore, entitled to the same employment rights as permanent staff.
Unfortunately, case law is fairly inconsistent in this area, so there is no clear precedent for employers. The best strategy for creating a clear reward framework is to segment the workforce, says Nich Crowson, reward specialist at HR consultancy Independent. “Look at who your core workers are and who your peripherals are. If you are [using] a temporary workforce to meet seasonal needs, then be very clear and set yourself timeframes to review, after so many months, whether they are still a temporary or permanent employee.”
Employers that rely on agency staff, in particular, will need to review their HR and benefits policies in the light of the forthcoming EU Temporary (Agency) Workers Directive. This will affect agency staff working more than 12 weeks at an organisation. The self-employed and anyone who does not use an agency are excluded from the bill, as are agency staff who spend less than 12 weeks on an assignment.
The main thrust of the legislation is to give agency workers the same rights to pay and employment conditions as permanent staff. But there are some aspects of the legislation that will affect all temporary workers, such as the right to equal treatment on job opportunities, training and amenities on site, for example canteens, childcare facilities and transport services. What is excluded is their entitlement to occupational social security schemes, such as an occupational pension.
The problem with the government’s proposals as they stand is that they raise more questions than they answer. First up is the definition of pay. Chris Wellham, senior associate at law firm Lovells, says: “There is uncertainty about how the equal treatment legislation will be applied. Are they going to look at each element of pay and benefits individually, which is what they do for equal pay, or are they going to compare everything as a total package?” Concerns have also been raised about paying bonuses to temporary workers. “Where do those start and end?” says Wellham. “What is [an organisation] going to do to monitor that? Give appraisals to agency workers to understand how their performance has improved?” Another issue is holiday entitlement for agency workers in cases where an employer offers enhanced contractual holiday entitlement for permanent staff. Fielding explains: “It is proposed that agency workers should be able to take that as a one-off payment at the end of their assignment, whereas a permanent employee can only have payment in lieu of holiday, so it appears to be more beneficial for agency workers.”
There is also a possible problem in ascertaining the correct salary level for a temporary worker. The CBI is lobbying for this to be a real-life comparator rather than a hypothetical one, which it thinks will prove highly problematic. Ann Bevitt, a partner at law firm Morrison Foerster, also questions what will happen with the comparisons over time. “For instance, if, when an agency worker joined, there was nobody in that position, what happens six months later when the company recruits someone at a higher level and the agency worker says they are at that level too?” she says. “It may not just need to be an initial assessment but an ongoing review to ensure they are at the correct level.”
Although pensions are specifically excluded from the temporary workers directive, the government has made it clear that all agency workers will be covered by the Pensions Act 2008. This means that when the legislation come into effect in 2012, agency workers will be automatically enrolled into a qualifying pension scheme from day one of an assignment, and the employer will have to make a contribution to their fund.
Employers have until 2012 to prepare for this legislation, but the temporary workers directive becomes law before then – the consultation period ended on 31 July. The CBI would like to see the legislation delayed until the end of next year (the directive must be implemented before December 2011) in view of the economic situation and the likely impact on employment businesses, which are already seeing reduced demand for their services and could see business fall off further if, as expected, the directive makes it more expensive to recruit temporary labour.
In the short term, the most likely outcome is a boom in business for employment tribunals. Lovells’ Wellham says: “I was speaking to a judge of a tribunal and she said claims were already up 50% this year – I assume this is because everyone is being made redundant – so the legislation could add to an already groaning tribunal system.”
For employers that were nonplussed by the legislation until now, that could be the wake-up call they need.
A summary of future entitlements for agency workers:
When the EU Temporary (Agency) Workers Directive becomes law in the UK, it will give agency staff who work for an organisation for more than 12 weeks the following new rights:
- Equal treatment on basic working and employment conditions (working time, overtime, breaks, rest periods, night work, holidays and public holidays), but no change to their existing employment rights (such as the right to claim unfair dismissal).
- Equal treatment on basic pay and other contractual entitlements, such as overtime, shift allowances, unsocial hours premiums/bonuses, and some bonuses that are related directly to personal performance, but not share schemes or longer-term benefits such as company car allowances.
- Additional provisions for pregnant or nursing mothers, such as the right to reasonable paid time off to attend antenatal appointments.
When are temporary workers considered staff?
Past case law offers little guidance to employers looking to create a reward structure for temporary workers. As these examples demonstrate, the final ruling switches between favouring the employer and the claimant:
Dacas v Brook Street Bureau (2004) Agency worker Dacas claimed unfair dismissal against Brook Street and Wandsworth Borough Council. The tribunal decided that she was an employee of neither. When she appealed, the Court of Appeal implied that a contract of employment existed between her and the council.
Cable and Wireless (C&W) v Muscat (2006) Muscat worked for C&W until the company asked he provide his services through an agency. When the service was terminated, he claimed unfair dismissal. The employment tribunal ruled that there was an implied contract of employment with C&W.
James v London Borough of Greenwich (2007) The Court of Appeal ruled that just because an agency worker had worked for the same client for several years, it did not inevitably lead to an implied contract of employment between the two parties.
Carl v University of Sheffield (2008) An employment tribunal ruled that a self-employed tutor at the University of Sheffield was an employee, partly on the basis that she had access to the university car park, was included in the university handbook and received paid sick leave.
Case study: Open mind on temporary staff
FreshMinds, a research and recruitment consultancy, does not have the usual employer/ employee set-up.
Since the company was formed in 2000, it has supplemented a core team of 72 permanent employees with a network of more than 16,000 temporary workers, known internally as ‘minds’, which help the company’s research arm to fulfil client projects as well as making up the candidate pool for its recruitment arm, FreshMinds Talent.
With such an unconventional approach to employment, it is little surprise that FreshMinds also does not take a conventional attitude to rewarding temporary staff. Ben Collis, HR director, explains: “We start from a default position of inclusion and the way we do that is by inviting our ‘minds’ to breakfast meetings with the whole company and making sure they benefit from all the nice little things we do for permanent employees, such as beers on a Friday, fresh fruit on a Wednesday and flexible working to fit around their interests.” The ‘minds’ can also take part in internal training and benefit from the company’s referral policy for internal hiring. The firm also operates a mind of the month award to recognise achievements specifically within this group.
But there are some benefits temporary staff do not have access to. “It would not make practical or logistical sense to offer them health insurance or a pension, but we always make sure we more than make up for this with their pay,” says Collis.
Project-related bonuses are also available.
The firm is continually working to improve reward for its ‘minds’. It holds focus groups with them and conducts surveys to find out what more could be done.