Employing agency temps as permanent members of staff – a guide

This article first appeared on XpertHR

Most employers use agency temps as an additional labour resource from time to time, whether this is to cover annual leave or long-term sickness absence or simply to deal with an increase in work. It is estimated that between a quarter and half a million people in the UK have jobs as agency temps.

Agency temps offer flexibility because they can usually be obtained at short notice and used for anything from a couple of hours to months at a time. The end-user company pays the agency for the supply of the temp’s services. The temp could be employed by the agency under a contract of service or apprenticeship, or he or she could have a contract for services with the agency. The agency must let the end user know in advance what type of contract it has with the temp.

However, in some cases the end-user company might wish to retain the temp as a permanent member of its staff. This might be because the temp has proved to be exceptionally competent and a valuable asset or because the company always intended to offer a permanent position to the temp but wanted to assess his or her performance first without the complexities involved in giving him or her the status of an employee from the outset.

This article explains the considerations to be taken into account in these circumstances.

Conduct of Employment Agencies and Employment Businesses Regulations 2003 (SI 2003/3319)

The Conduct of Employment Agencies and Employment Businesses Regulations 2003 govern the conduct of the private recruitment industry and establish a framework of minimum standards that both workers and end-user companies are entitled to expect. From an employer’s perspective, the most important provisions of the Regulations are those limiting the right of employment agencies to impose what are known as transfer fees or “temp to perm” fees.

For the purposes of the Regulations, an organisation that supplies temporary workers to its end-user clients is actually an “employment business”, but for ease of reference this article refers to it as an employment agency.

It used to be common practice for employment agencies to charge a financial penalty, or transfer fee, to an end-user company that wished to fill a permanent vacancy with a temp who had previously been introduced to it by the agency. Clauses to this effect were typical in the terms of business between the employment agency and the end user. Following the introduction of the Regulations there are now restrictions on how transfer fees can be used, but the charging of transfer fees is not actually prevented.

The Regulations provide that temp to perm fees cannot now be enforced against an end user unless the contract between the parties provides that, instead of a transfer fee, the end user may by notice to the employment agency elect for an extended hire period, of such length as is agreed and specified in the contract, and during which the worker will be supplied to the end user on terms no less favourable to it than those that applied immediately before the employment agency received the end user’s notice. The latter provision prevents agencies from imposing punitive terms for the use of temps during extended hire periods. After the extended hire period, the temp may then transfer without charge.

A transfer fee will also be unenforceable if the employment agency does not supply the worker to the end user for the duration of the extended hire period, unless the agency is in no way at fault.

In addition, all transfer fees are subject to a “quarantine period”. This means that they are unenforceable where the transfer of the temp to permanent employment with the end user occurs after the later of:

  • eight weeks from the end of the temp’s assignment with the end user; or
  • 14 weeks from the beginning of the temp’s assignment with the end user.

Where a temp works intermittently for an end user, the 14-week period is treated as continuous from the first date of the first assignment unless the assignments have been separated by more than 42 days, in which case the 14-week period starts again.


The rules can perhaps best be illustrated by way of an example.

An employment agency supplies a temp who works for the end user for four weeks, following which the end user wishes to offer the temp a permanent position. The contract between the parties specifies that the employment agency will charge a transfer fee equivalent to 20% of the temp’s first year’s salary with the end user unless the end user continues with the supply of the temp from the employment agency for an additional six-week period. In this situation, the end user can choose either to pay the transfer fee now or continue with the supply of the temp through the agency for the further six weeks. Alternatively, the end user could discontinue use of the temp and then wait a further 10 weeks before recruiting the temp directly (that is, the later of 14 weeks from the start of the temp’s assignment or eight weeks from the end of the assignment).

The options available to employers

When considering whether to offer a permanent position to a temp, the starting point is always for the employer to read the agency’s terms and conditions of business, in particular to ascertain the amount of any transfer fee and the duration of the extended hire period. It is not unusual for a transfer fee to be as much as 20 to 25% of the worker’s first year’s salary, which can amount to a considerable sum.

The employer then has three main options if it wishes to take on the individual permanently. It can:

  • pay the transfer fee;
  • agree to an extended hire period rather than pay the transfer fee and then, after that period has ended, take the temp on on a permanent basis without paying a charge; or
  • permit a relevant period of time, the quarantine period referred to above, to pass between the end of the assignment and employing the temp, although of course the risk here is that the temp will find alternative employment elsewhere in the meantime, particularly as the gap will have to be at least eight weeks.

The employer will therefore wish to weigh up the pros and cons of each of the options before making a final decision.

Continuity of service

In requiring an employment agency to confirm the nature of its relationship with a temp, the Conduct of Employment Agencies and Employment Businesses Regulations 2003 are attempting to avoid uncertainty over the arrangement between the parties during the assignment. However, the position is not always going to be clear cut. For example, if the agency’s terms of business with the end user confirm that the temp is working for it under a contract for services and not under a contract of employment, it is still possible that the temp may be held to be an employee of the end user.

In some cases employment tribunals have held that the end user is the employer under an implied contract of employment, but the Court of Appeal decision in James v London Borough of Greenwich [2008] IRLR 302 CA has made it less likely that an agency worker will be able to establish this kind of contractual relationship. The issue is whether or not it is necessary to imply a contract in order to give business reality to the relationship between the parties. This would be the case if the relationship is consistent only with an implied contract between the worker and the end user, and the arrangement with the agency is a sham.

In calculating the length of a temp’s continuous employment the question is whether it starts from the first day of permanent employment or whether the period of temporary employment counts towards continuity.

If there has been a break in service of at least one calendar week (starting on a Sunday) between the last day of the temporary assignment and the first day of permanent employment, then any continuity of service that there might otherwise have been should be broken, provided that there has been no agreement between the parties to preserve continuity. Even then, the worker might be able to argue that the break was a temporary cessation of work, so the end user will need to show that there was work available for the worker to do during the break, but that he or she was not asked to do it. To err on the side of caution, a two-week break in service is recommended.

Where the temp has moved straight from a temporary assignment under which he or she was engaged by the agency through a contract for services to permanent employment status with the end user, there is a risk that an employment tribunal could hold that the temp has been an employee of the end user from the time of his or her initial appointment as a temp. The tribunal will look at the written contractual documentation as well as the parties’ conduct and how the arrangements during the temporary assignment operated in practice.

To try to avoid continuity of service being acquired, the key for employers is to forward plan. Before the temp starts work, the agency should have already confirmed in its terms of business the employment arrangements that apply between it and the worker. If the temp is employed by the agency under a contract of employment, there should be no problem. If the temp is engaged by the agency under a contract for services, the employer should ensure that the documentation contains an “entire agreement” clause and a statement to confirm that there is no employment relationship between the temp and the end user. Thereafter, when an offer of permanent employment is made, it is preferable for there to be a break in service as outlined above. The contractual documentation should then clearly state that employment with the employer commences only from the start date of the permanent post and that this is therefore the start date for the purposes of continuity of service. In addition, in practice, employers must ensure that they do not treat agency temps as they would permanent members of staff in terms of the control and direction that they exercise over them and the requirements on them to report for work. If an employer always intended to make a temp an employee and, when it does, the temp does exactly the same job for the employer that he or she did as an agency temp, this may serve to weaken the employer’s position.

Written statement of terms and conditions of employment

Finally, an agency temp who becomes directly employed must be given a written statement of terms and conditions of employment within two months of starting work. The temp should not be offered a lower salary than other comparable staff to cover the cost of any transfer fee because this might give rise to an equal pay claim in due course if the temp can point to an appropriate comparator of the opposite sex who is engaged on the same or similar work, work rated as equivalent or work of equal value.

The author: Claire Birkinshaw qualified as a solicitor in 1994. She worked at two of the top 10 London law firms and as legal advisor to the Ministry of Defence before joining Abbey Legal Protection Limited in October 1998. Claire specialises in employment law and currently works as a legal information manager.

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