Under threat

While the introduction of greater protection for temps is
being hailed as good news for workers, it will make the market tougher for
employer and contractor alike. Nic paton examines the likely impact on one
high-tech player

Sharp-eyed football fans watching June’s World Cup would have noticed one
name kept cropping up on the pitch-side billboards in Japan and South Korea –
Avaya. The New Jersey, US-based company provided telecom and data systems for
the tournament, built the official website and will do the same for the 2006
championships in Germany.

Although not yet a household name, Avaya employs some 23,000 people around
the world, operates in 90 countries and last year generated revenues in the
region of $6.8bn (£4.3bn).

Formerly part of US technology giant Lucent Technologies, Avaya was spun off
as an independent company in 2000, but can trace its roots back to the middle
of the 19th century and the development of telephony services in the US.

The company manages more than 100 million voicemail boxes worldwide and is a
specialist in developing call-handling technologies. In Europe alone, its
technology can be found in more than 3,000 call centres. In the UK, the
operation is considerably smaller, with about 1,000 permanent staff split
between its headquarters in Guildford and offices in Welwyn Garden City. On top
of this, at any one time the company will employ about 40 to 50 freelance
contractors, normally working on specialist IT contracts.

Projects, which normally last up to a year but sometimes beyond that, will
often revolve around developing and maintaining the non-core IT infrastructure
or doing things such as working on the corporate intranet or website, says Mike
Young, UK HR director for Avaya. Agency and contract staff are also sometimes
used to plug short-term gaps among permanent staff.

This modus operandi is now under threat from European employment legislation
set to make the market tougher for employer and contractor alike, fears Young.
Two key sets of regulations are focusing the minds of HR and employment
professionals in the IT contract market.

The first is the Fixed-Term Employees (Prevention of Less Favourable
Treatment) Regulations 2002, which are due to come into force on 1 October this
year. These will transpose the European Commission’s Directive on Fixed-Term
Work into UK legislation.

The regulations will prevent fixed-term employees from being treated less
favourably than similar permanent employees, and limit the use of successive
fixed-term contracts. Fixed-term employees will have the right to be treated in
the same way as permanent staff on comparable contracts in areas such as pay,
pensions and other benefits, unless the employer can justify it otherwise.

The regulations will cover those working under a contract of employment for
a specified term or those working on a contract that terminates automatically
on completion of the project or at a particular event.

Battle lines

This will mean where a comparable permanent employee receives, or is
entitled to, pay or another benefit, a fixed-term employee should be entitled
to something similar, bearing in mind the length of contract and the basis on
which that pay or benefit is offered. Fixed-termers will also have the right to
be informed by their employer of any available vacancies.

The other area of concern is the European Parliament and European Council’s
draft directive on working conditions for temporary and agency workers. Battle
lines are still being drawn up over this, with employers’ bodies and some in
Government expressing deep concerns about the effect this directive could have
on the UK.

It would mean employers and agencies having to ensure temporary workers –
employed by an organisation for six weeks or longer – have the same
remuneration rights in areas such as pay, pensions, paid holidays and health
insurance as permanent workers doing comparable jobs.

The directive is designed to protect low-paid agency staff. But contractors
in the IT and technology sectors claim, with some justification, that they are
a completely different breed from, say, contract cleaning or catering staff.

IT contractors are normally highly-skilled workers who have gone into
contract work because it is their preferred mode of employment. They relish its
flexibility and prefer cash upfront to a pension, paid holiday or any other
benefit on the table, argues Young.

"Rates of pay will be higher than for permanent staff," he admits,
an issue that, some contractors explain, can cause resentment among permanent
staff. But contractors, in return, are not covered by the rest of a company’s
terms and conditions and have less job security.

"You are employing people to do things that are specific and need to be
done, but are not necessarily seen as core to the business. When we are looking
at a core activity, we tend to look at the permanent option first. Contract
workers are useful to the business because it means you can exercise a degree
of flexibility. You have a high degree of flexibility because you have
continuity through defined pay and time, but you do not want those skills on a
permanent basis. You might, for instance, want to outsource that activity in
the future," he adds.

One of the main challenges for an organisation that uses contractors on a
regular basis is dealing with the skills gap that can develop when anyone has
been working with permanent staff for a period of time has to be let go.
"At a human level, when you have people around the office, they do get to
be valued as people. They understand the business and they are very important
to us. By its nature, the way the law and the rules drive us, you cannot employ
those people beyond a certain time. After a year, you are starting to hit all
sorts of requirements. So people say we are going to be losing those skills and
knowledge after a year.

"It is hard, but after that period, we tend to make the decision to
make the change. As a result, HR will often get accused of harming the
business, but in fact what we doing is protecting the business, looking out for
it," he explains.

When the fixed-term regulations come into force, the most obvious likely
change is that employers will increasingly look to co-ordinate their contract
requirements through agencies rather than directly with individual contractors,
Young predicts. "Individuals will not have so many opportunities to join
the company directly. Rather, we will be working with suppliers exclusively,
not individuals," he forecasts.

Relationship shift

The main reason for this is that, if other benefits are going to have to be
offered, there will be more pressure to drive down rates. Pay will be more
likely to be set to take into account any other benefits that are on offer at
that organisation.

It saves time, hassle and paperwork to negotiate rates through an agency
rather than individually with each contractor, so the primary relationship will
shift towards the supplier.

"People like us are going to take a much more cautious line about what
we do," Young says. "At end of the day, we are employing contractors
for cost reasons and flexibility reasons," he adds. Contractors generally
would prefer a higher rate to pension provision – they will normally have their
own pensions anyway and will not want to build up a stack of different
pensions, he suggests. The same goes for other ‘fringe’ benefits such as sick
pay or holiday pay.

The draft directive on agency and temporary workers, if it becomes law in
its current form, will also be more of a burden than a boon, he expects.

Employers will have to assess much more closely the skills they have
in-house, what they need and what is available to them. Organisations may look
more closely at simply outsourcing operations or even boosting their in-house
technical operations.

Although agencies have a key role to play in keeping rates low, conversely,
if agencies become more prominent and, for instance, a standard rate is introduced,
the flexibility that is a key selling point of contract staff could disappear.
"With a standard rate, it would be harder to bargain," says Young.

Contractors, too, are likely to find less flexibility and opportunity in the
new arrangements. "There won’t be the opportunity for them to jump around
so much. They will have to get into employment-type relations with the
co-ordinating agencies, which may not suit them. And I do not see that this
will encourage more permanent employment, because that is not why contractors
get into it," he says.

In the longer term the worry is that if contracting as a profession becomes
less attractive and lucrative, fewer bright graduates will be attracted to it.
This will mean a smaller pool of talent to draw on and employers may be forced
to take more activities in-house.

What is clear, however, is the status quo clearly is set to give way.
"It is going to change, of that I am certain," says Young. The
primary driver of the amount of contract work undertaken will remain,
inevitably, the market. But under the fixed-term regulations organisations will
have to look much more closely at how they protect their costs before making
the decision to employ contract labour.

Organisations such as Avaya, which are committed to working within the
rules, recognise the need to have legislation in place to protect low-paid and
exploited contract and agency workers. But while well-meaning, such
heavy-handed legislation could well have the opposite effect to that intended,
at least in the IT contractor market. By not taking account of the pressures
and constraints of the markets such as Avaya’s, the regulations could end up
making a valuable and flexible labour market less flexible, more insecure and
distinctly less inviting.

"Quite often, for an employer, the decision to take on a contractor is
not as difficult as the decision to take on a permanent member of staff simply
because you can turn it on and off," explains Young.

"But if it becomes more problematic, what you might find is people
simply putting projects off or finding some internal way of doing them."

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