New regulations on agency staff set to affect recruiters

Employers hiring temps must be aware of their obligations under the
forthcoming Conduct of Employment Agencies and Employment Business Regulations

The Conduct of Employment Agencies and Employment Business Regulations come into
force on 6 April 2004. Some provisions will be held back until 6 July 2004, but
that is no excuse for employers to relax.

The regulations and accompanying DTI guidance run to some 50 pages each,
reflecting the complexity of the law surrounding temporary staff. They apply to
both ’employment agencies’, which introduce candidates to employers and then
have no further involvement, and to ’employment businesses’, which engage
workers directly and then supply them as ‘temps’ to clients.

If you are in the recruitment industry, it is imperative that you are aware
of your obligations under these regulations, and that you update the
documentation between you and your clients (to whom you provide the staff on a
permanent or temporary basis). You are also legally obliged to update the terms
and conditions on which you engage the staff.

If you are taking on a temporary agency worker, you must be aware of these
key provisions:

– There is to be a restriction on restrictive covenants in the contract
between you and the temping agency (known as the ‘recruitment business’ in
correct legal jargon). That means you will not be prevented under the terms of
any agreement from taking on an agency worker at the end of an assignment.

– There will be a limit on when transfer fees can be charged to you when you
take on a worker direct. This provision is complex, and applies not only to you
taking the worker on directly, but also to you introducing the worker to
another business, for example. Essentially, a transfer fee can only be charged
where the employment business states you can either pay the transfer fee, or
keep the temp on for a certain period through the employment business. This
means you can pay the transfer fee, or give the employment business notice
(during which time you pay the worker through the employment business), after
which there will be no transfer fee.

A transfer fee will only be payable if you take the worker on within a set
period of time, which is either 14 weeks from the start or eight weeks from the
end of an assignment – whichever is later.

If the employment business fails to update its documentation, you may find
you can take on the temp without having to give notice or pay a transfer fee.

– The regulations also apply to businesses that hire contractors through
service companies (as happens frequently in the IT industry), as they will be
treated as agency staff with effect from July 2004. However, it is possible for
those contractors to opt out of the regulations (unless the contractor is
supplied to provide services to young, aged or ill people). This applies only
where both the service company and the individual contractor confirm this in
writing before being placed with a business.

Many businesses will prefer to take on service companies that have opted out
of the regulations, as there can be the potential for confusion over the
taxation of the earnings paid to the contractor if they are treated as a normal
‘agency worker’. However, an employment business cannot insist that the
contractors opt out. So again, as employers, it is important to check the

You should note that an opt-out is complete. This means the employment
business can rely on any restrictive covenants in the contract between it and
you, the employer (subject to the rules governing this area). The employment
business will also be able to charge you a transfer fee if you take the
contractor on direct.

If you take on a temp, carefully review your documentation and seek advice
if you are unsure of your position. For more guidance, go to the DTI’s website

By Karen Duffy, Solicitor, Bevan Ashford

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