While we are all pre-occupied with Coronavirus and wondering when we can finally return to the office, it is still important that recruitment agencies keep on top of recent legal developments with regards to employment law. The main employment law changes that have come into force this April are:
- All workers (including those who use a PSC or umbrella) will be entitled to a 'Key Information Document';
- In addition to the Key Information document, all workers (i.e. PAYE workers), not just employees, are entitled to a written statement of particulars. This does not include the self-employed or independent contractors;
- Entitlement to a written statement has become a “day one right”;
- The amount of information that must be included in the written statement has been increased;
- The 'Swedish Derogation' principle has been removed. Temporary agency workers whose contracts contained a Swedish derogation clause must be given written confirmation that from the 6th April 2020 this clause no longer applies.
What is the key information document?
Recruitment agencies must provide agency workers and contractors with a Key Information Document before they agree their contractual terms and the engagement commences. The document isn't intended to fully represent the contract. It is supposed to allow the worker to understand the proposed arrangement of the placement and make informed decisions about whether to take on the work.
The changes do not apply to agency workers and contractors with existing terms with employment businesses; they will not need a new document every time they work a new assignment unless there are changes to the existing terms. The document should include a minimum expected rate of pay, so changes in rates of pay in assignments will not necessarily trigger the need for a new document to be issued.
If the agency worker or contractor uses an intermediary or an umbrella company, then the key information document has to be given to both the company the worker uses and the agency worker themselves.
The Key Information Document must identify itself as such, have a brief explanation of its function, be easy to understand, be a maximum of 2 pages of A4, and should set out information such as:
- The name of the agency worker or contractor,
- The name of employment business,
- Type of contract,
- Minimum expected rate of pay, for example the National Minimum Wage (but as the document is given before agreeing terms, the figures do not have to specify the exact amount workers will make),
- How the worker will be paid, how often and by whom,
- Details of any costs, deductions and fees – for statutory deductions like income tax this can be an explanation that deductions will be made. For non-statutory deductions like agency fees the document should either state the amount to be deducted or explain how the amount is calculated.
- Details of any benefits, e.g. a gym membership.
- Leave entitlement,
- A representative example statement.
A representative example statement has to include an explained example of what take home pay an agency worker or contractor can expect to receive after deductions are applied to their gross salary. Actual figures must be used but they can be estimated, the key point is that the contractor understands how deductions are made to their pay. If an employment agency has several ways of payment (e.g. through an umbrella company or PAYE), then ideally the document should have a key facts page explaining the payment methods.
If an umbrella company is used, then the recruitment business must also obtain certain information (in addition to the previously mentioned information) such as:
- The name of intermediary or umbrella company,
- Any business connection between the employment business and the intermediary,
- The wage or salary that will be paid by the umbrella company to the individual,
- The fee or margin that the umbrella company will charge,
- Any employee benefits that will be offered to the worker,
- Any other benefits,
- Any other leave entitlements.
One of the most vital points of these changes is that from the 6th April 2020, employment agencies must keep records that show that the Key Information Documents have been supplied to agency workers. The government guidance suggests an e-mail showing the document was sent is enough. The information must be up to date and relevant (so it is recommended communication between intermediaries and umbrella companies re deductions and margins is kept). Everything should be kept for at least 12 months since work-finding services last occurred. Compliance of this condition will be enforced by the Employment Agency Standards (EAS).
So what is a written statements?
Prior to the recent changes, employers only had to provide a written statement of particulars (also referred to as a written statement of terms) within 2 months of an employee starting employment. The employee was also subject to a minimum service requirement of 1 month.
The changes mean that agency workers (not self-employed or independent contractors) are now entitled to a written statement of terms. There is no service requirement and the written statement must be given on or before the first day of engagement starting. For these purposes, the 'employer' is the employment business that engages the workers and not the end-user to whom the workers are provided. So, the responsibility for providing a written statement will be on the recruitment agency.
If any workers already had a written statement before the 6th April 2020 then, unless there is a change to any terms covered by the written statement, the recruitment business will not need to issue a new statement. Frequently written statements of terms are contained in the engagement contracts.
Though the written statement of terms becomes a day one right, not all information has to be provided at the same time. Some information can be contained in a reasonably accessible document that the statement refers to, e.g. details of pension schemes, and some can be given in instalments but no later than 2 months after the start of employment, e.g. information on collective agreements.
The information that must be included in a Written Statement is;
- How long a job is expected to last, or the end date of a fixed-term contract,
- The days of the week the worker is required to work, whether the working hours or days may vary and how they may vary,
- Eligibility for sick leave and pay,
- Details of any other paid leave entitlement in addition to annual leave and holiday pay, e.g. maternity or paternity leave,
- Details of any probationary period, e.g. conditions and duration,
- Any training entitlement provided by the employer, including whether training is mandatory and whether the worker needs to pay for it,
- How much notice the employer and the worker are required to give to terminate the agreement,
- All remuneration and not just pay, including vouchers, lunch, health insurance etc.
Failure to provide a written statement enables the worker to file a claim at the employment tribunal at any time during the engagement, or within 3 months of the engagement ending (this is subject to ACAS early conciliation and the employment tribunal Judge's discretion to extend the time limit). There is normally no automatic compensation unless the worker also successfully brings another 'substantial' employment claim along with failure to provide a written statement, in which case the Judge must order compensation of 2-4 weeks' pay.
While employment businesses will not automatically be fined, it will be good practice to provide written statements of terms. Not doing so will leave room for ambiguity in the contractual relationship between the employment business and the worker and therefore more room for a worker to bring another employment claim and create disputes. It will also take up a significant amount of management time and can have a negative impact on reputation of the employment business.
Swedish derogation
The Swedish derogation principle allowed employers to avoid equal pay by agreeing a contract with agency workers in which they removed the agency workers' right to equal pay (compared with their permanent equivalent employed by the end-client) after 12 weeks of working the same assignment (subject to meeting eligibility requirements).
Following the recent changes, the Swedish derogation principle was repealed. From the 6th April 2020, all agency workers, after 12 weeks, will be entitled to equal pay when compared with their equivalent permanent employee.
By no later than the 30th April 2020, temporary work recruitment agencies must provide agency workers whose contracts contained a Swedish derogation clause with a written statement letting them know that, with effect from the 6th April 2020, that clause will no longer apply and that the agency worker is entitled to rights relating to pay as set out in Regulations 5 and 7 of the Agency Worker Regulations 2010. If an agency worker's contract is terminated before the 30th April 2020 then they will not need a written statement.
Agency workers may be able to bring a tribunal claim where they are not provided with a statement confirming the removal of the Swedish derogation clause and confirming their rights, and they may be entitled to compensation. Agency workers will also have a right to claim for detriment or dismissal as a result of the changes.
What should recruitment agencies be doing now?
So from the 6th April 2020, when engaging contractors or agency workers the recruitment business must provide a Key Information Document to the potential agency worker/contractor and it is recommended the worker confirms that they have understood the document. Once the worker is happy to proceed with the engagement, the recruitment business should supply them with a written statement of terms on or before the first day of the engagement. As agency workers should not have a Swedish derogation clause in their contract from the 6th April, there should be no need to provide them with a document confirming the removal of Swedish derogation from their contract.
For existing agency workers and contractors there is no need to provide a Key Information Document as they are already engaged by the recruitment business (unless there are changes to the terms).
The recruitment business may need to provide a written statement of terms if the agency worker requests it or there is a substantial change to the contractual terms. If the agency worker has a Swedish derogation clause in their contract then the recruitment business should provide them with a document confirming the clause has been removed and setting out the worker's rights to equal pay under the relevant regulations.
Tips and practical steps
If you have agency workers, you should review your relationships and contracts to make sure you comply with the legal changes. We recommend that you:
- Review current contracts with the workers and contractors you engage to ensure all required information is included in the contract,
- Create and review processes to determine who receives Written Statements of terms and make sure there is a process for issuing documentation on or before the first day of work,
- Revise your current written statements,
- Check that the additional information required by the new rules is included in your written statements,
- Be prepared to provide a written statement of terms to existing agency workers should they request one, as this will help you prevent ambiguity in the relationship and any disputes in regards to that ambiguity,
- Create template 'Key Information Documents' and ensure they are being given out prior to contracts being signed,
- Make sure you are keeping records of all information for compliance purposes,
- Check guidance on both Written Statements and Key Information Documents on Gov.uk and familiarise yourself with templates that have been released by the Department for Business, Energy and Industrial Strategy and EAS.
- It's important to remember that if you fail to comply with your legal obligations to provide the aforementioned documents you may face a range of penalties, fines and employment claims, as well as potential business closure.