Written by Charlotte Fry

Over the last decade, we have seen a huge increase in the number of recruitment agencies being set up with over 30,000 currently operating in the UK. This expansion is driven in part by some recruiters working under the assumption that it is straightforward to set up and run a recruitment agency, as there is very little government regulation of this sector. However, this would be an incorrect assumption.

Whilst a recruiter does not need a specific set of qualifications to work in the industry, recruitment agencies do have to adhere to legal regulations and guidelines. With regulations set to change in April 2020, recruiters are likely to find their working environment more challenging and in turn operational costs will increase.

What regulations currently apply to recruiters?

Recruitment agencies currently have to comply with a series of statutory rules and regulations:

  • Employment Agencies Act 1973 – originally enforced as a means of licencing and thus regulating businesses in the recruitment industry. Although agencies are no longer required to have this licence, they are still required to comply with the legislation.
  • Conduct of Employment Agencies and Employment Businesses Regulations 2003 – introduced by the Department of Business, Energy & Industrial Strategy (BEIS) to provide workers and hirers with minimum standards they could expect from the private sector.

Additionally, recruitment agencies need to comply with a number of government bodies and regulations:

  • Her Majesty's Revenue and Customs (HMRC) – to make sure recruitment agencies are paying wages that comply with the law.
  • The Gangmaster and Labour Abuse Authority (GLAA) – if a recruitment agency provides workers to the agriculture, food packing and/ or processing or horticulture industry, they will need a licence obtained from GLAA before they can supply these particular workers. The GLAA aim to improve the health and safety of the contractors as well as reduce the exploitation of these workers.
  • Government Data Protection Regulations (GDPR) – to protect candidates' personal data by ensuring it is stored and shared correctly. GDPR resulted in a significant organisational culture shift for many agencies.

When a recruitment agency supplies workers, what are their legal obligations?

To ensure that you do not break the law you must make sure that all workers:

  • Have the right to work in the UK
  • Are not made to work longer than 48 hours per week
  • Are paid at least the minimum wage
  • Are paid holiday
  • Are provided with the written particulars of their employment or engagement
  • Are protected under health and safety law

An agency legally cannot do the following:

  • Force a worker to tell them the name of any future employer
  • Withhold any payments or wages due
  • Make unlawful deductions from the workers' pay
  • Charge workers for the uniform they need for their job without giving them advanced notice first
  • Supply a contractor to replace an employee that is taking part is industrial action
  • Charge a fee to the worker themselves for finding them a job

We have only just got through the changes with GDPR, surely there can't be anything else?

In 2016, the government commissioned Matthew Taylor, Chief Executive of the Royal Society of Arts, to write a Good Work review. The report reviews the employment status of both employees as well as contractors, as well as the level of protection gig economy workers have. One of the review's aims was to ensure that non-employees (contractors) are as aware of their employment rights as employees, removing contractors' uncertainty in this area. The report found that the main source of contractors' uncertainty stemmed from the lack of a written statement; Taylor concluded that uncertainty around workers' rights made it harder to enforce them in the workplace.

The government embraced the Taylor review and decided that employers should provide basic information about the employment relationship to their entire workforce, including non-employee workers (contractors).

What does the Taylor review mean in practice for recruitment agencies?

The Taylor review concluded that workers (including non-employees / contractors) should be provided with a written statement (a key information document) on their first day of employment. This significant change could prove to be an issue for agencies, causing extra administration and increased costs before a contractor actually starts their placement.

Generally the finding and implementation of a contractor happens very quickly, so issuing these statements in a timely manner will increase administrative costs. In practice, producing and issuing a key information document to each contractor will also have a significant impact on an agency's administrative resources.  

In addition, every time a contractor moves onto a different placement they will need to receive a new key information document – which will have a further impact on the recruitment agencies' administration and costs.

Why do agencies have to issue key information documents to contractors?

According to the report, around 3,000 cases per year for the past ten years have been lodged by non-employee workers (contractors) to the employment tribunal as a direct result of the claimant, the contractor, not being issued with a written statement of work.

The Taylor review hopes that these numbers will be significantly reduced by issuing a written statement of work to contractors; their implementation is expected to provide greater clarity and transparency to all workers when they start a job or placement about the role's details and expectations.

Additionally, if a written statement of work is provided to the contractor it would assist an employment tribunal by providing much needed clarity in the event of a claim brought by either party.

What needs to go into key information documents?

If a contractor works for the hirer longer than one month, a key information document must be provided and should include the following information:

  • The business's name
  • Contractor's name, job title or a description of the work and the date which the employee is to start said work
  • The date previous work started if the previous job role counts towards a period of continuous employment
  • Amount the employee will be paid and the date on which they will be paid
  • Holiday entitlement (whether this includes or excludes bank holidays)
  • Contractors main place of work and whether they will have to relocate
  • Hours the contractor will be expected to work (whether this is to include Sunday's, nights, and/ or overtime)
  • If a contractor is going to be working in different places of work and where these places may be and what their addresses will be
  • How long any temporary job is expected to last
  • End date of a fixed term contract
  • Any notice periods
  • Any collective agreements that are in place
  • What pension plans exist and what their entitlements are
  • Who to go to with a grievance issue
  • How to complain to about how any grievance is handled
  • How to complain about a disciplinary or dismissal decision

When do I need to start implementing this? What happens if I don't?

The government intends to roll out the practice of agencies issuing key information documents to all contractors on 6 April 2020. However, with Brexit and the forthcoming General Election creating an uncertain political climate, this date may change.

Currently, if a recruitment agency does not issue a key information document to a contractor from day one then there is no right of compensation to the contractor for this breach by the agency. This could change over time as the legislation changes but at this stage, the government is not proposing to make it an absolute right for individuals to claim for compensation if an employer has failed to provide them with a written statement.

Our advice is from 6 April 2020, do ensure that you always issue key information documents to all of your contractors before they commence their placement. Otherwise, you could encounter serious financial issues if a claim is ever submitted in the future by a contractor to the employment tribunal.

BEIS have also advised that they will be carrying out spot checks of recruitment agencies to ensure they are issuing these key information documents. Any agency found not issuing these documents will be investigated by BEIS themselves and potentially could receive a fine or in a worst case scenario could be forced to close their recruitment business.

Make sure you are prepared for these changes in plenty of time.  As the BEIS advise more on this issue, we will let you know.

Please note that the purpose of this article is to provide a summary of and our thoughts on Recruitment statutory rules and regulations. It does not contain a full analysis of the law nor does it constitute a legal opinion or advice by Lockton Companies LLP on the law discussed. The contents of this article should not be relied upon and you must take specific legal advice on any matter that relates to this. Lockton Companies LLP accepts no responsibility for loss occasioned to any person acting or refraining from acting as a result of the material contained in this article. No part of this article may be used, reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, reading or otherwise without the prior permission of Lockton Companies LLP.