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Part 2 Guidance for Employment Agencies, Recruitment Agency

 
PART II
GENERAL OBLIGATIONS
Regulation 5: � Restriction on agencies and employment
businesses requiring work-seekers to use additional services
Some employment agencies and employment businesses not only look
for work for their work-seekers but also provide additional services such
as CV writing, photographic services, training or the provision of personal
protective equipment. In many cases these additional services are
provided at a charge to the work-seeker. The prohibition in the
Employment Agencies Act 1973 against charging work-seekers fees for
finding them work does not prevent employment agencies and
employment businesses from charging fees for these ancillary services.
However, regulation 5 prevents employment agencies and employment
businesses, or any person connected to it, from making the provision of
work-finding services to work-seekers (including limited company
contractors and persons supplied through limited company contractors
(regulation 32 (2)), where those limited company contractors together
with the person to be supplied, have not given notice to opt out of the
Regulations (regulation 32(9)), conditional on those work-seekers using
any of the ancillary services that the agency or employment business
may charge for.
Please see the notes on Schedule 1 for the transitional provisions
relating to regulation 5.
Regulation 6: � Restriction on detrimental action relating to workseekers
working elsewhere
Regulation 6(1) prevents employment agencies and employment
businesses from taking any detrimental action or including restrictive
terms in work-seekers� contracts, which prevent them from either:
(a) i) terminating their contract with the employment agency or


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business;
5
ii) working for others such as the client directly or through a
competing employment business; or
(b) which require the work-seeker to notify them, or any person
connected with them, of the identity of any future employer.
It is important to remember, when applying regulation 6(1)(a)(ii), that the
term �work-seeker� includes limited company contractors and persons
supplied through limited company contractors that have not given notice
to opt out of the Regulations. This is as a result of the provisions of
regulation 32(3), which specifically extends the definition of work-seeker
to limited company contractors (which have not opted out of the
Regulations) in these circumstances. Therefore the agency or
employment business may not restrict either the person supplied by a
limited company, or the limited company itself from terminating the
contract with it and taking up work with a person other than it or the
limited company itself.
Neither can an agency or employment business, under regulation 6(1),
subject, or threaten to subject, a work-seeker that has lawfully terminated
any contract with it, or given notice to do so to a detriment. An example
of a detriment would be withholding payment or deducting a proportion of
the hourly rate for any period already worked.
Please see the notes on Schedule 1 for the transitional provisions
relating to regulation 6.
Regulation 6(2) clarifies those acts, which will not constitute a detriment.
Regulation 6(2)(a) provides that if having terminated a contract, the
temporary worker consequently loses benefits that s/he would otherwise
have been entitled to under that contract, the loss of those benefits will
not be classed as a detriment under regulation 6(1).
Regulation 6(2)(b) provides that if an employment agency or business
suffers loss as a result of a work-seeker terminating a contract and not
carrying out work s/he agreed to carry out, the employment agency or
business is entitled to seek to recover that loss from the work-seeker and
that its actions in doing so would not constitute a detriment under
regulation 6(1).
Under regulation 6(2)(c), the agency or employment business is also not
prevented from including a requirement in the work-seeker�s contract that
the work-seeker should give a period of reasonable notice to terminate
the contract.
Regulation 6(3) provides that regulation 6(1) and (2) do not apply in
circumstances where an employment business is acting as the actual
employer in law of the temporary worker. However, the requirement for a
contract with an agency or employment business for the work-seeker to
give reasonable notice applies to all work-seekers. In other words if the
6
employment business were actually employing the temporary workers
under contracts of employment (as opposed to contracts for services), it
is entitled to act as an employer in every sense.
Regulation 7: � Restriction on providing work-seekers in industrial
disputes
Regulation 7(1) provides that an employment business may not supply a
temporary worker to a hirer to replace an individual taking part in an
official strike or any other official industrial dispute. In addition, an
employment business must not introduce or supply a work-seeker to do
the work of someone who has been transferred by the hirer to perform
the duties of the person on strike or taking industrial action. An
employment business will have a legal defence to having acted in breach
of this regulation if it does not know, or has no reasonable grounds for
knowing, that official strike action is in progress.
Regulation 7(2) provides that this regulation applies to official strike
action only. In other words it does not apply to unofficial strike action.
Regulation 8: � Restrictions on paying work-seekers� remuneration
Regulation 8 is designed to prevent agencies from directly or indirectly
paying work-seekers on behalf of the hirer to whom the work-seeker has
been introduced. Regulation 8(1) provides that an employment agency
(as opposed to an employment business), which has provided a hirer
with a work-seeker, may not pay or make arrangements to pay that workseeker
either directly or via any person connected with it. The purpose of
this regulation is to prohibit employment agencies supplying temporary
workers.
This used to be particularly popular when supplying temporary workers to
hirers who could not reclaim their VAT such as hospitals, schools and in
some cases individuals (such as the supply of temporary care workers
into people�s own homes) and the financial sector. In these cases it was
common for an employment agency to introduce the work-seeker to the
hirer on a temporary basis so that the work-seeker had a contract directly
with the hirer rather than the employment agency. The employment
agency would nevertheless settle the payroll on behalf of the hirer. The
work-seeker�s services did not, therefore, form part of the employment
agency�s service to the hirer. Therefore, when the employment agency
charged the hirer, it only charged VAT on its margin, thereby significantly
reducing its VAT charge to hirers who could not reclaim it. The
Government however disliked this route because it was unclear from the
work-seeker�s point of view which party was responsible in law for paying
him/her and for other employer related obligations.
Regulation 8 therefore seeks to ensure that, where a recruitment
company is supplying temporary workers, it only ever supplies those
temporary workers as an employment business. In other words it must
7
engage the work-seekers that it supplies to hirers for temporary
assignments either under a contract of employment or a contract for
services. It will also be responsible for their pay and any statutory
benefits such as holiday pay. It will therefore be the workers� principal
employer and the services of the worker will form part of its service to the
hirer. VAT will be chargeable on the full amount of its charges to the
hirer i.e. the salary element as well as its margin and employer�s National
Insurance contributions.
However, this regulation does not apply to:
� agencies supplying workers for occupations in the entertainment or
modeling sectors, which are listed in Schedule 3;
� agencies and hirers connected with one another (as defined in
regulation 3) e.g. in-house employment businesses;
NB: As a consequence of the provisions of the Care Standards Act 2000
and the Domiciliary Care Agencies Regulations 2002 employment
businesses (who are registered with the National Care Standards
Comission) supplying care workers into private homes are now exempt
under VAT legislation from the requirement to charge VAT on their
invoices. For further details on this point please contact your local
Customs and Excise office or the Recruitment and Employment
Confederation for its guidance on Care Standards.
Regulation 9: � Restriction on agencies and employment
businesses purporting to act on a different basis
Regulation 9(1) and (2) provides that neither an employment agency nor
an employment business, shall, when introducing or supplying a workseeker
to a hirer, claim to be acting as an employment agency to the
work-seeker and at the same time acting as an employment business to
the hirer or vice versa. In other words this regulation prevents firms from
claiming to be operating on one basis to the work-seeker, while advising
the hirer that they are operating on another basis. This provision will not
prevent the employment agency or employment business from operating
as both an agency and an employment business in respect of either a
hirer or work-seeker, i.e. looking for permanent candidates and supplying
temporary workers at the same time for the same client or offering
temporary work to a work-seeker, while at the same time looking for
suitable permanent positions for them. However, it should provide them
with terms in respect of each and set out the capacity in which it is acting
very clearly in relation to the services being provided.
Regulation 10: � Restriction on charges to hirers
The purpose of regulation 10 is to ensure that employment businesses
do not use transfer fees unreasonably as a means of discouraging or
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deterring hirers from offering permanent work to temporary workers,
having those workers supplied through a different employment business,
or introducing them to a third party to be employed by that party.
Nevertheless this regulation should allow employment businesses to
protect their legitimate business interests.
Regulation 10 is complex, but can be summarised as applying differently
in 3 distinct scenarios; first where there has been an introduction to a
client/ hirer but no supply; secondly where there has been a supply and
the fee is in relation to temp-to-perm or temp-to-temp engagements
following such supply; and thirdly temp-to-third party fees where there
has been a supply to a client and the client has introduced the workseeker
to a third party. Temp-to-third party fees where there has been
no supply are not covered by this regulation and fees in this regard can
be charged without restriction.
The expressions �temp-to-perm�, �temp-to-temp� and �temp-to-thirdparty�
are not used in the Regulations but are the terms commonly used
to describe the following situations:
�Temp-to-Perm�: where a temporary worker supplied by an employment
business either transfers or is subsequently taken on directly by the hirer
to whom s/he has been supplied. The words do not mean that
employment by the hirer must be permanent but simply that the worker
has a direct contractual relationship with the hirer.
�Temp-to-Temp�: where the worker is supplied to the same hirer by a
different employment business. This frequently happens where the client
puts the work out to tender and requires workers currently supplied by
one employment business to transfer to the books of another
employment business whose tender was accepted.
�Temp-to-Third Party�: where a client/hirer introduces workers to
another person who employs the worker directly. This may be an
individual employer, a subsidiary or parent company or even another
employment business.
Situations where there has been an introduction of a temporary
worker but no supply
Regulation 10(1) and (2) provide, where there has been no supply, that
any term in a contract between an employment business and a hirer in
which it is seeking to charge a transfer fee in a temp-to-perm or temp-totemp
situation will be unenforceable, unless that contract also contains a
term giving the hirer the option, instead of paying a fee, to choose to
have that worker supplied by it for a specified extended period of hire at
the end of which s/he will transfer without charge.
9
There is no limit on the agreed period of hire referred to here or the level
of the transfer fee. These are matters that will need to be agreed in the
contract between the employment business and the hirer at the outset of
their business relationship. However where the hirer has opted for an
extended period of hire, the employment business must supply the
worker for the entirety of that period, on the terms specified in the
contract between it and the hirer (see regulation 10(1)(a)), unless the
employment business is prevented from supplying that worker in
circumstances where it is not at fault (regulation 10(3)). Where there has
been no supply, the transfer fee is often referred to as an introduction
fee.
Situations where there has been a supply and there is an
engagement of the temporary worker directly by the client or
through another employment business (temp-to-perm & temp-to �
temp):
Where there has been a supply, the position is broadly similar except that
additional restrictions apply, see regulations 10(4), (5) and (6).
An employment business, where there has been a supply, can charge,
and therefore set out in its agreement the method for calculating, a
transfer fee in temp-to-perm and temp-to-temp situations provided:
� the hirer is given the option to have the worker supplied for a
specified extended period of hire, at the end of which the
worker will transfer without charge instead of paying the
transfer fee. Where the hirer has opted for an extended period
of hire, the employment business must supply the worker for
the entirety of that period, (unless it is prevented from so doing
in circumstances where it is not at fault (regulation10(3)) on
terms no less favourable to the hirer than those which applied
between the employment business and the hirer before it
received notice that the hirer wished to opt for the extended
hire period - regulation 10(1)(b); and
� the transfer takes place within either 14 weeks of the start of
the first assignment or within 8 weeks of the end of any
assignment, whichever period ends later. The 14-week period
is measured from the start of the first assignment with the hirer.
Where there has been more than one assignment the rules are
more complex. Care must be taken in calculating the correct
start date for the purposes of determining the 14-week period.
Where there has been a break of more than 42 days (6 weeks)
between assignments this will break continuity for the purpose
of calculating the start of the 14-week period and the later
assignment will be taken as the first assignment. Where there
has been a break of 42 days or less this will not trigger the
start of a new 14 week period,
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For example
A is the Worker
B is the Employment Business: and
C is the Hirer
A is supplied by B to C on 1 January for 4 weeks until 28 January,
then supplied again by B to C on 3 April for 4 weeks and finally
supplied by B to C for the last 2 weeks of May ending on 31 May.
The start of the first 14-week period is 1 January. The break, or
period of no supply between 29 January and 3 April is more than 42
days (6 weeks) and therefore 3 April is the start of another 14-week
period. The relevant period in the above example is the later of 14
weeks starting on 3 April and 8 weeks starting 1 June (the day after
the day on which the work-seeker last worked for the hirer).
Situations where there has been a supply and there is an
engagement of the temporary worker by a third party to whom the
client has introduced them (temp-to-third party)
Where there has been a supply the position is different because although
the additional restrictions of regulation 10(4), (5) & (6) apply there is no
requirement to offer the client a choice between the transfer fee and an
extended period of hire, see regulation 10(1).
An employment business, where there has been a supply, can charge a
transfer fee, and therefore must set out in its agreement the method for
calculating a transfer fee in temp-to-third party situations provided the
transfer takes place within, either 14 weeks of the start of the first
assignment, or within 8 weeks of the end of any assignment, whichever
period ends later. If there has been more than one assignment, care
must be taken in determining the start of the 14- week period (see
above).
Regulation 10(7) makes it unlawful to seek to enforce any contractual
term, which is unenforceable under the provisions of the regulation, or
otherwise directly or indirectly request a payment in these situations. In
the event of money being paid by a hirer in respect of an unenforceable
term, regulation 31 provides that the hirer is entitled to recover that
money.
These provisions govern the charging of the transfer fee and not the
method of calculating such fee. Therefore it will still be permissible to
calculate the transfer fee based on the expected duration of the hirer�s
subsequent engagement of the worker and to increase the transfer fee in
circumstances where the hirer extends the subsequent engagement
beyond the period originally envisaged.
Please see the notes on Schedule 1 for the transitional provisions
relating to regulation 10.
11
Regulation 11 � Entering into a contract on behalf of a client
This regulation, whilst it applies to all employment agencies and
employment businesses, is mainly relevant to those operating in the
entertainment and modelling sectors.
All employment businesses are prohibited from both entering into a
contract with a hirer on behalf or a worker and vice versa entering into a
contact with a worker on behalf of a hirer.
Employment agencies are similarly prohibited except where the
provisions of regulation 11(3) are complied with and these are that:
� the agency has been appointed by and has the authority of the
party it is acting as agent for, so to act; and
� where the agency is acting as agent for work-seekers and it is
permitted under regulation 26(1) to charge a fee for finding
them work (these are mainly performers, models and
professional sports persons).
Regulation 11(4) and (5) requires that agencies ensure that the terms of
the contract be notified to the parties as soon as practicable but no later
than the end of the fifth business day following the day on which the
agency entered into the contract.
Regulation 11(6) provides that an agency may not act as agent for both
the hirer and the work-seeker simultaneously.
Regulation 12 � Prohibition on employment businesses
withholding payment to work-seekers on certain grounds
Regulation 12 provides that an employment business must not withhold
or threaten to withhold the whole or part of any payment to a temporary
work-seeker in respect of any work s/he has done on the basis that:
(a) the employment business has not received payment from the
hirer;
(b) the work-seeker has not produced a signed timesheet confirming
that s/he has worked during a particular period of time. In practice, if a
hirer will not sign a timesheet verifying the number of hours a temporary
worker claims to have worked, the employment business cannot leave
the matter there and refuse to pay the temporary work-seeker because
s/he could not produce a signed timesheet. However, the employment
business is not prevented from reasonably delaying payment (for a
relatively short time) while it makes reasonable inquiries to verify the
hours the temporary work-seeker did work. For example by contacting
the hirer, interviewing co-workers or checking on site attendance
12
registers or other records. It may be that the hirer is refusing to sign a
timesheet because the work done was below the standard required and
so the hirer does not want to pay for it. This will not justify the
employment business withholding the work-seekers� pay. Obviously
this is a contractual matter between the employment business and the
hirer and one, which cannot be resolved by withholding payment from
the work-seeker. The important point is that the employment business
must pay the work-seeker for work done. This regulation is not intended
to have the effect of forcing the employment business to pay a workseeker
for any hours claimed if that work-seeker has not actually worked
those hours. This regulation does not prohibit the use of timesheets or
other documents used to verify hours worked.
(c) the work-seeker has not worked during any period in addition to
the period s/he is claiming payment for. (For example it used to be
common to find clauses in a temporary work-seeker�s contract, which
stated that if s/he was late for an assignment or did not work a full week,
a stated amount would be deducted from his/her hourly rate for every
hour s/he did work. Under this regulation, however, it will be unlawful to
insert a term into a temporary work-seeker�s contract which provides that,
if s/he does not work for a specified number of hours per week, the
employment business will either pay the work-seeker at a lower rate for
work done or refuse payment altogether); or
(d) any matter which is within the employment business� control. (An
example of such a matter would be the proper administration of the
payroll.) This does not mean that if the employment business makes an
administrative error with its payroll, it will automatically be in breach of
regulation 12(d). Rather it means that, if having made such an error, the
employment business does not correct it and make payment to the
temporary work-seeker, by whatever means, within a reasonable amount
of time of the expected pay date i.e. within a few days, the employment
business will be in breach of regulation 12(d).
Please see the notes on Schedule 1 for the transitional provisions
relating to regulation 12


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