Written evidence from the Recruitment and Employment Confederation (WOW 71)
- Introduction and Executive Summary
1.1. The Recruitment and Employment Confederation (REC) is the professional body for the UK recruitment industry. We see each and every day the ways in which jobs transform lives. Last year, we estimated that our members helped over 634,000 people find a new, permanent job and they supported the 1.2 million people who work on a temporary agency assignment on any given day in the UK[1].
1.2. The world of work is changing. An increasing number of workers are rejecting the traditional ‘9-5’ job and instead choosing temporary, flexible and project based employment. Working flexibly is now a normal part of many people’s careers, with more than one in three people (36%) in Great Britain having worked as a contractor, freelancer, or agency worker at some point in their career, and 41% considering doing so in the future[2].
1.3. Our research on the motivations of flexible workers, Flex Appeal (2014)[3] found the majority of those who work as an agency worker, contractor or freelancer made a positive choice to work in this way either in order to study, to look after a family member, are nearing retirement or because they want to pursue other interests. The Committee must take this into consideration.
1.4. We urge the Committee to avoid any knee-jerk reactions in response to the growth in flexible working, but instead look at what more can done by employers, recruiters, government and others, to ensure that the increasing number of individuals who work this way are sufficiently supported, mentored and empowered.
1.5. We make the following recommendations:
- Greater clarity and consistency is needed from government on employment status
- There should be greater provision of support, advice and training for temporary workers
- All workers should be provided with information on their employment status and terms on conditions as agency workers already are.
- The scope of current regulations should be broadened to include all employment intermediaries and digital platforms
- The enforcement of minimum wage should be reformed to allow employers to learn from the mistakes of others, similar to that of the Pension Regulator
2. Labour market trends
2.1. Better data needed - The modern labour market has become increasingly complex and heterogeneous with individuals now working in a number of different ways[4]. Unfortunately official data does not fully reflect this complexity and diversity and it is therefore difficult to clearly map out how and where individuals work. We have tried to piece together a picture of the labour market below from a variety of sources, including our own data, official data and data from elsewhere; but what is clear is that there is a real need for more comprehensive, robust and reliable official data on the make-up of modern labour market.
2.2. Majority of workers still in permanent employment - While there has been unprecedented growth in flexible working, our latest data has found that permanent employment still remains the choice of the majority (80%) of people in work in the UK. This of course varies across different occupational sectors, from 63.0% within skilled trades to 90.6% in skills and customer service[5].
2.3. ‘Self-employed’ now represent 15.1% of all people in work – according to the Office for National Statistics (ONS) Labour Force Survey, there has been an increase of 213,000 in the number of self-employed individuals in the last year, making a total of 4.79 million in September 2016[6]. However, the blurring of the binary between employment and self-employment has made establishing exact figures difficult. The Resolution Foundation recently highlighted that they believe there to be 66,000 self-employed individuals who are paid by an agency and do not administer their own tax and National Insurance[7]. It is not clear if these workers are classified as self-employed or temporary agency workers. The Social Market Foundation[8] also point out 2012/13 tax data from HMRC showing a third of those reporting income from self-employment also report income from employment which implies these individuals are both employed and self-employed.
2.3.1. Personal service companies (PSCs) have grown exponentially- there has been an exponential rise in the number of people working through their own limited company, known as a personal service company (PSC). The Office for Budget Responsibility (OBR) have estimated that there are around a million companies with one sole director and this increased by 7% each year between 2000 and 2014 which is faster than the growth of either the number of employees or self-employed. Between 2014 and 2015 this number rose even more by 25%. The construction, retail, IT, media and professional service sectors accounted for half of the total personal service companies in 2014[9].
2.4. Temporary agency workers
2.4.1. Still a minority of workers - While temporary agency work is growing, still only 4% of the UK working population described themselves as temporary agency workers in 2014, according to a nationwide REC/YouGov poll of 4120 individuals[10][11]
2.4.2. Industrial/blue collar, accounting/financial and secretarial/clerical sectors had the highest number of temporary placements in 2015/16.
2.4.3. Salaries are growing for agency workers - Our data shows that there has been a growth in temporary starting salaries.
2.4.4. The majority of temporary and contract assignments last more than 12 weeks – the average length of a temporary assignment is more than 12 weeks for 73% of contract workers and 61% for temporary agency workers – this suggests the majority of temporary workers benefit from equal treatment with permanent workers under the Agency Workers Regulations 2010
2.4.5. Assignments are getting longer - One in ten recruiters suggest that the length of assignment for temporary and contract workers is longer this year compared with last year
2.4.6. Average hours mirror average permanent contracts - On average, temporary agency workers work 35 hours a week and contractors work 37 hours per week, equivalent to full time work.
2.5. The Gig Economy is becoming an increasingly attractive recruitment solution
2.5.1. ComRes polling of 200 UK employers, commissioned by the REC earlier this year with hiring responsibilities shows that ‘gig working’ is now becoming a normal part of employers recruiting practice. Of the 25 per cent of employers who have heard of online work platforms, 31% said they have used them in the past 12 months and a quarter (25%) said that they are an important way for their company to source workers[12].
2.5.2. While this form of working is still far from being a mainstream recruitment solution for many businesses, it could become so - the McKinsey Global Institute has calculated that by 2025 lead to an increase of global employment by 72 million full-time equivalent positions. From a UK perspective, this would be the providing extra work for 766,000 people[13].
3. Who are flexible workers and why do they work this way?
3.1. Flexible workers represent a broad cross-section of society, and have a disparate set of reasons for choosing to work in this way, depending on personal circumstances and the sector. When we researched these reasons in our report Flex Appeal (2014) we found the following trends:
3.2. Temporary agency workers are generally more likely to be young and new entrants to the labour market while the self-employed tend to be older
3.2.1. 11% of 18-24 year olds were on temporary agency contracts compared to only 2% of over 55s.
3.2.2. Only 3% of 18-24 year olds were self-employed compared with 7% of over 55s and 9% of 46-54 year olds.
3.2.3. The 18-24 group were most likely to list that they wanted to get a job and pay quickly as a reason for working flexibly (40%), compared with the over 55s (17%)[14].
3.3. Equal numbers of male and female agency workers – 4% of both women and men were temporary agency workers, however slightly more men were self-employed than women (7%/6%). Women were more likely to list childcare commitments as a reason for working this way (16%)[15]
3.4. Many chose flexible work to avoid alternative negative situations –a number of flexible workers chose to work this way to avoid a negative scenario such as unemployment, a permanent job in a workplace they don’t like, or inflexible hours. This was particularly true for low income men and middle income women when our research was conducted in 2014[16].
3.5. Shift in motivations to work flexibly? – the categories, ‘to work independently and not for one company’ and to ‘work flexible hours to pursue other interests/hobbies’ were more prevalent reasons given by current agency workers than those who had previously worked in this way – this suggested a shift in how current agency workers view their work[17].
4. Greater clarity and consistency is needed on employment status
4.1. Given what we know about the size of the flexible work population and the motivations of working this way, we believe the priority must be to develop a better of understanding of what working this way means.
4.2. The UK’s current tax and employment law does not sufficiently reflect the complexity of the modern labour market and this needs to be reformed.
4.3. The current binary in tax law, between an employee paying PAYE Income Tax and Class 1 NICs and the self-employed who pay income tax and class 2 & 4 NICs, is also complicated by the rise of alternative employment models such as those who work through limited companies (personal service companies) and umbrella companies[18].
4.4. An individual can be classified as an employee for tax purposes but self-employed for employment law purposes. This has often resulted from a disconnect between government departments, with HMRC responsible for reforming the Finance Act and BEIS responsible for reform of employment law. For example, the government recently reformed the Intermediaries Legislation (IR35) in the public sector, whereby a public sector employer will now determine whether an individual is self-employed or not for tax purposes. If they determine that an individual would otherwise be an employee were it not for their use of a limited company, they will have to pay full income tax and NICs but will not be entitled to any employment rights. Following the introduction of these reforms in April 2017, this situation is likely to be more common and raises some urgent ethical questions.
4.5. The reverse is also true, whereby an individual may be reclassified as a worker for employment rights purposes but not for tax purposes. The Office of Tax Simplification (OTS) raise this in the context of the gig economy, where gig workers are traditionally classified as self-employed for tax and employment law purposes but are increasingly demanding employment rights as seen in the Uber case.
4.6. The above examples highlight the particular need for greater clarity on the employment and tax status of gig workers and freelancers. Our own data shows that 22% of employers would be encouraged to use digital platforms if the government clarified their legal status and responsibilities, including a pledge to ensure workers are paid at least the National Living Wage[19]. Furthermore, 19 per cent would be encouraged to use such platforms if the government committed to crack down on these platforms being used to avoid established tax and regulatory requirements[20].
4.7. The Independent Review into the Sharing Economy[21] commissioned by BIS in 2014 recommended the government clarify the employment status of workers who use online platforms, but this has not been forthcoming.
4.8. There are currently six inquiries currently taking place on employment status commissioned either by a government department/body or a Select Committee. While we welcome these inquiries there needs to be much more cross-government/parliament work in this area
4.9. We urge the committee to recommend a complete overhaul of employment status to reflect modern working practices and in anticipation for the future labour market. In the short-term, we ask the committee to recommend clear and transparent government guidance on employment status written with input from HMRC, BEIS and DWP to provide much needed clarity to businesses and workers.
5. More support and advice is needed for temporary workers
5.1. How businesses recruit, induct and treat their temporary staff is crucial and employers and management teams need to take the necessary steps to strengthen the social contract between them and their temporary agency workers, contractors and freelancers.
5.2. Employers should, at the least, provide some form of induction programme, set up a performance management process with regular two way feedback, and ensure line managers encourage and facilitate positive workplace interaction between permanent and agency staff.
5.3. Employers should ensure that temporary workers feel part of a team and are not just a ‘churnable’ replaceable commodity – this could be achieved by offering similar incentives to both temporary and permanent staff such as bonuses and awards
5.4. Government should require banks to be more accommodating of applications for mortgages and other financial services from customers who are temporary workers.
5.5. Government can support and encourage employers by providing guidance on their rights and obligations regarding temporary workers and how to better manage flexible workers in their workforce.
5.6. We urge the committee to call on the government to ensure temporary workers are aware of their rights under the Agency Worker Regulations, and where they can access guidance. Advice are already available through services such as ACAS and the Citizens Advice Bureau but often workers are not aware of these.
6. More training needed for temporary workers
6.1. One way of achieving parity between temporary and permanent workers, is through providing equal access to training opportunities for both.
6.2. In our research Getting On (2015), we found examples of workers who were expected by the employer to take on non-essential training without pay during working hours. These workers are therefore faced with the trade-off of the prospect of improving their skillset on the one hand and increasing their earnings on the other. This hampers progression opportunities for temporary workers who should not have to decide between pay and self-development[22].
6.3. There is a clear need for more training of temporary workers, but this has been not recognised in the Apprenticeship Levy framework, which will not help temporary workers at all. Fewer than 5% of agency workers are on a single assignment for 52 weeks or longer. Traditionally, a quality apprenticeship lasts at least 12 months. Therefore – although the government’s apprenticeship levy will be paid on agency workers, they will not be able to benefit from it. We have asked the government to consider a different option for the apprenticeship levy paid on agency workers and for this to be assigned to their training to make it fair to all agency workers.
6.4. We therefore urge the Committee to recommend BEIS/DfE look into how apprenticeship levy funding could be used to train temporary workers.
7. All workers should be provided with information by their engager as to their employment status and their basic terms and conditions
7.1. Recruitment Agencies are governed by specific legislation that does not apply to other businesses – the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (the Conduct Regulations) and the Employment Agencies Act 1973 (the Act). A breach of the Conduct Regulations constitutes a breach of the Act, which in turn gives rise to a criminal offence.
7.2. Under the Conduct Regulations, agencies have a legal obligation to provide their agency workers with written details of the terms and conditions on which they will be engaged before they provide any services to them. The information must include details relating to pay, notice periods for termination from the agency to the agency worker and vice versa, holiday entitlement, and the type of contract that they will be engaged on (a contract of employment, a contract for services or a contact of apprenticeship). This latter requirement ensures that the agency worker is clear about their employment status. Some agencies do engage their agency workers on contracts of employment, meaning that they do have the benefit of the full raft of employment rights, including protection from unfair dismissal and entitlement to statutory redundancy payments.
7.3. For other ‘casual workers’ who are not agency workers and not employees (i.e. engaged on a contract of employment) there is no specific obligation for their engager to provide them with any information about the terms on which they will be engaged. Zero-hour contracts are a clear example of this.
7.4. We therefore recommend the Committee call for all workers to be provided with information by their engager as to their employment status and their basic terms and conditions. This would bring them in line with the same protection that agency workers currently have.
8. Government should regulate all employment intermediaries and digital platforms in the same way as employment businesses and employment agencies
8.1. As noted above every employment business and employment agency is regulated by the Conduct Regulations (2003) in the UK and this is enforced by the Employment Agencies Standards Inspectorate (EAS). These regulations, however, do not include digital work platforms and therefore creates a situation of regulatory inequality between employment businesses and digital platforms.
8.2. The Conduct Regulations also do not extend to any other employment intermediaries. Since these regulations were introduced there has been a proliferation of new intermediaries such as ‘umbrella companies’ which are, like digital platforms, currently not regulated.
8.3. We ask the committee to include a recommendation that the Conduct Regulations be extended to apply to both digital platforms and umbrella companies to ensure a regulatory level playing field and ensure security for both workers and employers.
9. HMRC should reform National Minimum Wage enforcement so employers learn from the mistakes of others
9.1. We believe HMRC’s ‘name and shame’ National Minimum Wage enforcement mechanism is a blunt instrument that needs to be reformed to employers learn from the mistakes of others
9.2. While the risk of public exposure is intended to be a deterrent against non-payment of NMW, it is evident from the reported figures of underpayment, that many employers are not setting out to avoid paying NMW. Methods for calculating payment can be complex and HMRC could do much more to highlight the particular errors that employers are making which result in underpayments.
9.3. HMRC could for example provide some form of commentary about the circumstances which lead to the issuing of the notice of underpayment. For example where travel or other work related costs of the worker have not been properly taken into account. A good model that HMRC could learn from is the enforcement strategy used by the Pensions Regulator – specifically their use of ‘section 89 notices’ in which they report the findings of their non-compliance investigations with a view to allowing other employers to learn from those failings.
9.4. We ask the Committee to recommend that HMRC reform their ‘name and shame’ policy for National Minimum Wage breaches and move towards a model that allows other employs to learn from failings.
Background information on the REC
The REC represents 3,350 recruitment businesses – 80 per cent of the UK’s £31.5 billion industry by turnover – and 8,400 individual recruiters through its Institute of Recruitment Professionals. REC member agencies supply workers into every sector of the UK economy. All members must abide by a code of professional practice and must take a compliance test to enter and stay in membership. The REC is committed to raising standards and highlighting excellence throughout the recruitment industry.
For more information, please contact: Kate Shoesmith, Head of Policy at Kate.Shoesmith@rec.uk.com
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Jobs transform lives, which is why we are building the best recruitment industry in the world. As the professional body for recruitment we’re determined to make businesses more successful by helping them secure the people they need. We are absolutely passionate and totally committed in this pursuit for recruiters, employers, and the people they hire.
December 2016
