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The Dangers Of Ignoring Your Legal Compliance and How Can An Audit Help You?

26 October 2022

One of the most important issues to consider when managing a large temporary workforce is to ensure temporary staff is legally compliant. In the United Kingdom, around 81% of firms hire their staff through the use of recruitment agencies. According to the same survey, 59% of those organisations did not have a procedure in place to review agency performance, leaving the end client open to noncompliance risk due to their unregulated agency personnel.

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Datum RPO has found the following potential temporary workforce compliance problems in past client study reports:

Supplier terms and conditions that are unknown or unclear:

Terms and conditions can be difficult to track for an organisation that uses several vendors for temporary labour. Datum RPO has previously discovered that some agencies report their engagement on their own terms and conditions, some report their engagement on the terms and conditions of the end customer, and occasionally agencies report their engagement with no terms and conditions at all.

In most cases, the end client is solely responsible for any breach of contractual terms and conditions, so when the vast majority of agency workers adhere to separate terms and conditions (if any), managing this becomes nearly impossible, potentially exposing the end client to employment tribunals, workforce conflict, and an unclear management process.

Employment status danger:

The laws governing having the correct job status in the UK have become more stringent in recent years. Regulations such as IR35 and 'False Self-Employment' have been implemented to combat tax evasion by employees who register as self-employed when they are not. False self-employment can be found in a variety of industries, but especially in those that rely heavily on temporary workers. If workers are subject to Supervision, Direction, and Control (SDC) and claim to be self-employed, the end client may become solely liable for any underpaid tax and national insurance, even if employed through an agency.

Datum RPO discovered that several recruitment agencies were exploiting unregulated umbrella entities during past client audits. Workers supplied by these umbrella firms were illegally pay-rolled in order to increase their net pay and avoid tax, increasing the risk of liability under IR35 and the 'False Self-Employment' legislations.

Unissued or absent contracts:

Ensuring that the end customer is not held liable for considered employment and is not held liable for any direct payments to agency workers will ultimately depend on the supplying agency having a proper contract with the worker in place. If any of the agencies fails to issue a proper contract, or even if they fail to present the documentation associated with the contract between them and their workers, the end client is held completely responsible for any worker disputes, putting the end client at an elevated and unneeded risk.

Health and safety risks, depending on the business, can create substantial concern for an end client if the agency worker does not have a contract in place. If a temporary worker suffers an injury while on assignment without a contract, the end customer is totally liable for compensation payments, which may even reach the level of a court of law.

Underpayment (in line with the National Minimum and Living Wages):

With the recent implementation of UK employment legislations such as the 'Modern Slavery Act 2015' and the 'National Living Wage,' proper and lawful payment of temporary labour has become increasingly vital. Nonetheless, some recruitment agencies continue to underpay their employees, which can have a significant influence on the final client.

While much uncertainty remains, it is clear that those who remain agile and ready to stay on top of compliance rules will reap the benefits of an engaged, diverse, and flexible workforce, and employers should consider whether now is the right time to audit their practises to ensure they are up to date. The areas indicated above are those that we predict will receive the most scrutiny in 2022, whether from regulators, the media, or employees and unions, and hence pose the greatest risk, whether from a legal, financial, reputational, regulatory, or employee relations standpoint.



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