5 Things Recruiters Must Know About the UK Labour Market Enforcement Strategy

You may have missed it among all the noise around GDPR, IR35 and Brexit, but the Director of Labour Market Enforcement, Sir David Metcalf, has published the first UK Labour Market Enforcement Strategy.

This sets out his annual vision for the three main labour market enforcement bodies - EAS, GLAA, and the National Minimum Wage Unit in HMRC (You can see this set out in our factsheet here). This may sound like a something not relevant to your day to day business but this couldn’t be further from the truth. The recommendations made in this report could have far-reaching consequences for compliance in our industry on everything from umbrellas, to holiday pay to National Living Wage naming and shaming. There is a lot in here for recruiters to welcome. Here are the top five things you need to know. 

1. The Employment Agencies Inspectorate (EAS) should be beefed up 

Sir David highlighted that while EAS is responsible for regulating 18,000 agencies who engage over 1.1 million agency workers, they only employ 12 people on a budget of £750,000. Sir David recognised that its time for EAS to receive some much needed Tender Loving Care and has recommended an increase in its budget. However, this wouldn’t come to them without some changes. In fact, he is calling for their remit to be expanded to include other intermediaries such as umbrellas and potentially the Agency Worker Regulations (AWR).  He has also called forEAS to take a more proactive approach to enforcement, not just responding to complaints along with a website revamp and clearer advertising. We support this much-needed promotion of EAS amongst work seekers and agencies.

2. National Living/Minimum Wage Naming and Shaming process could be reformed 

While recognising that the fear factor of naming and shaming is having a powerful effect, Sir David highlighted some of the inadequacies of this process. For example, while it tends to work for larger employers, it doesn’t tend to have the same effect for smaller employers. It doesn’t distinguish between serious underpayments and simple administration errors. Finally, it doesn’t allow employers to learn from other employer’s mistakes. Sir David, has therefore recommended a review of how naming and shaming is working, for BEIS and HMRC to review guidance of NLW/NMW in collaboration with stakeholders, for case studies should to be provided, and a greater focus should be on serious non-compliance. This is very welcome.

3. Holiday pay is in the spotlight 

One of the areas that Sir David is particularly concerned about is workers not receiving the holiday pay they are due. He cites alarming figures of alleged non-payment of holiday pay and shines the spotlight on agencies in particular. He does admit he has not been able to corroborate these figures, and at this stage, his figures are based on one or two sources. We do not think these figures are correct and will be raising this in future discussions. However, he does raise a valid point which is that the Working Time Regulations were very much designed for permanent employment and don’t tend to work for ‘atypical workers’ particularly agency workers. He shows a preference for rolling up holiday pay as this allows agency workers to receive their holiday pay in real time, but recognises that this is currently prohibited. He has recommended that, in the long term HMRC enforce the payment of holiday pay, like they do for NMW, and interim EAS and GLAA investigate this as a matter of priority. We believe that before HMRC can do this the regulations need to be clarified for how they apply to agency workers. 

4. Calls for joint-responsibility for the end-client of their supply chain 

In order to ensure compliance throughout a supply chain Sir David has recommended that some joint responsibility measures be introduced where the brand name at the top of a chain bears some joint responsibility for non-compliance found further down the chain. He doesn’t endorse full joint liability found in some other European countries but instead suggests a softer process where if non-compliance is found, follow-up action by enforcement agencies, in conjunction with the band name and supplier, would be undertaken in private to provide an opportunity to prevent the infringement. However, if this isn’t correct this could result in a naming and shaming of the brand and the supplier. It is hoped that, this would give leverage to greater compliance in the supply chain, with the end client wanting to protect their brand and therefore taking more due diligence for their supply chain. This is something we welcome.

5. Currently isn’t enough evidence for an extension of licensing 

While Sir David found a number of stakeholders were enthusiastic for an extension of licensing into other sectors he failed to find any sufficient evidence that this would improve compliance. He also noted that licensing had previously been tried in the recruitment sector and removed as it wasn’t effective. He has however, highlighted the particular problems in the nail bar and war wash sectors, so have suggest a pilot licensing system of businesses (a move away from labour providers) in these sectors. For those calling for licensing in other sectors, he has now put the onus onto stakeholders, to provide the evidence of why this would be the best option. 

Feedback directly to Sir David at our round table 

There were many more recommendations which I couldn’t cover in this short blog, but you can read his whole report here and an executive summary here. The government now have to respond to these recommendations, and Sir David has now moved onto his 2018/19 strategy. We are one of his key stakeholders and we will be hosting a roundtable for him with members on 11 June. If you would like to attend please let me know at philip.campbell@rec.uk.com