Contingent workforce: legal implications of Brexit for your business

The key implications of Brexit relating to contingent workers and agency workers are as follows:

• EU legislation lies behind some of the laws which users and suppliers of contingent workers and agency workers grapple with at the moment in the UK. However, some or all of this is likely to be retained post-Brexit.
• Other laws, such as recent tax legislation (for example, IR35) affecting the staffing sector, are domestic in origin and therefore also unlikely to be affected by Brexit.
• Nevertheless, there are likely to be some challenging indirect effects of Brexit relating to contingent and agency workers, not least in relation to: (i) possible increased regulation “against” UK recruiters across the EU, (ii) pan European recruitment operations and the impact of new tariffs and immigration laws, and (iii)  the right of non-UK EU nationals to work here, and how staffing companies will perhaps try to get work permits for them.  Recruitment companies may need to build local country functions in country (rather than outsourcing them back to the UK).

These issues, and the wider consequences of Brexit relating to contingent workers and agency workers, are considered in more detail below.

EU-derived law

The key EU-derived law includes:

• The Agency Workers Regulations, which give agency workers the right to the same pay as a comparable permanent employee.
• The Working Time Regulations, which give agency workers (and others) the right to paid holiday.
• Recent “should you pay holiday pay for overtime/commission” case law (the notorious Lock case).
• VAT and recent HMRC interpretation of whether staffing companies should charge VAT on the element of their charges which merely represents what they pay on to workers. 

It is unlikely that Brexit will lead to the repeal of all these laws. In all likelihood, the deal that the UK negotiates with the EU will require continued compliance with some or all of the above. In any event, some of this EU law (such as the right to paid holiday) is likely to be regarded as desirable by UK political parties, and HM Treasury is unlikely to want to give up collecting VAT from staffing companies.

UK-originated law unaffected

Relevant laws which are UK in origin (and therefore unlikely to be affected by Brexit) include:

• The National Minimum/Living Wage.
• The Pensions Act.
• Recent tax legislation affecting tax efficient supply models in the staffing sector (including relating to umbrella workers and personal service company contractors).
• The 2003 Conduct Regulations and Employment Agencies Act 1973, which regulate who, and how much, staffing companies can charge.

Indirect effects of Brexit

Brexit may well have some challenging indirect effects for UK-based users and suppliers of contingent and agency workers:

• The Agency Workers Directive was only accepted by the UK on the basis that other EU Member States relaxed their local regulation of recruitment companies a little, allowing UK recruiters to operate more easily across Europe. Following Brexit, these barriers may go up again, making it harder for users and suppliers of contingent and agency workers to roll out pan-EU staffing programmes.
• Brexit may make it difficult for pan-European contingent staffing programmes to be managed by UK-based businesses, whose managers typically make regular flying visits across the EU to set up the projects and then check how local implementation is working. Potentially, such visits would require work permits. 
• It is unclear how tariffs will affect users and suppliers of contingent workers. Where the UK head offices of international staffing companies make cross-charges to subsidiaries in other EU countries (and vice versa), those charges may be subject to import taxes making it likely that “local country back-office functions” will grow.
• Many contingent workforces contain a disproportionate number of workers from non-UK EU countries. How users and suppliers of contingent workers will cope if those workers cease to have the right to work in the UK is unclear. Skills shortages will probably increase, leading to higher margins. However the shortage of workers may lead to an overall diminution in business. Some staffing companies may set themselves as output-based supplier so that they can sponsor non UK workers for work permit purposes.