A European Commission draft proposal to extend temporary workers' rights could damage IT contractors and employers alike, business leaders have warned.
The leaked report, not due for release until March, recommends that agency temps be given the same remuneration as permanent staff, which could include equal pay and bonuses, pensions, holidays and health insurance.
But the Confederation of British Industry and the Chartered Institute of Personnel and Development (CIPD) have both voiced concerns that the proposal to give agency workers comparable terms and conditions to permanent staff will damage the UK labour market's flexibility.
CIPD employee relations adviser Diane Sinclair warned that the proposal would damage employers which relied on agency workers to meet changes in business demands and staffing crises.
"Also, temping provides versatile employment for people who do not want to tie themselves to a permanent job. The proposals are wholly inappropriate for the UK," she said.
Legal experts Tarlo Lyons maintained that the directive could have a significant impact on the recruitment industry and make life a lot more complicated for suppliers and users of 'PAYE workers' who are engaged directly by agencies, rather than through personal services companies, and then supplied on to customers.
The plan once again highlights the fact that current legal definitions of the term 'employee' are struggling to deal with today's complex working structures.
Kevin Barrow, head of the IT personnel group at Tarlo Lyons, admitted that there were "murmurings" within the legal community of the need to identify a new category of worker: neither permanent nor temporary, and with some employment rights and some tax breaks.
"There's a risk that the European socially inclusive agenda is trying to protect people who don't need to be protected and is unintentionally adversely affecting the rollout of technology projects and the general UK economy," he said.
"This could put an increased burden on agencies at a time when margins are falling anyway," he explained. "It's all adding to the cost of supplying temporary workers."
The key issue for the IT sector is whether contractors who supply their services via personal service companies will be deemed to be agency workers for the purposes of the new directive.
If so, this could potentially give them employment-related rights which current case law surrounding the IR35 tax appears to deny them.
IR35 closed a loophole that allowed contractors to register as single-person companies and avoid paying National Insurance contributions. But contractor body the Professional Contractors Group (PCG) argued that the tax unfairly penalises contractors and constitutes state aid to large consultancies.
"Unless good lobbying takes place there is a chance that it will make it more expensive to roll projects out in the UK and make it more attractive to develop offshore because it will be [cheaper] to engage staff," explained Barrow.
But PCG spokeswoman Suzie Hughes welcomed the draft proposals, which she insisted would help differentiate IT contractors from temporary workers. "It's not fair for contractors to pay taxes like employees and not get the benefits," she pointed out.
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