Tuesday, June 9, 2009

Agency Contracting


- And FIVE do’s and don’ts when employing a contract agency

by Tom Davis, Director, Contract People Limited


In the current economic climate, many companies are considering ever more innovative ways to improve their bottom line, without reducing the quality of their products and/or services. The wage costs are an obvious target and many companies have been forced to consider pay cuts, recruitment freezes, role-sharing, shorter working hours and in many cases – redundancies!

A growing option is the outsourcing or “contracting in” of staff and services. The aim of this article is:

  • - to dispel some of the myths surrounding agency contracting
  • - to look at the pros and cons’s of this option and · to provide some insights into agency selection


Types of Contractors:

Essentially, there are two types of contracted staff - agency supplied and self-employed. Agency supplied staff are employed under a contract for service with the end user and the contract is governed by the commercial laws and statutes of the State. An agency supplied contractor is an employee of the agency and it is the agency that has the legal relationship with the user enterprise and must comply with all the relevant statutory obligations that apply to any employee. A self employed contractor is paid by the user enterprise directly. They invoice for their services and are treated like any other third party service provider.

Agency contracting can provide companies with experienced personnel without the cost of ownership. There are many advantages for companies in this type of operation. The user enterprise has the flexibility to take a prospective employee on a trial basis to assess their “fit” with their company. There is also the opportunity for a company looking to explore new and potential business opportunities to test the market before committing resources to it. If the test-marketing exercise is successful, the contractor may be employed internally. The company does not have to go outside the company to recruit for the position.

Misconceptions about contracting:

A commonly held belief is that contracted staff are not as loyal as directly employed staff and that contracted staff do not have the same enthusiasm or motivation for their products. This is a myth. Staff motivation and loyalty, as in any employer/employee relationship, are directly dependent on the level of interaction, communication and commitment that the agency and user enterprise invests in the contracted employee. As in any relationship, it is essential, that at the selection stage, the agency should have a clear recruitment policy and apply this policy to all potential candidates, prior to their being placed with the user enterprise. The agency should always seek to engender a strong relationship with their staff and they should be in constant communication with their contractors during their appointment to the user enterprise. The user enterprise must also communicate with its contractors and provide them with feedback, to ensure an ongoing and mutually beneficial relationship.

Another common misconception is that contracting staff can be a means of removing existing “troublesome” staff or replacing existing “expensive” employees with cheaper staff. Under the Protection of Employment - (Exceptional Collective Redundancies and Related Matters Act 2007 – www.entemp.ie/publications/employment/2007/guidetolabourlaw07.pdf ) employers, who attempt to engage in this practice, face substantial fines and the loss of redundancy rebates. Some companies that engage contractors believe that contractually hired staff can be treated differently than directly employed staff. This is not the case. Agency workers must be afforded exactly the same protection as “directly employed” staff members. They cannot be summarily dismissed and companies need to follow the same principles, practices and procedures as if dealing with a direct employee. Contracted staff must enjoy exactly the same entitlements and rights as directly employed staff.

A commonly held belief is that, under Irish employment law, the person who pays the wages to the contractors is the employer, i.e. the agency. This is not the case. Employers cannot shirk their statutory responsibilities by trying to hide under the cloak of contracting. (It should be noted that, for the purpose of unfair dismissal, the user enterprise is seen to be the employer). Case law, both here and in the UK, would suggest, however, that the courts will look to the reality of the situation to see if an employer/employee relationship exists between the user enterprise company and the contractor, regardless of agency involvement or what may be stated in the contract. The more directly involved a company is with the contractor - the more likely an employer/employee relationship exists between them. Companies hiring contractors should regularly engage with their contractors and always ensure that a strong link exists between the agency and agency-employed staff. Disciplinary meetings and appraisals should always be conducted by the agency. Where possible a field manager employed by the agency should be appointed to act as a liaison between the agency and the user enterprise to ensure that the user enterprises’ objectives are attained. All correspondence and communication should be handled through the agency.

Companies using agencies should always ensure that the agency that they deal with maintain and apply up to date employment policies and procedures and that these policies and procedures are communicated to their staff on an ongoing and regular basis. It is essential that the agency should have a strong understanding of employment legislation and should be in a position to advise the user enterprise of prevailing and changing legislation. These regulations are changing on an almost daily basis. There have been eleven proposed or adopted pieces of employment legislation since January 2009 (www.businesshr.net/docs/legal/recent.html) Agencies must be aware of all pertinent legislation.

There is a perception that Contracted staff are cheaper. The author accepts that certain industries such as shipping, construction and clothing have had negative press reports in recent years, due to underpaid staff, etc. Legislation and proposed legislation exists to tackle these problems but the key problem is that of policing and enforcement. There are not the resources to investigate the many complaints. End user enterprises must also shoulder some of the responsibility in an endless pursuit for cost efficiencies, often at the expense of corporate social responsibility (CSR). The recent additional resources allocated to the inspectorate through NERA should go a long way to challenging these unacceptable practices.

To attract quality staff, companies must pay market rates for the role being contracted. The experience of Contract People has been that poorly paid staff are de-motivated, will not perform their duties willingly and will be constantly looking for other job opportunities. Companies should also avoid any agency offering staff at below minimum wage rates. It invariably follows that these agency companies also flaunt the law in other areas of employment legislation and take short-cuts. In some cases it has been noted that some agency companies do not deduct PAYE/PRSI or apply other statutory entitlements. The companies using these agencies are ultimately responsible for these costs and they will be censured and may be fined. As a result, agency workers may be more cost effective because of reduced benefits.

The forthcoming Agency Workers directive* - which has been passed by the EU and which the Irish government must enact by 2012, is looking to improve the rights of agency workers. What shape this proposed legislation will take, when it is ratified here, remains to be seen. A view of the current thinking of the government and the social partners in developing a framework for its introduction may be seen in the following extract. It is their intention to: “encompass terms and conditions appropriate to the Irish economy that strike the right balance between the need to maintain temporary agency work as an instrument of business competitiveness and labour market flexibility, and fairness in the protection to be afforded to temporary agency workers under the Directive”. There are unscrupulous agencies, as afore-mentioned, that take advantage of the employees and deliver less than satisfactory results to the client. Contract People welcomes the call for a definitive regulation of the industry and would like to see the tightening of legislation pertinent to agency workers and the enforcement of their rights. It is unfair that companies that apply the law are expected to compete with companies that do not and still maintain their competitiveness.



It is accepted that agency workers have an important role to play in Irish commercial society. Companies who engage with reputable and competent agencies will benefit from what they have to offer. The benefits of using a legitimate contract agency are as follows: · Greater flexibility in the employment of additional staff· Key personnel roles can be covered, at short notice, with experienced staff · Seasonal absences of personnel and maternity leave can be managed with the availability of additional temporary staff· Staff availability can be managed through the reduction or extension of the contract, in accordance with a company’s requirements· Specialised skilled staff can be recruited quickly to supplement a project team. (It is a common misconception that contract companies cannot supply highly qualified and experienced staff)· Potential market opportunities can be test-marketed using contract staff· One invoice covers all relative costs. The agency will manage payrolls, vehicles, insurance, phones, and all other overheads while observing and applying all statutory regulations· It provides greater flexibility in corporate budgeting and all relevant expenses can be seen, at a glance.

If your company has decided to outsource a particular service, then choosing the right agency is a critical step. The agency you select will employ staff who will be representing your business or manufacturing your products. As they will be an extension to your service/product offering, you should practice as much care in their selection as you would the recruitment of a key employee.
FIVE do’s and don’ts that apply to employing a contract agency:

  • - DO hire an agency with experience in your industry?Their experience and expertise will ensure the reputation of yours
  • - DO ask what added value will they bring?Apart from personnel, what additional benefits will the agency bring to your organisation? Do they have a unique technological advantage and/or skill? Are there additional services that you can avail of?
  • - DON'T take their word - check their references! Talk to people in the trade and test the reputation of the agency you intend to hire. Also, talk to people who work for them. This will give you a measure of the abilities and work practices of both and the caliber and loyalty of their staff and ultimately, your staff
  • - DO ask who are the key people who will handle your business?If successful in securing your business, who will be appointed, within the agency, to manage your business? What knowledge and expertise do they possess and what levels of service can you expect from them
  • - DON'T - If in any doubt A workable relationship must exist between the agency and the user enterprise. If you cannot get a sense of this from potential agencies - then you should not consider them. You need an agency that is committed to a real partnership with your company. They must be competent in their approach and be able to demonstrate a proven track record in delivering quantifiable results


About Tom Davis, Director, Contract People Limited:

Tom joined Contract People in 1997 as a Key Account Manager and was promoted to General Manager in 2004. He has previously worked as a Sales Representative in the Grocery industry. Tom is a Marketing Graduate and a member of the Marketing Institute. He also holds HR Legislation Qualifications has certification with the Industrial Society of Northern Ireland on NI Legislation.


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