How to leverage the benefits of Temporary Work Agencies while being aware of the commercial aspect

Why outsourcing your employment could be the smart move…

NEWS FOR CLIENTS

All companies, wherever they are based in the world, want to staff their businesses in a workable way. Growing numbers, particularly in the United Kingdom, are turning to the Employment Business or Temporary Work Agency (TWA) model, which involves engaging the services of a third-party organisation with responsibility for employing and paying staff and dealing with tax, social security and other such HR matters. 

Businesses often don’t realise the other benefits of going down this route. Here we look at different types of reasons for using a TWA, the legal considerations and the significant benefits. 

What are TWA’s? 

A TWA is a third-party organisation contracted to take responsibility for employing and paying employees. This includes dealing with employment contracts, payroll, taxes, benefits and often HR matters. The TWA employs the individual and supplies them to the end-user company, charging a fee for this service. The end-user retains the ability to direct and supervise the individual on the ground, which is critical for operational deployment. 

There is an employment contract between the TWA and the employee and a commercial contract between the TWA and the end-user, but no direct contractual relationship between the employee and the end-user. 

When might businesses use TWA’s? 

TWA’s can be useful when looking to engage individuals for many reasons, traditionally for either temporary or fixed term needs or to give greater flexibility of manpower access. But more recently, there has been an increase in demand as businesses expand and are setting up new work locations at home or abroad. Cutting-edge technology has enabled companies to expand internationally and access new customer and talent bases. The ongoing covid-19 pandemic has also prompted both employers and employees to try new ways of working and consider different locations for doing so. As a result, more businesses are looking to use staff outside of the countries in which they currently operate. 

There are a few ways this can be set up. One option is for the company to directly hire an employee based in a different country to it. This can be problematic, as local laws may prohibit it in some locations. Another option is to establish a new company abroad to employ the person, but that is not always convenient or desirable. Local corporate, employment and tax laws can be complex and there are obviously costs involved. The situation may become even more complicated where the employee works in different or multiple countries. The TWA model can take care of such onerous obligations, for a fee, which is why growing numbers of companies are using them to expand abroad. 

TWA’s are also often used to keep down headcount – a common issue among business heads who would like to hire staff but face internal difficulties in doing so. 

TWA’s may be used as a temporary means to an end, such as while a business finds its feet in a new jurisdiction or because of a lack of headcount budget at the point of hiring. Alternatively, TWA’s are sometimes used for indefinite engagements, as though the end-user has hired its own permanent employee. 

Common commercial terms and considerations 

Selecting the right TWA to work with can be challenging. Capability and price are key drivers, but compliance needs to be high on the list of considerations. The statutory compliance regime regarding supply of labour is fraught with complication and danger, so finding a TWA that can deliver the service you need at the right cost and who is a trustworthy partner is critical.  

It is always good practice for end-user companies and TWA’s to ensure that the associated legal risks are addressed and apportioned sensibly within the commercial terms. A robust commercial agreement between the end-user company and the TWA would have the following types of clauses (depending on duration for which the individual(s) will be employed and the relevant jurisdiction): 

  • Responsibility on the TWA for carrying out suitability checks on the individual worker. This can extend to verifying professional qualifications and confirming whether the individual is subject to any restrictive covenants. 
  • The provisions that apply if the end-user company considers the individual worker is no longer suitable. 
  • Responsibility and protection for the end-user company in terms of confidential information and intellectual property. 
  • What transfer fees may apply if the end-user company seeks to engage the individual directly. 
  • The various agreed fees for the TWA’s services, such as: the general services fee; social security charges which the TWA will need to account for; tax-filing fees; payments specific to the local jurisdiction such as prescribed termination payments or a 13th month payment; and business travel insurance for mobile employees. 
  • Provision of the necessary certifications by the TWA, particularly in relation to social security and taxes. 
  • Obligation on the TWA to comply with all local licensing requirements relating to its activities or provide proof that it holds the relevant licences. 
  • Obligation on TWA to comply with all local employment law requirements when employing the staff being supplied. 
  • A clause requiring that the contractual documentation between the parties should specify that the individual’s employment will remain with the TWA throughout and not the end-user company. The documentation also needs to be clear that the relationship will not at any point resemble one of co-employment or joint employment between the TWA and end-user company. 

 Conclusion 

TWA’s can solve a lot of employment and tax/social security problems for those companies looking for flexibility, short or long term growth or to expand into new territories. They should, however, be used in the full knowledge that labour supply legislation will apply. When the TWA will be providing a global service, special care should be taken to understand local law requirements, and a good TWA, such as AeroProfessional, will be able to provide such guidance. 

 

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