When will a labour supplier be a “gangmaster”?: Implications of government proposals for the staffing sector

Written on 8 Feb 2016

Recruitment agencies and others providing labour in the agricultural, horticulture and shellfish production sectors will already be familiar with the mandatory licensing scheme run by the Gangmasters Licensing Authority (GLA). 

Following the announcement in January 2016 by the Department for Business, Innovation and Skills (BIS), after a consultation to address tackling exploitation in the labour market, the remit of the GLA looks set to widen. In particular, its criminal investigation and enforcement powers will increase across all labour sectors. 

This comes at a time when many contract workers will be under pressure to move to new contract models, following the umbrella tax changes due in April 2016. The changes will reduce take-home pay for many, and may bring to light as yet concealed regulatory breaches (for example in relation to the national minimum wage or tax liabilities), which could fall within the GLA’s new remit. 

We set out a summary of the key “need to know” points arising from the consultation, so that labour suppliers can prepare for the inevitable legislative changes in the future. 

What is the GLA? 

The GLA is a non-departmental public body, funded by DEFRA. The organisation was set up following the 2004 cocklepicker tragedy at Morecambe Bay, to prevent worker exploitation (particularly debt bondage and forced labour) in what was considered to be an insufficiently regulated area of employment. 

The GLA currently only regulates in the sectors of horticulture, agriculture, and shellfish harvesting and packaging. It does so through a mandatory licence scheme. The scheme requires evidence from labour suppliers and businesses employing through labour suppliers (both classed as “gangmasters“) to demonstrate fitness, before a licence is issued. Fitness to hold a licence includes wide-ranging compliance requirements, including: health, safety, and welfare; minimum wage standards; and adherence to tax law. 

The GLA monitors the behaviour of licensees through inspections and has the ability to take enforcement action (including criminal action and the revoking of licences), where gangmasters are deemed to be unfit. Some commentators have noted that the GLA can appear to use its powers relatively aggressively. 

The GLA is currently small. Its funding was £4 million in 2013 and, as with other authorities, it was hit hard by public funding cuts in the recession. However, it has the potential to take significant enforcement action and on 25 January 2016 won a landmark case in obtaining the first Slavery and Trafficking Prevention Order under the Modern Slavery Act 2015. 

With the changes being proposed, we foresee an injection of funding into this organisation, which could result in more rigorous inspection and enforcement against those labour suppliers who are considered to fall foul of UK law.

What is going to change?

Changes are coming which will mean that all labour suppliers and those employing through labour suppliers will be regulated by the GLA. At this stage, we do not anticipate that the scheme will require all labour suppliers to be licenced. The GLA is, however, to be given increased investigation and enforcement powers, alongside other key agencies such as: HMRC, the Health and Safety Executive, the National Crime Agency (NCA) and the police. 

The GLA has been the subject of a number of reviews over the last five years, starting with the government’s “Red Tape Challenge” to cut bureaucracy, the GLA’s Triennial Review in 2011, and then discussions about the status of the GLA during the evolution of the Modern Slavery Act 2015, which resulted in the recent BIS consultation. The effect of these reviews has been to confirm the need for the GLA and to re-focus its role in tackling on-going concerns about worker exploitation in the UK. 

The recent BIS consultation confirmed that the following changes are to be introduced, which will impact on all labour suppliers in the UK:

  1. The GLA (whose name will be changed to the Gangmasters and Labour Abuse Authority) will be given a wider mission, to prevent, detect and investigate worker exploitation across all labour sectors.
  2. The GLA is to be given a new power to issue enforcement orders, requiring licensees who receive an order to make changes to their practices, or else face criminal sanctions if they fail to do so.
  3. A new “Statutory Director of Labour Market Enforcement” is to be introduced, as provided for in last year’s Immigration Bill. The aim of the role is to link up strategy across government agencies, including the GLA, and to set priorities to tackle labour abuse.
  4. There will be increased information sharing between relevant enforcing agencies, including: the GLA, HMRC, the NMW team and the Employment Agency Standards Inspectorate (EAS), alongside the new Statutory Director and other bodies (NCA and the police), to help tackle labour market abuse. 

How does this relate to incoming changes to umbrella models? 

The 2016 tax changes relating to umbrella models are likely to lead to an increased number of agency and contract workers being engaged directly by staffing companies as “workers” or as “employees“. Staffing companies that do this will not just be taking over tax compliance obligations. They will need to ensure that legislation relating to health and safety, training, and wages is being complied with. 

The fear is that as a result of the likely reductions in take home pay relevant workers will suffer following the new tax legislation, and the likely loss to staffing companies of umbrella referral fees, staffing companies may face an unpleasant triple-whammy of increased compliance costs, worker disgruntlement and lower gross profit. This may prompt some to adopt supply models which have tax advantages, but which raise other regulatory issues, potentially bringing the staffing companies into the GLA’s remit. Particular care may be needed, for example with:

  • sole trader/EDM models involving expenses arrangements, which could be at risk of breaching the NMW;
  • employed models, which could give rise to health and safety risks; and
  • direct engagement models, which could risk breaching the Employment Agencies and Businesses Conduct Regulations. 

What do you need to do to comply?

There is currently no information about when these changes will take place, nor the finer detail of how the changes will work. In order to stay one step ahead, however, we recommend that labour suppliers (and those who employ via this mechanism) consider taking the following steps to prepare:

  1. Review your processes and procedures to ensure legal compliance that would be necessary to demonstrate “fitness” to hold a licence. Can you demonstrate legal compliance in the health, safety and welfare arena, as well as compliance with NMW and tax standards?
  2. Take advice on any areas where you are concerned about compliance, such as: understanding legal obligations for ensuring safety; health and welfare; training; and wages (in particular where payment appears to come partly from accommodation or transport benefits).
  3. If you are a staffing company taking workers “direct” instead of via an umbrella, are you on top of all these obligations? Should you consider seeking advice from specialists?
  4. Consider whether you and your supply chain are properly set up to provide information to the GLA or other government agencies on inspection and respond quickly to any enforcement orders or informal advice you receive from the GLA or other agencies in the future.
  5. Talk to your supply chain about the changes and discuss how to ensure compliance with UK law. Concern about reputational damage is likely to be one of the most significant drivers to change in supply chain. Being one step ahead of your competitors will stand you in good stead with your clients.