As Andy Burnham is urged to crack down on the gig economy, it transpires that thousands of DPD workers may have missed out on sick pay and pensions.

According to documents reviewed by The Guardian, internal cost calculations for more than 3,000 temporary workers reportedly included hourly pay, holiday pay, employer National Insurance contributions and agency margins, but appeared not to include any allocation for statutory sick pay or workplace pension contributions.

Whilst there is currently no finding of wrongdoing, the reports highlight an important issue for employers, agencies and end users of temporary labour: statutory employment costs are not optional and must be factored into commercial arrangements.

Who is responsible?

In most agency worker arrangements, the recruitment agency is the legal employer and is responsible for complying with employment law obligations, including statutory sick pay and pension auto-enrolment requirements where applicable.

However, end users cannot necessarily ignore how labour is being sourced. Increasingly, businesses are expected to undertake due diligence to ensure that workers within their supply chains are receiving their legal entitlements and that labour providers are operating compliantly.

The concern raised by industry experts is a simple one. If agency charge rates are calculated without allowing for statutory costs such as sick pay and pension contributions, questions naturally arise as to how those obligations are being funded.

This does not automatically mean workers are being underpaid. However, where commercial margins are tight, employers and agencies should be able to demonstrate that charge rates have been set at a level that realistically covers all legal employment costs.

As the Association of Labour Providers has previously warned, labour users should ensure that the rates they pay properly reflect compliance obligations and statutory employment costs.

Employment law risk

From an employment law perspective, businesses that rely heavily on temporary labour should regularly review:

• Agency charging structures.
• Pension auto-enrolment compliance.
• Statutory sick pay arrangements.
• Worker status and contractual arrangements.
• Supply chain compliance audits.

Failure to do so can create significant legal and reputational risks.

Key takeaway

Whether or not any breaches ultimately occurred in this particular case, the reports serve as a useful reminder that employment costs extend beyond hourly pay rates. Sick pay, pensions, holiday pay and other statutory entitlements must be built into labour supply arrangements from the outset.

For employers, if a labour supply arrangement appears too inexpensive to cover all statutory obligations, it is worth asking whether the numbers genuinely add up. Compliance with employment law is not just the responsibility of recruitment agencies. Increasingly, the organisations benefiting from that labour are expected to ensure the arrangements stand up to scrutiny as well.