Up to half a million temporary employment contracts could be at risk due to Agency Worker Regulations (AWR) coming into force next month, according to a new report by law firm Allen & Overy.

The report reveals 33% of medium to large UK businesses may be planning to avoid increased costs by terminating agency worker contracts before the 12-week qualifying period for equal pay and benefits kicks in on 1 October.

The report estimates that the cost of the regulations to UK business to provide equal benefits to agency workers could amount to £1.3bn a year — an average cost per worker of between £1,755 and £3,722, or £90,000 per business per year.

Allen & Overy employment partner Stefan Martin says: “The advantages of using a flexible workforce during the current economic climate will be compromised as employers feel the burden of additional rules and regulations.

“While businesses will undoubtedly continue to use agency workers, this will result in increased costs. Rather than strengthening their rights, this may actually make the position of agency workers much more uncertain, exposing them to early termination of contracts.

“Users of agency workers need to assess how they are going to manage their temporary workforce going forward and should review their contracts with agencies to minimise the scope for agencies to simply pass on increased costs to business.”