Swedish derogation is a model of employment where an agency hires a worker directly, rather than being the middleman between a worker and a client company.
It’s a controversial model that avoids some of the rules of the Agency Workers Regulations (AWR) 2010.
So hang on, what is Swedish derogation again?
In October 2011, the British Government introduced the Agency Workers Regulations (AWR) 2010.
The AWR 2010 state that temporary agency workers must earn the same basic pay, and enjoy the same working conditions, as any staff who are on permanent contracts. That is, as long as the agency workers have been working in the same role for 12 weeks.
(The key numbers to remember are 12 weeks and four weeks.)
The AWR exist to protect all agency workers by giving them equal rights. So, Swedish derogation falls outside the rules of the AWR regarding pay.
Here’s how it works
An agency hires a worker on a permanent contract. It then has to find the worker a job.
During the job, the agency pays the worker a wage. This wage might not be the same as what a worker in a similar role earns. But their pay must be at least the national minimum wage (NMW).
Once the job ends, the worker is not on assignment. When their job is ending, the agency should already be trying to find the worker their next job.
In between jobs, the agency pays the worker for up to four weeks while the worker is not on an assignment for a client.
The agency doesn’t have to pay for more than four weeks in between two jobs for the worker. Equally, after the four weeks, the worker can end their contract with the agency, too.
During those four weeks, agencies can get away with paying only 50% of the worker’s average basic wage from the past 12 weeks of work, just as long as this figure is still at least equal to the NMW.
The Swedish derogation clause from an employer’s perspective
A derogation is an exemption from, or relaxation of, a rule or law.
Okay, let’s say your company is a client of a workers agency.
You decide to hire one of the agency’s workers. It doesn’t just have to be one. It could be two, or two hundred.
You and the agency will agree on the rate, or fee, that you’ll pay the agency for their worker.
The agency, not the client, then pays the worker.
The rules of the AWR 2010 don’t apply because of the Swedish derogation contractual relationship between the agency and the agency worker, who only has employee status for the agency, not for you.
The workers get their pay from the agency, and unfortunately, this is often at a lower rate than they’d earn if they worked directly for the client. While this tactic could save your business money, it leaves workers out of pocket each month.
The Swedish derogation rule undermines the aim of the AWR 2010. But, only when it comes to pay.
Okay, it sounds like we’re playing it down when we say it like that, but what we mean is this: Swedish derogation does not affect an agency worker’s right to equal treatment on holidays and working time. Small wins.
The problems with the Swedish derogation rule
Swedish derogation isn’t the same as a zero hours contract. But like zero hours contracts, Swedish derogation has earned plenty of negative attention because it’s a model that promotes unequal pay.
Agencies can treat each worker differently and undercut pay rates, just as long as they pay at least the national minimum wage.
The cheap labour problem
A Swedish derogation contract can be very cost-effective for a client company, especially if they require many workers on a long-term basis.
A plus for businesses
Since client companies only hire the worker as part of an agency contract, they don’t have to worry about HR admin, or holiday pay, or sick pay, and so forth.
And a plus for workers
When it comes to services like canteens and staff lounges, hired workers have the same rights as the client’s permanent employees from day one of the assignment. Workers also get equal access to information about job vacancies in the company.
Should you use Swedish derogation?
The Taylor Review of Modern Working Practices suggests scrapping the derogation. While companies looking for workers can benefit from the savings, the model is exploiting workers.
If you’re planning to use Swedish derogation terms, make sure you weigh up the risks of damage to your business.