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Swedish Derogation Model looks good in the boardroom but disastrous operationally

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If the Agency Workers Regulations were designed to provide pay parity for agency workers, then surely the Swedish Derogation Model is a short term loop hole?  Many agencies are currently winning business by providing the Swedish Derogation Model to clients, who do not want to pay the increase through the pay parity option.

The Swedish Derogation Model is a loophole which currently provides an alternative for clients and employment agencies to get around the Agency Worker Regulations by directly employing the temp, or arranging for them to be employed by an umbrella company.

There are however many pitfalls and clients should be aware of them.

The temp must be employed by the agency and very often that will involve an umbrella company, therefore the registration may take longer and temp bookings may not be filled.

The agency by law has to explain the nature of the AWR, the derogation model itself, and exactly why they are asking the temp to sign the contract. They are encouraged to actually tell the temp that the Swedish Derogation Model is specifically designed to 'get around' paying them parity pay.

The agency has to agree with the temp the nature of work the temp will agree to do. The overarching priority of any agency will be to avoid paying the temp the four-week 'not on assignment' guaranteed pay. Therefore it will be in the agencies' interests to get the temp to sign a contract basically agreeing to accept any work in any area from the agency. In practice this could mean for example, Administrators from Bristol being asked to agree to accept toilet cleaning in Newcastle if it's the only work available.

In addition to this, since a zero-hours contract is illegal under the derogation, but a 'one-hour' one isn't, agencies are likely to sign a temp up on the following basis:

  • X agency will only EVER pay minimum wage (in many cases)
  • The Temp HAS to accept any assignment X agency offers them
  • X agency is liable to pay £6.08 a week if they can't find the temp work until ‘pay between assignments’ kicks in.

An agency may ‘load’ the client charge rate to cover the potential four week 'out of work' period. Even if they offer to refund the client the money in the “hazy” future event that the temp is never not on assignment, do you really want thousands of pounds of your money in an employment agencies' bank account? Bearing in mind the economic climate…? 

Forecasting cash flow for Swedish derogation contracts will be more difficult for clients, as these post assignment financial liabilities make it much more difficult to predict the real value of a contract.

In addition to this, employers and agencies will find it very difficult to track whether a worker has already found work, or is still seeking work rather than taking a holiday, or is sick and unable to work. The administration costs of managing the Swedish derogation, such as time, paperwork, operational management, tax management will all need to be considered in the total cost of hire as well as the four weeks at half pay. 

Use of the derogation model could mean for clients:

  • A two-tier temp workforce will develop
  • Non-derogation agencies will have the better skilled and better qualified temps
  • Switching en-masse to an agency using derogation will alienate your temp workforce
  • Multiple agencies will ALL have to be on the same system otherwise it will cause rifts in the temp workforce and they will all flock to the Parity agency
  • Ad-hoc bookings will be hard to fill based on the fact that as agencies will be forced to keep temps in work, so your favourite regular (but not full-time) temps will be shoved into any other assignment and you won't be able to book them
  • Someone has to pay for the four week 'out of work' period
  • Being seen to deliberately get round the AWR (which the SDM is) will lead to bad feeling, bad publicity, and may even give rise to tribunal claims

So imagine two agencies next to each other on a high street, one using the Swedish Derogation Model and one not. Who will have the temps with the better skills, experience and work references? Who is more likely to be able to supply quality staff at short notice? 

Many ad-hoc assignments will never result in parity pay because they won't last 12 weeks. In any case there is nothing stopping you ending an assignment after 12 weeks, provided you don't deliberately wait six weeks, then re-engage the same temp.

Anti-avoidance fines under the AWR are considerable, at £5,000 per temp, not to mention tribunal awards, so deliberate avoidance is unlawful and commercially unsound and day one rights still apply.

Is your agency proposing to use ‘rolled up’ Pay Between Assignments?

What is the nature of the derogation contract your agency is using? Is it one specifying the temp has to take any work any where?

Look carefully at:

  • Nature of work the temp has to agree to
  • Response time / availability
  • Location of work
  • Pay rate

 

This is likely to be buried in the very small print.

It may be wise to think very carefully about using the Swedish Derogation Model now instead of Pay parity as the EU intended for AWR legislation. The EU may close the Swedish Derogation Model loophole in the next year or two leaving many clients very exposed.

 

 

 

Harvey picture

Published by Harvey

over 5 years ago

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