Employers may face high costs when hiring agency staff following the scrapping of the Swedish Derogation provisions next April.
The reform, which is part of the government’s Good Work Plan, will see the closing of a legal loophole that enabled some companies to pay agency workers less than permanent staff.
Swedish Derogation is the name given to an employment contract provided for in Regulation 10 of the Agency Workers Regulations (AWR). These contracts provide pay between assignments, where temporary workers give up the right to pay parity with comparable permanent staff in return for a guarantee to receive a certain amount of pay when they have gaps between assignments.
These types of contracts are generally used where large numbers of blue collar workers are required. Ie in retail and manufacturing roles.
Business Secretary Greg Clark welcomed the abolition of these types of contracts, stating that the government was committed to leading the way in workers’ rights.
“The legislation approved by Parliament is a significant milestone in our concerted effort to deliver the largest upgrade in workers’ rights in over a generation,” he said.
The Agency Workers (Amendment) Regulations 2019 will come into force on 6 April 2020 and will remove the Swedish derogation provisions set out in Regulations 10 and 11 of the AWR from that date.
Writing for Lexology, Alison Treliving, Partner at Squire Patton Boggs, explained that the abolition of the Derogation means that all agency workers will be entitled to pay parity with directly engaged staff after the 12-week qualifying period.
“By no later than 30 April 2020 temporary worker agencies (TWA) must provide workers whose existing contracts contain a Swedish derogation provision with a written statement telling them that with effect from 6 April 2020, those provisions no longer apply,” she wrote. “Agency workers can bring a claim in the Employment Tribunal where their TWA fails to provide that statement on time.”
Although the abolition of the provision might see workers receiving higher pay, some employers are concerned about the financial implications after the 12-week qualifying period. Employers will also need to revisit contracts with TWAs to establish new terms and pay rates.
“How much this impacts on each client will depend on how many agency workers they hire on Swedish derogation contracts, how long for and in what kind of roles,” explained Treliving. “In particular, of course, the cost will depend on how great is the gap between what the client currently pays for those staff and what it will need to pay when they are entitled to the same rates as its comparable permanent staff.”
Treliving notes that there are several solutions that employers could consider to deal with these increased costs, including creating a permanent internal bank of employed workers and introducing a probation rate for a specified period of time, among other suggestions.
