How will The Swedish Derogation Model Work?

18 July 2011

The Swedish Derogation is a solution to the Agency Workers Regulations (AWR).

Swedish Derogation seems to be favoured by a number of Recruitment Agencies as it removes any risk of the agency being subjected to claims under AWR re equal treatment of contractors (when compared to permanent comparable staff working at the end client) as the contractor becomes a full employee of the umbrella company and is therefore their responsibility.

But does it give the contractor the protection AWR is designed to provide??

After 12 weeks a contractor who completes their assignment is entitled to up to 4 weeks paid leave between this and their next assignment at 50% of their normal pay.

There are 3 ways the Swedish Derogation Model can work.

1. This additional cost is met by the umbrella company and/or the recruitment agency or end client. Normally this cost would have to be recouped in some way and it is possible in some cases any increase in costs could be ultimately be passed onto the contractor.

2. In the first 12 weeks (or over the lifetime of the contract) a deduction is made from the contractor's pay to accrue sufficient funds to meet the potential liability. In the event that this money is never claimed by the contractor then this may be paid as a bonus to the contractor on leaving the umbrella company. The contractor therefore still receives all that they earn.

3. Part of the contractor's pay each week is deemed to be a payment in lieu of their pay between assignment entitlement. This is similar to how Umbrella Companies currently deal with holiday pay i.e. in the event of a claim it has already been paid. The benefit of this model is that there is no reduction in pay in the first 12 weeks and the contractor still receives all that they earn.

Are there any negatives to a Recruitment Agency in pushing for the Swedish Derogation Model?

Potentially yes. The Umbrella Company has a duty to try and find their employee new assignments. This may lead to some Umbrella Companies becoming Recruitment businesses in their own right with a bank of contractors available for placement. Some Umbrella Companies may therefore choose to place "your contractor" elsewhere. At PayMatters our aim is to continue to work with the original agency in finding future placements.