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UK Government signals end of Swedish Derogation
A change in the law is a win for temping agencies – but it might come at the expense of permanent placements.
This week, the government indicated that it would end the so-called ‘Swedish Derogation' rules for agency workers. The changes, which come into effect next year, make provisions for temporary staff and agency workers.
Critics of the current arrangement have stated that the Swedish derogation can reduce the hourly pay of temporary staff. But we consider how changes may adversely impact the value of permanent placements in 2020 and beyond.
What is the Swedish Derogation?
The Swedish Derogation is often characterised as a set of exemptions from equal pay laws. In reality, it is slightly more complex than that.
The derogation (‘exemption') affects the way agency staff are employed. Specifically, it states that temping agency staff are the employees of their agency, and not of the client company where they provide labour. It allows temps to draw certain workplace benefits directly from their employment agency.
But the system is not without flaws. Under it, agency staff can be paid less per hour than permanent workers – even when performing identical duties. Critics of the system say that this undermines the Equal Pay Act, which ensures all workers receive similar pay for similar duties.
However, the agency itself is required to provide equal pay to all temps who perform similar duties. The only difference is that the agency is not obliged to match the salaries of permanent staff in the client company who their temps may be working alongside.
And the system affords temps a set of additional rights, too. Temporary workers become eligible for certain benefits, including holiday leave and sick pay. These are drawn from the temping agency itself, not the client company.
Plus, the Swedish derogation makes it compulsory for temps to be paid between placements. Agency workers must receive at least 50 per cent of the hourly salary of their most recent placement. This wage also has to meet National Minimum Wage requirements.
Agencies are then liable to pay the temp for four weeks between placements. During this time, the agency should seek a new placement for the temp. If they are unable to find a suitable position, the temp stops getting paid. At this point, the worker is free to end their contract with the agency without penalty.
The origins of the Swedish Derogation
So why was the Swedish Derogation required in the first place?
Like the UK, Sweden has struggled to balance worker rights with competitive market conditions for decades. In a famous test-case of the rules, a warehousing firm attempted to fire all of its permanent staff and replace them with unsecured temporary workers.
In the protests which followed, the country's entire supply of alcoholic snapps was blockaded prior to all-important midsummer festivities.
The incident highlights a key concern of those who wish to preserve the existing laws.
Temporary workers will now sacrifice several rights in return for guaranteed hourly pay parity with full-time employees.
However, there is little to prevent an unscrupulous employer from sacking its entire permanent workforce and replacing them with unsecured temporary workers.
The employer can then create a full-time worker who essentially only exists on paper, and stipulate a lower hourly wage for this (now largely fictitious) employee. The temps then lose their existing workplace benefits, their between-placement salary, and they earn the lower hourly rate as well.
A reversal of the existing regulations could therefore incentivise the use of temping agencies over permanent placements in the future.
How Permanent Recruiters can prepare
So, should agencies that specialise in permanent placements be concerned?
Yes and no. The changes have the potential to spark a fall in demand for permanent staff. This, in turn, may affect the KPIs and bottom lines of permanent placement recruiters.
But this is by no means guaranteed. Any negative fallout from the end of the Swedish derogation would be the result of dubious employment practices by end-user clients. Agencies can therefore take steps to neutralise the effects of the changes.
• Read more: how advanced recruitment agencies are planning for the future.
If you are a permanent placement recruiter, the soundest advice would be to spend the next twelve months assessing the quality and working culture of your client companies.
Might you reasonably expect any clients to move away from permanent hires once rules are altered? A client that fits this bill may offer a fall in revenue from April 2020.
Understanding that the next twelve months might see a change in your priorities will allow agencies to prepare in time for the end of the Swedish derogation.
