In response to the Taylor Review, the Government announced in December 2018 the ‘biggest package of workplace reforms in over 20 years!’ stating they would adopt 51 of the 53 Taylor Review recommendations. One of the changes announced was the repeal of Regulation 10 contracts (Swedish Derogation), or pay between assignment contracts from the Agency Worker Regulations 2010 with affect from 6th April 2020
What is Swedish Derogation?
The Agency Workers Regulations 2010 (AWR), which came into force in October 2011, gave agency workers the entitlement to the same, or no less favourable, treatment for basic employment and working conditions, if they completed a qualifying period of 12 weeks in a particular job.
Regulation 10 provided an exemption to equal pay, as long as the worker was offered a permanent contract of employment, paid the worker between assignments and complied with various other conditions. In return, the Agency Worker received all of the benefits of employed status.
Although legal and originally agreed by the UK Government, the CBI & the TUC, the practice was a controversial model that avoided the workers being paid parity with a comparable worker employed directly by the end hirer.
There were doubts about whether these contracts worked in practice, with some claiming that they were used to exploit vulnerable workers. Indeed The Taylor Report cited significant abuse of the Swedish Derogation.
The new legislation will remove the options of opt-out of pay comparison and pay between assignments from 6th April 2020. This means that agency workers will no longer be entitled to pay between assignments but, more importantly, they will be entitled to the same hourly pay as a permanent comparator worker employed by the end hirer after 12 weeks.
Is this something I need to worry about?
For organisations that depend on a flexible workforce which is employed on Swedish Derogation contracts by their agency, the financial impact could be significant.
A recent Impact Assessment from the Regulatory Policy Committee estimates that between 8% - 10% of all agency workers in the UK (104,000 - 130,000) are employed on Regulation 10 contracts and that the additional costs associated with the removal of Regulation 10 contracts will be somewhere between £227.5M & £381.1M to UK hirers per year. In addition, The Resolution Foundation estimated the pay gap to be c. £300M. There is a further estimated cost of between £3.2M & £3.6M for the transitional costs of conforming to this change in legislation.
We estimate that for every 100 workers where the pay differential is just £2 per hour, the annual labour costs, including on costs, could increase by over £500,000 pa.
Businesses need to be ready to adhere to the new regulations as seamlessly as possible and employers should consider implementing the new rules about removing employees from Swedish Derogation given the rights of employees to claim compensation for a failure to do so.
How can I be prepared?
It’s important that businesses start preparing at the earliest opportunity to ensure a smooth transition when removing workers from Swedish Derogation contracts.
In addition to the more practical aspects of the removal of Swedish Derogation, moving to equality of pay will have financial implications to businesses, so it’s vital that businesses consider the impacts now and discuss this within the organisation, making all key stakeholders aware of the impending changes.
It’s also important to ensure budgets and business plans consider the potential for increased wage bills.
Speak to your current agency to make sure they are aware of the impending changes and ask them how they plan to change their current Swedish derogation contracts to ensure they are compliant by April 2020 ensuring there is no disruption to your workforce.
We are working with our clients to assist them in planning ahead and preparing in order to reduce the impact of the new legislation. If you are uncertain about any of the above, we can help you to ensure you and your business are prepared and ready for this significant impending change, just get in touch at: firstname.lastname@example.org