The end of Swedish Derogation – What you need to know

In December 2018, the Government published new draft employment legislation in response to the Matthew Taylor review, entitled “Agency Worker (Amendment) Regulations 2018”.

One of the many changes under this amendment was the removal of Regulation 10 contracts, otherwise known as “Swedish Derogation” or “Pay Between Assignment” contracts.

These contracts were introduced as part of the Agency Worker regulations in October 2011 and agreed between the Government, CBI and TUC. They made provision for Agency Workers to be offered a permanent contract of employment with their Agency in return for an opt-out of the equal pay that they would otherwise receive as a comparator of the Hirers permanent workforce.

In return, the Agency Worker would receive all of the benefits of employed status and, in addition, get paid between assignments when there was no work available.

This new legislation, if passed in its current form by Parliament, will remove the opt-out of pay comparison and pay between assignments options from 6^th April 2020. For organisations reliant on a contingent workforce, the financial impact of increased costs both in terms of pay and employment on-costs could be significant as highlighted by a recent Impact assessment from Regulatory Policy Committee which estimates that the additional costs associated with the removal of Swedish Derogation contracts will be up to £380M to hirers across the UK.

What Does This Mean For Your Business?

In these current uncertain times, magnified by Brexit uncertainty, flexibility is key to a business’s success and this starts with its workforce. Agency labour is fundamental to provide the immediate resources required and allows businesses to remain agile in the face of change. As costs increase as a result of the new legislation, businesses must be prepared to adhere to the new regulations as seamlessly as possible in order to minimise the negative impacts associated with non-compliance.

The 6^th April 2020 may seem a long way away, but so too did leaving the EU in March 2019 when the referendum result was confirmed. That went on to dominate the news agenda for the next 2 years, highlighting the importance that businesses start preparing now to ensure a smooth transition when removing employees from Swedish Derogation contracts.

At Gi Group, we have been working with our clients since the announcement of the Government changes to help them plan ahead, mitigate risks and minimise the impact of the new legislation as we appreciate the scale of these changes for organisations. This has included advising and supporting businesses through this process in an efficient and legally compliant manner, as well as working with our clients to start moving employees from these contracts at the earliest opportunity and to help streamline and simplify the process.

In addition to some of the more practical aspects of the removal of Swedish Derogation, it is no secret that moving to equality of pay will have financial implications, so it is vital that businesses consider the impacts now and discuss this across the organisation, making all relevant stakeholders aware of the impending changes. It is also crucial to ensure future budgets and business planning takes into account the potential for increased wage bills.

Getting ahead of the changes

To get on the front foot some areas to start considering include:

• How will moving to equality of pay impact your business?
• Has the calculation been done to estimate the cost impact? For example, if you currently engage around 100 temporary workers on the National Living wage and your permanent workforce is paid £9.85/hr, including employment costs, it is likely to increase your wage bill by at least £500K per annum.
• Are your current permanent comparator pay rates fit for purpose in the way your business will need to change?
• Is your current supplier aware of the upcoming changes and have they advised you of how and if they intend to change their current Swedish derogation workforce contracts to make sure they are compliant by April 2020?

Although it feels like we have all just completed this year’s budgeting exercise, the 2020 budgeting process is just around the corner and  the end of Swedish Derogation has significant implications. If the answer to some or all of the above is unknown Gi Group can help you to ensure you and your business are prepared and ready for this significant upcoming change.

If you are concerned about the new changes and need advice or guidance, please contact a member of the Gi Group team on 01246 267 000 or email infoUK@GiGroup.com