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Workplace Reforms and Swedish Derogation: what you need to know

Workplace Reforms and the end of Swedish Derogation – what you need to know

Back in December, the Government announced a package of reforms designed to better protect Workers on zero-hour contracts, agency employees or “gig economy” workers.

Under the new legislation, staff would have to be told details of their rights from their first day in a job, including eligibility for paid and sick leave. Workers would also be given the right to request more predictable hours.

Responding to the government’s new package of workplace reforms Recruitment & Employment Confederation chief executive Neil Carberry said:

Agencies have always been clear that the Swedish derogation should not be an excuse for poor treatment. We favoured reforming the rules to ensure those who were being adversely affected by the model were protected. Now that government has decided to remove Swedish derogation, it is essential that ministers engage with the recruitment sector to ensure that the transition away from this model is smooth for workers, agencies and clients.

What was Swedish Derogation?

Swedish derogation is a model of employment where an agency hires a worker directly, rather than being the middleman between a worker and a client company.

A derogation is an exemption from, or relaxation of, a rule or law.

It’s a controversial model that avoids some of the rules of the Agency Workers Regulations (AWR) 2010. The AWR exist to protect all agency workers by giving them equal rights. Temporary agency workers must earn the same basic pay, and have the same working conditions as staff on permanent contract s as long as the agency workers have been working in the same role for 12 weeks.

Example in Practice

An agency hires a worker on a permanent contract. It then has to find the worker a job.

During the job, the agency pays the worker a wage. This wage might not be the same as what a worker in a similar role earns. But their pay must be at least the national minimum wage (NMW).

Once the job ends, the worker is not on assignment. When their job is ending, the agency should already be trying to find the worker their next job.

In between jobs, the agency pays the worker for up to four weeks while the worker is not on an assignment for a client.

The agency doesn’t have to pay for more than four weeks in between two jobs for the worker. Equally, after the four weeks, the worker can end their contract with the agency, too.

During those four weeks, agencies can get away with paying only 50% of the worker’s average basic wage from the past 12 weeks of work, just as long as this figure is still at least equal to the NMW.

Ministers say the new legislation will:

  • close a loophole that had allowed agency staff to be paid less than permanent employees
  • ensure firms will have to provide a “statement of rights” on the first day of a person’s employment, setting out what paid leave they are entitled to, including for illness, maternity and paternity leave
  • increase the maximum fine employers face at a tribunal from £5,000 to £20,000, if they are found to have demonstrated “malice, spite or gross oversight
  • ensure that companies will have to calculate holiday pay based on 52 weeks, as opposed to 12 weeks, so people in “seasonal or atypical roles get the paid time off they are entitled to

Modern Working Practices

The announcement takes forward 51 of the 53 recommendations made by the Taylor report into Modern Working Practices and claims to make the UK the first country in the world to address the opportunities and challenges of the gig economy and the changing world of work – and its impact on a modern economy.

Business Secretary Greg Clark said:

The UK has a labour market has been underpinned by policies and employment law which strikes an effective balance between flexibility and worker protections. But the world of work is changing, bringing new opportunities and new business models With new opportunity also comes new challenges.

Labour Market Strategy

Clark continued: “As part of our major reforms to upgrade workers rights and improve the quality of work the government is also today responding to the Labour Market Strategy set out by Sir David Metcalf, the Director of Labour Market Enforcement, with detailed plans to tackle the exploitation of low paid workers, including:

  1. Bringing forward proposals in early 2019 for a single enforcement body to ensure vulnerable workers are better protected.
  2. More resource for the Employment Agency Standards Inspectorate.
  3. Creating new powers to impose penalties for employers who breach employment agency legislation such as non-payment of wages.
  4. Consulting on Salaried Hours Work and Salary Sacrifice Schemes to ensure National Minimum Wage rules do not inadvertently penalise employers.
  5. Bringing forward legislation to enforce holiday pay for vulnerable workers.
  6. Consulting on the recommendations on non-compliance in supply chains.

Neil Carberry said:

The Taylor review set out how valuable the UK’s flexible approach to work is for workers as well as employers, and that is reflected in the government’s response. Recruiters across the country will welcome the acknowledgement that temporary and agency work is a key part of a vibrant jobs market that delivers opportunity.

You can find more information on the Taylor review here.

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