Q. Can you tell me about Swedish Derogation? What is it? Are Umbrella Companies acting within the law when applying it? What does this mean for me as a Contractor?
A. The ‘Swedish derogation’ is applicable to the Agency Workers Regulations 2010.
This legislation entitles agency workers to get the same basic pay and conditions as comparable employees after a 12-week qualifying period. The Swedish derogation – so called because it was introduced into the regulations at the request of the Swedish government – provides an exemption from this as far as pay is concerned; it does not affect agency workers’ entitlements to other provisions under the regulations such as annual leave after 12 weeks, ‘day-one’ rights and rest breaks. Effectively under the Swedish derogation there is no obligation to pay a worker the same rate of pay as a permanent member of staff.
For it to come into play, the temporary work agency (TWA) offers an agency worker a permanent contract of employment and pays the worker between assignments. It has to be made clear to the worker that entering into the contract means giving up the entitlement to equal pay. A ‘zero hours’ contract does not count as a derogation contract.
The AWR should not apply to limited company contractors who are not going to work under the control of the client and who are in business on own account. If an individual is engaged by an umbrella company under the Swedish Derogation model with a contract of employment they would be an employee and not a contractor in their own right.
Currently an Umbrella company is operating within the law using the Swedish derogation model, but this may be subject to future challenge via means of case law.