The Swedish Derogation Model

Where appropriate, the Swedish Derogation Model can be applied by Umbrella Companies; A name given to an agreed opt-out from Section 5 of the regulations, which relate to equal provision of pay. The Worker enters into a permanent Contract of Employment with the Umbrella Company who is responsible for paying the contractors’ salaries and for maintaining continuity of assignments. The contract should contain all those provisions which are contained within an over-arching contract, including pay between assignments.

In order to guarantee full compliance with the legislation surrounding the Swedish Derogation Model; the Contract of Employment must be signed and returned to the Umbrella Company before any assignments commence.

Compliance with the Swedish Derogation Model

In order to be compliant the Contract of Employment must include the following information:

Client details
Minimum pay rates and their basis of calculation
Minimum and maximum expected hours
The nature of the work to be undertaken
Location of work, reflecting where you will be willing to travel

Statutory Employment Rights for Contractors

The Contract will also contain a statement which confirms that the individual becomes an employee of the Umbrella Company. Therefore accepting the exemption from section 5 of the Agency Worker Regulations which relates to equal treatment provisions on pay. The rest of the legislation still applies. This means individuals will have entitlement to equal treatment in respect of duration of working time, night work, rest periods, rest breaks and paid annual leave. Under the Contract of Employment with the Umbrella there is an entitlement to Statutory Maternity Pay, Paternity Pay, Adoption Pay and Sick Pay.

The Taylor Review

In 2019, the government unveiled its Good Work Plan describing the contract as a ‘legal loophole’. This excludes agency workers from the principle of equal treatment in relation to pay under the Agency Workers Regulations (AWR) 2010. It confirmed it had introduced legislation which would scrap the practice.

Agency workers who work under a Swedish derogation contract have a permanent contract with their agency, not the end client. This gives them access to be paid between assignments but not receive the same wage / employment benefits as other members of full-time staff. 

The practice is legal, but has faced criticism for allowing recruitment companies to exploit agency workers. It is believed that once the repeal has been passed that agency workers can be confident that they have a legally enforceable right to be treated and paid equally to colleagues employed directly by the employer.”