Agency Workers Regulations - Swedish Derogation

Now that the first few weeks of the post-AWR world is upon us, service providers to the staffing industry and the contractors they place have been nailing their colours to the masts of the various solutions available.

For the true umbrella companies, a Swedish Derogation model has emerged as a favoured model.

In some sectors, it is the Match Perm Pay (MPP) solution that holds sway as hirers and staffing businesses are initially more comfortable with this over a Swedish derogation model, particularly where assignment rates are below the £10 bracket.

It's very much a case of one size does not fit all and as a result, many of the larger service providers will be offering both.

Scratch beneath the surface however and you'll find inconsistencies in the market place as to what constitutes a compliant AWR model and how best to apply it. And if an umbrella company is offering a Swedish Derogation model this could be a cause for concern for contractors.

Any AWR solutions need to be robust and truly compliant for them to actually work, and if they don't then the contractor can be left vulnerable.

In this exclusive article, Rob Crossland, CEO of Parasol, presents his checklist for 'good' AWR solutions:

AWR Solution Compliance Checklist

The 'true' umbrella companies have been developing their AWR solutions for the last two years and they should be proud of the results. However, there are examples out there where the both Swedish Derogation model and MPP model are not being applied correctly and this could be damaging for us all.

When it is applied correctly, the Swedish Derogation model has advantages for all those in the supply chain, including contractors; however there are basic principles that should be adhered to. Leading service providers have been at the forefront of developing post-AWR models, with input from prominent employment law experts and tribunal judges.

The summary below gives you the basis to start to understand if the temporary work agency is fundamentally set up as a true employment solution ahead of the technicalities specific to AWR, and of course all the factors below must be evidenced.

1. Firstly, a temporary work agency (and in this context we mean umbrella companies or staffing businesses running PAYE schemes for example) should be engaging contractors on a full contract of employment. The temporary work agency should also be demonstrably behaving as a true employer.

2. The contract of employment in question should clearly define minimum GUARANTEED hours of at least 336 per annum. The temporary work agency in question should not have a problem in providing both a copy of the contract nor evidence that the statutory requirements are actually being met, e.g. payment of guaranteed hours.

3. The temporary work agency must carry out the correct right to work checks ahead of engagement and have an initial expense validity process in place.

4. No transactions, funds or payments, nor any part thereof, are made or held outside the UK.

5. No payments (save for expenses and HMRC approved salary sacrifice payments such as childcare vouchers) are made to employees free of tax and NI.

6. The statutory minimum wage is always paid per hour irrespective of any other factors.

7. The temporary work agency operates and pays all statutory payments (e.g. statutory sick pay, statutory maternity pay) and can provide evidence to that effect.

8. The temporary work agency is genuinely considered to be the employer in any disciplinary/grievance situations including at an employment tribunal level and can again provide evidence of this.

Swedish Derogation Specifics

For a Swedish Derogation model to be effective, all of the above comes into play, plus some additional fundamentals.

The contract of employment should include a concise definition of pay and how it is calculated as well as being clear on statutory elements.

The compliant Swedish Derogation solution will also make provisions to offer pay for periods when the worker is between assignments.

In the event that the temporary worker agency does not receive funds from the client for work completed by the worker, the worker is still entitled to pay and holiday pay as defined in their contract of employment with the temporary work agency or as defined by AWR reg. 10 as minimum pay for periods between assignments.

MPP and expenses

Again, in addition to the compliance checklist above, the other key consideration for anyone relying on a MPP model relates specifically to expenses.
In order for a MPP AWR solution to be fully compliant with regulation 5 of the AWR then some expenses may be restricted as they are not considered part of pay. This is to ensure that the pay comparison is accurate.

On the face of it, this is contradictory to what it states in the guidance document published by BIS earlier this year. However, a tribunal judge will never make a decision based on guidance, they will base their judgments on what the legislation itself says and all of the legal advice we have received states that some expenses may be restricted for the reason outlined above.

Additional general compliance considerations

For all true outsourced employment solutions be they based on the Swedish Derogation model or not, there are some fundamental principles of compliance that are directly related to the provider's ability to deliver the service in question. These include:

1. All directors, shareholders and companies/businesses providing the service are domiciled/registered in the UK.

2. None of the directors have ever been disqualified from acting as a director. In addition no one involved in the management of the company is currently disqualified from acting as a director.

3. The company's latest accounts have been filed at Companies House within 9 months of its year end.

4. Said accounts have been prepared on a "going concern" basis. This should also still be the case at the time the question is asked.

5. Confirm that the most recent accounts have an independent audit opinion and that there are no matters of emphasis / references to any areas for consideration. This should be required at the trading company level and at all group company levels.

As an industry we need our response to AWR to be robust and compliant, protecting all those involved in the supply of temporary labour including the workers themselves.

It is alarming to see some in our industry scrabbling around at the 11th hour and the checklist above should give contractors a list of questions they should be asking the service providers they work with before engaging with them.

For agents, PSLs will never be more important and making informed decisions will be vital.

Thanks to Parasol for providing this article.