Umbrella companies size up Swedish Derogation model

Temporary work agencies pledging ‘more collaboration’, ‘smoother information flow’ and ‘better synergy’ with one other is likely to put off the hard-nosed contractor, in business on their own account or not, when eyeing their potentially competing services.  

Throw in the term ‘SDM’ ('Swedish Derogation Model'), to explain the need for such a closer working relationship between umbrella and agency; owing to rules not due to come into force until October, and there’s a risk the contractor might switch off altogether.

But when the buzzwords are exchanged as management terms of endearment between, say, umbrella companies and recruitment agencies, the contractor should begin to take more of an interest.

The wake-up call is that all four phrases, which have been on the lips of umbrellas and agents ever since guidance to the rules - the Agency Workers Regulations - was published earlier this month, could signal an unprecedented boost in the continuity of contractor working, roles and earnings.

Put into freelance parlance, considerably less time sat ‘on the bench’ should result from one of the increasingly popular solutions (- the SDM) being adopted by umbrella companies, in a bid to put their contractors beyond the AWR’s reach.

That’s because under the SDM, indicated in the guidance as a way to remove umbrella temps from the AWR’s potentially unwanted provision of equal pay from the assignment’s 12^th week, the provider of the worker would employ them on a permanent PAYE basis.

This full-time commitment for a provider using the model would extend to paying the worker a salary in between jobs, similar to how payroll and employment agencies do in Sweden (hence the model’s name), where it was created -- as an ‘opt-out’ to the AWR.

The minimum outlay during such “non-working periods” must be at least 50% of the worker’s basic pay on-assignment and, add the SDM conditions, cannot be less than the national minimum wage. 

With these boxes ticked, the AWR rights to equal pay cancel out – as long as the worker is permanently employed by the umbrella which, through the SDM, must also take steps to find assignments for the worker.

This additional duty provides the first explanation as to why umbrellas are getting cosy with recruiters, with all their 'synergy' and 'collaboration' talk.

But it is the AWR itself, quite apart from the opt-out method of the SDM, which ties umbrellas and recruiters close together, as both are defined as a ‘temporary worker agency.’

And the AWR guidance reinforces this coupling, indicating that both recruitment agencies and umbrella companies are responsible for ensuring that the rights afforded under the AWR to the worker are not breached.

As a result, “information flow between agencies and umbrellas” will be “paramount” said one adviser, pointing out that a worker’s contract may need changing, based on data from the agent, for an umbrella to ensure up-to-date records and compliance with the AWR.

Not forgetting the end-users, one umbrella company said that actually “all partners in the supply chain for temporary labour need to come together” to make an assessment of each worker’s status under the AWR, where the SDM is used.

The umbrella, Parasol, added: “Hirers will also need to ensure that the agencies and umbrella companies they are working with have the financial strength to honour the ‘non-assignment’ payment obligation.”

Chief executive Rob Crossland cautioned that, despite appearing to be a viable option to umbrellas who want to remove their workers from the AWR, the Swedish Derogation Model has “got some issues.”

“One of the key issues, aside from all the technicalities, is will the [umbrella company’s] workers – the contractors [themselves] - actually accept it, culturally?” he asked.

“[Are they going to be happy with having] some of their pay stopped, and then paid out later? There’s quite a lot of thinking to be done …as to whether that’s acceptable [to them].”

But some temporary workers might not even get the choice as, for the SDM to qualify as an opt-out to the AWR, their contract must have been entered into before the beginning of their first assignment.

Underlining the need for all parties in the contractual chain to forge closer ties, the employment of those workers will not terminate at the end of an assignment “but would continue until the contractor returned to permanent work or decided to operate through a limited company.”

Either way, explained Contractor Umbrella, the requirements of using the SDM in response to the AWR are “of a nature that will necessitate a closer working relationship not only with contractors but also with recruiters”.

 “[This] is likely to lead to a greatly improved continuity of assignments for contractors”, managing director Lisa Keeble reflected.

“This is an ideal opportunity for recruiters and umbrella companies to really work closely together to guarantee the best possible choice of assignments for contractors.”

Not all umbrella companies agree. Asked about the SDM, and other potential ways to insulate their workers from the AWR which, some claim, can be bypassed by ‘doing nothing different’, one umbrella replied: “We’re keeping our cards close to our chest.” 

The recruitment practice at Osborne Clarke did address the SDM, albeit with caution: “We are advising clients to carry out AWR-specific 'due diligence' on providers who attempt to offer Swedish Derogation-compliant solutions.”

The legal adviser added: “Our clients will need to satisfy themselves that the provider's payment and engagement arrangements are robust enough to withstand scrutiny from the unions and ultimately an employment tribunal.”