Swedish Derogation ends: should permanent recruiters be worried? | Recruitment News UK
• The government pledges to end ‘Swedish derogation’ rules. But will this boost temping agencies at the expense of permanent recruiters?
• Britons work the longest hours in Europe. So why does our productivity data tell a different story?
• The Office for National Statistics published its most recent findings this week. Let’s take a look at the current job market trends.
UK Government signals end of Swedish Derogation
A change in the law is a win for temping agencies – but it might come at the expense of permanent placements.
This week, the government indicated that it would end the so-called ‘Swedish Derogation’ rules for agency workers. The changes, which come into effect next year, make provisions for temporary staff and agency workers.
Critics of the current arrangement have stated that the Swedish derogation can reduce the hourly pay of temporary staff. But we consider how changes may adversely impact the value of permanent placements in 2020 and beyond.
What is the Swedish Derogation?
The Swedish Derogation is often characterised as a set of exemptions from equal pay laws. In reality, it is slightly more complex than that.
The derogation (‘exemption’) affects the way agency staff are employed. Specifically, it states that temping agency staff are the employees of their agency, and not of the client company where they provide labour. It allows temps to draw certain workplace benefits directly from their employment agency.
But the system is not without flaws. Under it, agency staff can be paid less per hour than permanent workers – even when performing identical duties. Critics of the system say that this undermines the Equal Pay Act, which ensures all workers receive similar pay for similar duties.
However, the agency itself is required to provide equal pay to all temps who perform similar duties. The only difference is that the agency is not obliged to match the salaries of permanent staff in the client company who their temps may be working alongside.
And the system affords temps a set of additional rights, too. Temporary workers become eligible for certain benefits, including holiday leave and sick pay. These are drawn from the temping agency itself, not the client company.
Plus, the Swedish derogation makes it compulsory for temps to be paid between placements. Agency workers must receive at least 50 per cent of the hourly salary of their most recent placement. This wage also has to meet National Minimum Wage requirements.
Agencies are then liable to pay the temp for four weeks between placements. During this time, the agency should seek a new placement for the temp. If they are unable to find a suitable position, the temp stops getting paid. At this point, the worker is free to end their contract with the agency without penalty.
The origins of the Swedish Derogation
So why was the Swedish Derogation required in the first place?
Like the UK, Sweden has struggled to balance worker rights with competitive market conditions for decades. In a famous test-case of the rules, a warehousing firm attempted to fire all of its permanent staff and replace them with unsecured temporary workers.
In the protests which followed, the country’s entire supply of alcoholic snapps was blockaded prior to all-important midsummer festivities.
The incident highlights a key concern of those who wish to preserve the existing laws.
Temporary workers will now sacrifice several rights in return for guaranteed hourly pay parity with full-time employees.
However, there is little to prevent an unscrupulous employer from sacking its entire permanent workforce and replacing them with unsecured temporary workers.
The employer can then create a full-time worker who essentially only exists on paper, and stipulate a lower hourly wage for this (now largely fictitious) employee. The temps then lose their existing workplace benefits, their between-placement salary, and they earn the lower hourly rate as well.
A reversal of the existing regulations could therefore incentivise the use of temping agencies over permanent placements in the future.
How Permanent Recruiters can prepare
So, should agencies that specialise in permanent placements be concerned?
Yes and no. The changes have the potential to spark a fall in demand for permanent staff. This, in turn, may affect the KPIs and bottom lines of permanent placement recruiters.
But this is by no means guaranteed. Any negative fallout from the end of the Swedish derogation would be the result of dubious employment practices by end-user clients. Agencies can therefore take steps to neutralise the effects of the changes.
• Read more: how advanced recruitment agencies are planning for the future.
If you are a permanent placement recruiter, the soundest advice would be to spend the next twelve months assessing the quality and working culture of your client companies.
Might you reasonably expect any clients to move away from permanent hires once rules are altered? A client that fits this bill may offer a fall in revenue from April 2020.
Understanding that the next twelve months might see a change in your priorities will allow agencies to prepare in time for the end of the Swedish derogation.
UK works the longest hours in Europe
Britons work more than any other EU nation – so why are we not the most productive?
Britain is frequently cited as the nation with the longest working week in the EU. A new study finds that this trend has continued in 2018.
The report by the Trades Union Council (TUC) has found that the average full-time employee in the UK now works a 42 hour week. The average working week across the EU is currently 40 hours.
But TUC secretary Frances O’Grady said that the figures were “nothing to be proud of”.
“Other countries have shown that reducing working hours isn’t only good for workers, it can boost productivity.”
“Britain’s long-hours culture is nothing to be proud of. It’s robbing workers of a decent home life and time with their loved ones. Overwork, stress and exhaustion have become the new normal.”
Longer hours – but productivity takes a hit
GDP data would appear to back up Ms O’Grady’s claims: Britain consistently under-performs in like-for-like productivity with our neighbours.
Countries which operate on a shorter working week frequently boast a higher hourly output than the UK. Belgium, the Netherlands, France, Germany and Ireland operate to an average 39 hour week and rank above the UK. Even Denmark, whose average employee works only 37 hours a week enjoys a higher hourly output.
In fact, Britain was ranked 14th globally for hourly output in 2017.
Despite the continued disparity, the average working week has actually shortened in the UK since 2009. However, it has been reduced by just 18 minutes over the course of a decade.
Researchers point out that, at the current rate, it would take 63 years for the UK to reach parity with the rest of the EU.
Latest ONS Job Market Figures
Data published by the Office for National Statistics this week shows the jobs market has continued to tighten.
The Office for National Statistics (ONS) released its latest report on the UK jobs market this week.
The data, which highlights a continuation of long-term market trends, covers the period from December 2018 to February 2019.
Unemployment has continued to fall, with 27,000 fewer workers actively seeking jobs in the period. Net unemployment totalled 1.34 million people. As a share of the workforce (16-65 year olds), unemployment ran at just 3.9 per cent. This is the lowest figure since November of 1974.
The total rate of employment also held its ground at 76.1 per cent, equaling the highest since records began.
Meanwhile, overall economic inactivity (those neither employed nor seeking work) also fell to the lowest on record. Economic activity is currently 20.7 per cent. Twelve months ago, it stood at 21.2 per cent. The data also suggests that the decline in male inactivity has also entered a long-term trend.
Since the mid-1970s, male economic activity rose slowly, as a product of greater workplace equality and the decline of many core industries. However, since 2012, economic inactivity among males has plateaued and, since early 2018, started to fall. Female economic inactivity has plummeted since the late 1970s. The rise in the age of retirement for women has also boosted the number of economically active women in the UK.
For a complete picture of the quarterly job market data, you can download the full report here.