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How much does it really cost to keep a construction worker in Sweden?

Foreign construction contractors who have not previously dealt with collective bargaining agreements in the Swedish construction sector may underestimate the true total cost of keeping workers in Sweden. In this article, we will show exactly what types of additional costs need to be accounted for upon signing a collective bargaining agreement and what can happen if you are not careful.

One of the most important cost categories for many construction projects is the hourly cost of the workforce. The client wants to obtain the services of a foreign subcontractor at the best possible price, and the subcontractor needs to be aware of the actual cost of each man-hour sold and the expected profit. Larger Swedish construction companies often require the subcontractor to sign a collective bargaining agreement with the local trade union and to comply with the requirements and obligations laid down in the agreement. These requirements, however, increase the subcontractor’s costs significantly and it is essential that the subcontractor knows how much those costs may increase before he accepts the client’s offer.

A common scenario is that a Swedish client makes an offer to a foreign subcontractor where the hourly rate seems high at first glance – but on the condition that the subcontractor signs a collective bargaining agreement with the trade union. Temporarily blinded by the higher than usual hourly rate, the contractor agrees to the terms and only starts to realise the extent of the increased costs once the project is underway. This can lead to failure to live up to all the new obligations the subcontractor has undertaken, and the contractor might feel forced to resort to illegal measures to keep himself above water. Common tactics include deliberately not paying labour taxes or falsifying worked hours or statistics presented to the union, to give an impression of lower salary liabilities. All of this will very likely lead to problems either during the project or after, in the form of penalties enforced by the trade union or the tax agency. The union might compel the main contractor to remove the subcontractor from the worksite, or issue hefty fines to the subcontractor for breaking agreement clauses. All of this will effectively wipe out any profit from the project and the company’s reputation.

To shed some light on the types of additional costs resulting from collective agreements, I have prepared 3 examples of hourly cost accounting for employees in different situations. The calculations are based on one of the most common collective bargaining agreements called the “Byggavtalet” (The Construction Agreement) overseen by “Byggnads” (Swedish Builders’ Union) Byggavtalets terms and conditions cover more than 30 different job categories in the construction sector. In these examples, I only take into account the wage costs, so accommodation, transport between countries, workwear, tools and other costs related to keeping the builders on site have to be added as well, based on the company situation, to get the most accurate cost calculation.

The examples below are based on the following assumptions:

1: The subcontractor is a Swedish legal entity, and the employee is a Swedish tax resident. The employment contract between these parties employs Swedish terms and conditions.

2: The employee lives permanently in his home country (which is not Sweden) but works and spends most of his time in Sweden.

3: The employee has 6+ years of work experience, i.e. is entitled to receive the Byggavtalet maximum rate of pay.

4: The company and projects are based in Stockholm and the taxes are calculated using the tax table for Stockolm, (Skattetabell 30), and the average salary in the Byggnads Stockholm area is 220 SEK/h. 

5: There are 30 days in an average month, 21 of which are working days, and each working day is 8 hours long (excluding breaks and lunches).

6: The employer is obliged to set aside money for the employee’s vacation fund, which is 13% of gross salary. This, of course, comes with additional social security contributions costs.

7: The employee’s accommodation in Sweden is 10 km from the work site. The employee travels to and from the site each day in their personal car.

8: The employee expects to receive a net salary of €15-16 per hour. The EUR/SEK exchange rate is on average 11,5.

Example 1: Company has signed Byggavtalet.

Comment: Although this calculation illustrates a situation where working conditions are easily discernible (we do not take into account overtime or posting terms, for example), we can already see quite a few different cost categories. Fora insurance, for example, is an expense that many newcomers to Sweden are not used to. Fora includes contributions to a pension fund, and an insurance package that protects the employee against accidents at work and dismissal. Fora contributions are a compulsory component of most Swedish collective bargaining agreements and apply to all employees working in a company with a collective bargaining agreement. The Fora payments are roughly 5% of the workers gross wage. The mandatory reimbursement of travel expenses is also a surprise for many employers. Byggnads is one of the few trade unions that requires reimbursement of employees’ travel to work, starting from a journey of more than 2 km from home to work.

Finally, it is also worth mentioning that many do not consider the cost of the holiday fund in their calculations, but this should certainly be included. The employer is obliged to pay the employee’s salary even if he is on holiday and not working. The pay for the worker during this period remains the same but without the worker generating billable hours. Therefore, the vacation fund cost should be included in the hourly rate. 348.41 SEK per hour is a very high cost and if the client offers, for example, 380 SEK per hour, which is quite common, especially for foreign companies, the company must ask itself: Can a gross margin of 31.59 SEK, or 8.3%, cover all the other project costs and still leave room for profit?

Example 2: Company has not signed Byggavtalet.

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Comment: In this example, there is no Byggnads contract, and it is much easier and cheaper to meet the employees’ net salary expectations. There is no set minimum wage by Swedish law, so the employee can be paid any amount they are willing to accept. In this example, the employee receives the same net hourly wage as in the previous example, but at a 62.49 SEK lower hourly cost. This means that the quote of 380 SEK per hour offered by the customer in the previous example is now much more attractive. The gross margin is 94.08 SEK, or 24.76%.

The savings arise from the fact that without signing Byggavtalet there is no set minimum gross salary and there is no obligation to pay Fora pension fund contributions. It is also possible for the company to make use of the national daily allowance. In Sweden it is allowed to pay daily allowance even on domestic work trips. In the construction sector – if it is not possible to pinpoint the usual place of work – the home address of the worker must be used as a starting point. In practice, this means that wherever the employee works in Sweden, the employer can pay tax-free daily allowances.

Not using Byggavtalet ensures, firstly, that there is flexibility in setting the salary and, secondly, that there are no complex additional salary components (such as travel allowance). Another important point is that, without Byggavtalet, the employer can pay individual salaries to each worker according to their competence. This creates a more equitable pay structure in the company, and saves on unjustified costs, as each employee is paid exactly what he or she is worth to the company.

Example 3: Company has signed Byggavtalet + daily allowance obligation.

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Comment: The last example is a black scenario that could very well happen if the necessary groundwork is not done. The unexpected extra cost arises from the fact that Byggavtalet treats postings a little differently than Skatteverket (Swedish Tax Administration). There are two main differences. Firstly, the Skatteverket allows the employer to pay daily allowance voluntarily, but Byggavtalet makes this compulsory. Secondly, the occurrence of business trips is usually measured from the usual place of work, but the Byggavtalet measures this using only the workers usual place of residence. Because foreign contractors usually hire foreign workers, the workers homes are often located in other countries which means that wherever they work in Sweden, it is more than 70 km from home, and therefore constitutes a business trip.

Fortunately, this extra cost can be prevented. In the Byggavtalet it is written that when an employment contract is drafted, it is allowed to pinpoint the employee’s “home address” at the same address where he or she temporarily lives (§6, 3.8), usually an apartment, hotel, or other type of accommodation near the work site. If the employer knows how to draw up the employment contract correctly from the start, it is possible to avoid an unexpected liability in the form of mandatory daily allowance.

So, what caused the surge in costs in this example? Byggnads considered that, because there was no mention in the employment contract of changing the employees home address, the employee had been on a posting and was entitled to a daily allowance of 290 SEK per day (435 SEK if the employer does not pay for accommodation). This unexpected extra cost led to a rise of the hourly total cost by 51,79 SEK, or 14,9% higher than in the first example! If the project hourly price would be 380 SEK, then this project would be unprofitable from the start.

In reality, this kind of situation would play out the following way: the employer, who has been paying what he considers to be the correct wages to his employees throughout the project (example 1), now finds himself in front of Byggnads, which carries out audits on an annual basis. Byggnads checks the company’s pay slips, payments and employment contracts. They find that employees have not been paid the daily allowance they are entitled to and issue the company with a large fine for non-compliance, usually in proportion to the unpaid salary components. The company is forced to pay the fine and the project ends in either massive losses or the company files for bankruptcy. Only because of one simple but catastrophic mistake.

Summary

As you can see, when signing the Byggavtalet collective bargaining agreement, the entrepreneur has a lot of additional obligations, restrictions, and hoops to jump through. These obligations consist of different salary floors and ceilings, bonuses, and the submission of salary statistics. One example of a restriction is the fact that the employee’s specific experience and skills cannot be the basis for setting the salary. The only thing that determines the salary is the length of time the employee has been active in the field and the geographical area in which he or she works. This can make it difficult to negotiate wages with different employees, as you may have to pay them more than they are worth to the company, or sometimes less.

My strong recommendation is to take into account any additional costs that will be incurred when signing a collective bargaining agreement. Most of the extra costs are easy to put a figure on, but there will be liabilities that are not so easy to estimate accurately (extra admin, risk of overtime, etc.) but the fact is that these extra liabilities will take extra resources from the company. All these factors must be considered when analysing the price offered by the client and whether the price offered covers all the additional obligations. If it does not, a higher hourly rate must be negotiated with the client, otherwise there is no economic justification for taking on such a project.

Would you like a calculated cost estimate tailored to your situation? I’ll tell you whether the project conditions are good enough and, if the project justifies itself, we’ll draw up a plan of action on how to enter Sweden smoothly.

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