Employer of Record in practice: dissecting cross-border cases
This article originally appeared in the trade journal Grensoverschrijdend Werken.
In issue 76 of the journal Grensoverschrijdend Werken extensive attention was already paid to the concept of the Employer of Record (EOR) and to the recent position of the Flemish government on this matter. Although this position is an important step towards greater clarity, it also raises additional questions. To what extent are the Belgian EOR rules relevant when services are provided abroad? And how should situations be dealt with in which the EOR itself or the material employer is established abroad? In this follow-up article, we will delve deeper into these questions on the basis of a number of concrete practical cases.
Short refresher
Before we dive into the depths, let’s take a quick refresher on our previous contribution.
An EOR relieves employers of their worries in terms of payroll and personnel administration and goes so far as to take the employees on their (own) payroll. The EOR thus becomes the legal employer of employees who are de facto managed/used by a client-third party to the employment relationship (i.e. the material employer).
The customers of EOR providers are often international companies that are looking for that administrative unburdening. This construction is often used because international players cannot possibly be aware of every national labour law with all its details and nuances. Sometimes it is also a matter of not yet having a sufficient foothold in a certain country and people first want to explore the market before setting up their own entity.
In Belgium, the EOR story is somewhat complicated by the so-called ‘prohibition on the provision of personnel’. In short, this prohibition means that material employership cannot (just) be separated from legal employership. And let that be the business model of an EOR …
In addition, the Flemish government has recently taken the position that EORs can only operate validly in Belgium if they are recognised as temporary employment agencies. However, the principle of temporary employment is that it is a temporary employment with a client-user of the employment agency. In an EOR construction, on the other hand, a cooperation of indefinite duration is the starting point. At present, there is no good solution for this discord.
Work performed outside Belgium?
The question of this contribution is how to deal with this discord in the Belgian labour market in cross-border cases?
The crucial question will be where the work performance is delivered. Do they take place on Belgian territory or abroad?
To make this a bit more concrete, we would like to start from the following case. A company with HQ in Belgium wants to recruit an employee in the Netherlands and in Poland, without immediately setting up its own legal entity in these countries. The Belgian company is engaging an EOR party in the respective member states for this purpose.
In this situation, no work will take place on Belgian territory nor will the EOR party be established in Belgium.
In principle, the Belgian legislator has little control over this. After all, the applicable employment, wage and employment conditions are determined by the law of the country in which the work is actually carried out, in this case the Netherlands and Poland.
The Belgian ban on the provision of staff is therefore not relevant in this scenario. The focus shifts to the local legal framework: does the national law of the country concerned allow EOR arrangements and, if so, under what conditions?
Work performance in Belgium?
A different assessment is required when the work is carried out on Belgian territory.
Such as an international group with HQ in Germany that does not yet have substance in Belgium but employs an employee from the Belgian home address via an EOR based in Belgium.
Belgian employment law does apply to this situation in which employees of a Belgian EOR perform their work entirely from Belgium, for example through homework, for a foreign client. This implies that the Belgian ban on the provision of personnel also plays a role.
In this case, the Belgian EOR will therefore have to obtain recognition as a temporary employment agency in order to be able to carry out its activities validly. In the absence of such recognition, there is a risk that the arrangement will be qualified as a prohibited provision of personnel, with all the consequences that entails.
Intra-group lending as a solution?
As soon as there is substance within an international group in Belgium through a legal entity, employment could be organised through the Belgian entity. But even then, the Belgian ban on the loan of personnel must be taken into account.
Legally, we may have Belgian employment, but often there is a foreign reporting line in those situations. In other words, the management manages the Belgian employment from a foreign group company.
It is important that any exercise of the employer’s authority from that foreign group company takes place in the name and for the account of the Belgian entity, i.e. the legal employer. The foreign group company will not be allowed to use the employees of the Belgian entity for its own benefit.
If this foreign company acts on the basis of a mandate, in which it acts exclusively as an agent of the Belgian employer, in the name and on behalf of the latter, there is in principle no question of a prohibited posting.
As soon as doubt arises about the existence of an actual mandate, or if it appears that the foreign company uses the employees for its own interests – as a result of which the Belgian company in fact acts as an EOR – it can still be concluded that there is a prohibited posting. In such a case, recognition as a temporary-work agency is therefore required.
The Belgian ban on the provision of personnel creates additional challenges in an international context. Legislative intervention that focuses on the possibility of temporary employment for an indefinite period seems welcome to strengthen our competitive position on the international labour market.