Employer of Record: out of the grey zone, but still far from clarity

This article originally appeared in the trade journal Grensoverschrijdend Werken.

Employer of Record – it sounds like a hip term that fits perfectly in an international employment context. Yet the concept is anything but new. For years, there have been constructions in which a third party acts as an employer for employees who are not officially on his payroll. And that is exactly what an Employer of Record (EOR) does: take employees “on the payroll” and outsource the exercise of employer authority to another party, namely the customer-user. Nothing new under the sun, but at the same time very topical. This is mainly due to the internationalization of the labor market. Companies that deploy staff in different countries are increasingly relying on an EOR. They cannot possibly be fully aware of every national legislation and therefore outsource this responsibility. For a long time, these EORs were in a grey zone, but recently the Flemish government has taken a clear position on the legality of their activities.

Prohibition on the provision of personnel

But back to the beginning, why should/can there be doubts about the legality of EOR activities?

In Belgium, there is a ban on the separation of the material from formal employership, the so-called ban on the provision of personnel. In concrete terms, this means that the legal employer may not outsource the employer’s authority – not even part of it – to a third party.

This term ‘employer’s authority’ is generally understood to mean the power to make decisions regarding recruitment, working hours, overtime and compensatory rest, as well as terms and conditions of employment and pay, justification of absences, holidays, promotion, training, disciplinary sanctions and dismissal. However, the exercise of employer authority can also be evidenced by the giving of instructions in the day-to-day performance of the employment contract.

It is therefore important that the reporting and management lines start with the company that is not only a material but also a legal employer.

There are several exceptions to this rule, the most important of which is that of temporary agency work. After all, a typical feature of temporary agency work is that the legal employer is separated from the actual employer. The temporary worker is placed on the payroll of the employment agency that is the legal employer, but receives his instructions on the shop floor from the client-user, i.e. the material employer.

Precisely because temporary work is an exception to the ban on lending staff, as an employment agency you need recognition in Belgium. The recognition can be applied for per region, for Flanders, Wallonia and/or Brussels. If the company’s usual activity consists of lending staff and the company does not have recognition for this, not only the lender but also the customer-hirer risks being penalised.

EOR: Neither fish nor fowl?

So what is the difference between an Employer of Record and an employment agency? And where does project sourcing fit into the picture?

The line between these forms of employment can sometimes be thin and is often in the nuances.

In summary, the differences can be explained as follows:

In the case of temporary work, the focus of the service lies in the supply of workers and unburdening in terms of personnel and payroll administration. The temporary worker is placed on the payroll of the temporary employment agency but is under the (material) employers’ authority of the user. As an exception to the ban on the posting of staff, temporary agency work is subject to a strict legal framework with a recognition obligation and restrictions in terms of permitted grounds and maximum durations.

In project sourcing, the focus should be on the outsourced project or service provided rather than on the person who executes the project/provides the service. We use the conditional tense because in practice this is often interpreted (too) loosely. After all, from a strictly legal point of view, project sourcing is no more or no less than the contracting of a work or the provision of a service in which the contractor/service provider bears full responsibility for the success of a project/the quality of the service provided and therefore also for the performance of the persons he appoints for this purpose.

This is where the difference with temporary agency work lies: in temporary agency work, the (material) employer’ authority is transferred to the client-user. In project sourcing, the employer’s authority remains with the contractor/service provider. This means that any instruction from the client- commissioner to employees of the contractor/service provider can be interpreted as a transfer of employer authority.

An Employer of Record is often somewhere between the two: the focus is not so much on bringing in a suitable worker but rather on unburdening the personnel and payroll administration. Although the employee is placed on the payroll of the EOR, the day-to-day management is done by a third party, the customer or the material employer. Unlike project sourcing, there is therefore a transfer of employer authority.

However, there has been a lot of discussion about the latter. That is why Employers of Record have been in a gray zone for a long time. The Flemish government has now become the first competent region to take a position on this by means of a short message on its website in which it confirms that an EOR does indeed need recognition as an employment agency in order to be able to operate legally in the region.

EOR: no solution for long-term collaborations?

This clarity is welcome, although it does not offer a solution to the phenomenon in the international labour market where internationally active companies need the support of an EOR to be able to switch quickly and with full knowledge of the facts. After all, an EOR has no intention of only temporarily employing employees for a client as an employment agency does; They employ employees with a long-term cooperation in mind. In the case of temporary work, the employment must essentially be temporary in nature (six months). It is said that this time limit would be waived for EORs, but there is much less clarity on this point.

The position of the Flemish government is a first step towards clarity regarding EOR activities. At the same time, there are still opportunities to refine the legal framework and make long-term employment through an EOR easier and more attractive. For internationally active companies, which use an EOR to employ staff in various countries quickly and in accordance with the law, a better coordinated policy can explicitly position Belgium as a competitive player on the international labour market.