Are Employer of Record solutions legal?

Employer of Record (EOR) service providers have been around for about 10 years now (depending on who you ask). When they were a brand-new concept, governments hadn’t yet had the opportunity to decide what they thought of this new way of employing. On the one hand, EORs would mean that people who had been engaged as quasi-consultants would now be on a payroll, ensuring the proper taxes and social security payments were being collected. On the other hand, businesses not having to have their own entity in their target country could raise questions on whether the right corporate taxes have been paid.

Are Employer of Record solutions legal?

What we have seen over the last decade is governments defining their position on the validity of “labor leasing”, the service offered by Employer of Record companies. And there are broadly three schools of thought; “we’re cool with EOR, go ahead”, “we’re ok with EOR but only within our set of rules” or “not in our country thank you”.

The first group are easy to deal with and, thankfully, cover most of the world. Employer of Record solutions are 100% compliant with no limitations beyond those of any other business.

The second group are typically ok to. Germany was one of the first countries to set out its labor leasing rules (treat the leased labor fairly, don’t have a long chain of parties involved and don’t think you can do this forever) and, though they do mean some limitations, they are not overly onerous and certainly not a showstopper. In fact, as a provider of Employer of Record services, we like the, typically Germanic, rule set as they are unambiguous and require no “interpretation”.

Regulators Against Employer of Record

Where the Employer of Record landscape gets really interesting is with that third group. The ones where the regulators are against the idea of Employer of Record. Belgium provides one such example. Quoting Business Belgium, “According to the Belgian legislation, it is prohibited for an employer to put its employees at the disposal of a client which uses these employees and exercises any part of the employer’s authority over them”. It is precisely this kind of language which opens up grey areas and allows EOR providers to compliantly go on delivering materially the same service.

Allow me to expand on that using an example. If a client approaches their EOR provider and asks them to employ a team of office cleaners on their behalf, and that group of cleaners is instructed in their duties by the client, that would be EOR. If the client trained the cleaners, disciplined one of that team or offered a pay rise, all of those things would also suggest an Employer of Record model.

However, if the client approaches their EOR provider and says they need a team to clean their office, and the EOR provider sends that team in to fulfil that task, with no direct guidance from their client, that is merely provision of a service and completely allowable. It is simply a matter of direction and control.

Legal Differences

The specific things which each government outlaws mean that in some cases, there is no legal work around. In the service provision model, that team of cleaners in my illustration, could not declare externally that they are employed by the client business. Were they, for example, a Marketing Manager, that probably wouldn’t be viable. Similarly, the people engaged through the PEO company should not have reports who are employed by the client. That would also give lie to the idea that this was simply the provision of a service.

Of course, the laws of each country are different and so the nuances required for an EOR company to offer their service, vary from one to the next. The subject is complicated and this article necessarily simplifies it. But what we can conclude is that in most countries, Employer of Record businesses can provide a compliant solution for a wide variety of roles.

Agility EOR prides itself on doing the right thing, operating compliantly within the bounds of each country’s laws. We commit to give our clients an honest assessment of whether our solution works for them. To discuss your objectives and the best way to achieve them, contact us today via hello@agilityeor.com