Popular Employer Of Record Services
Understanding Employer of Record (EOR) Services
An Employer of Record (EOR) is a service offered by an external company that acts as the “legal local employer” for employees. This arrangement simplifies the complex legal and administrative tasks involved in global employment.
Here’s how it works:
- Employment Role: The EOR company “legal employer” officially hires the employee and takes responsibility for paying their salary.
- Fee Structure: The client company, which remains the “factual employer,” pays a fee to the EOR for these services.
- Daily Management: The day-to-day relationship and management, including the employee’s bond of subordination, are maintained by the client company.
This setup allows businesses to expand internationally without the need to establish a legal entity in each country, ensuring compliance with local employment laws while focusing on their core operations.
When to Use an Employer of Record (EOR)
An Employer of Record (EOR) is often utilized by companies looking to expand their operations and hire employees in new markets where they lack a local presence.
EOR services are beneficial for businesses that:
- Are unfamiliar with local employment regulations.
- Prefer to avoid the administrative and paperwork burdens associated with hiring in a foreign country.
Although mainly used for expanding business into foreign countries, EOR companies can also operate domestically. In some countries (such as the US, Canada and Australia), different states or provinces have different tax and employment requirements. In such situations, a local employer may choose to partner with an EOR to simplify its HR processes.
EOR Services and Their Limitations in Belgium
While Employer of Record (EOR) services and umbrella companies can support international employers in various countries like the USA, it is important to note that they are not compliant with Belgian legislation.
According to Belgian law, an employer cannot place its employees at the disposal of a client if the client exercises any part of the employer’s authority over these employees. This means that employees working under an EOR cannot take instructions from the client, who is considered a third party.
If a company’s main business is to find and hire employees for the purpose of placing them at the disposal of a client, it falls under the regulations for temporary work agencies.
Belgian Employee Lending Act
There is no legal definition in Belgium regarding an Employer of Record (EOR), but the legislature is clear if one looks at the model of employment EOR is using.
The Belgian Employee Lending Act defines employee lending as a situation where an employer allows a third-party user to use its employees’ services, with the third party (partially) exercising the employer’s authority. This Act generally prohibits third-party users from giving instructions that qualify as exercising the employer’s authority. Factors indicating such authority include the requirement for employees to seek holiday approval from the third party, reporting absences, facing disciplinary actions from the third party, or having salary decisions made by the third party.
When an EOR places an individual at a client’s disposal, the foreign employer must not treat that individual as its own employee by exercising employer’s authority. This legal restriction raises questions about how an EOR can legally operate in Belgium.
Consequences of Prohibited Personnel Leasing in Belgium
Engaging in prohibited leasing of personnel in Belgium can lead to several significant penalties, affecting both the Employer of Record (EOR) and the user employer.
Criminal Penalties
- Fines range from € 800 to € 8.000 per employee.
- Administrative penalties can range € 400 to € 4.000 per employee, with a maximum of 100 employees.
- Additionally, there could be a prohibition imposed on running the leasing organization.
Civil Penalties
- Employees involved are considered to have an employment contract with the user employer, rendering the contract between the employee and the EOR null and void.
- Both the EOR and the user employer may be jointly liable for all remuneration, benefits, and social security contributions due under this contract.
- The user employer may also face liability for non-compliance with various other employer obligations.
Commercial Consequences
- According to the Supreme Court case law, invoices related to the lease of personnel cannot be enforced.
These penalties highlight the importance of understanding and complying with Belgian employment laws to avoid severe legal, financial, and commercial repercussions.
Alternative Solutions for Employer of Record (EOR)
For employers looking to comply with Belgian law, it is essential to avoid reliance on Employer of Record (EOR) services and instead consider alternative staffing solutions that adhere to local regulations. Fortunately, two alternatives exist:
In Belgium, businesses can opt for the services of a temporary work agency. They must meet legal conditions to be recognised as an temporary work agency. We cannot say this is a cheap alternative because the employer can never enjoy reduced contributions for a first employee. Certain employees do not like working as temps.
Alternatively, most foreign employers choose for the quick and efficient setup of payroll for foreign employers without establishment in Belgium (also known as Non-Residential Payroll (NRP)), ensuring compliance with local laws. On top this is the cheapest way to employ a first employee in Belgium. From an employee’s perception, this is best as the he works as a full employee for his employer.
Interested to know more? Use the contact sheet below.
Annual amount of employer contribution foregone for recruitment of first employee through EOR
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