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Insights Employer of Record in Belgium

Employer of Record in Belgium

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​​​​​​​​​​​​​​​published on 26​ April 2024 | reading time approx. 6 minutes​

by Gunther Valkenborg

  

A foreign employer hiring employees in Belgium can rely on the services of an "Employer of Record" (EoR) to overcome the legal, administrative and tax hurdles involved, but there are legal restrictions to be taken into account, in particular with regard to the Belgian law on hiring out employees, which restricts certain powers of the hirer, as well as tax advantages that may not apply when using an EoR.
  

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​​Introduction​​

Employers who hire employees cross border are confronted with tax, social security and labour law consequences. Foreign based employers hiring in Belgium employees need amongst others to affiliate to the Belgian social security (if the employee works at least 25 percent of his time in Belgium), set-up payroll and withholding payroll taxes, will obtain a Belgian company number, are confronted with Belgian tax authorities about the matter of having a permanent establishment or not, but are also facing the application of Belgian employment legislation. 
   
To overcome these formalities, more and more foreign employers are relying on the services of an Employer of Record (EoR). 
   
While this is legally permitted in many countries, EoRs operating in Belgium and employers using the services of an EoR in Belgium have to consider the restrictions imposed by the Belgian Employee Lending Act. 
    

​What is an EoR and why rely on it ?

An EoR is not legally defined in Belgium. It is considered to be a company that is the legal employer of an employee who is basically working on behalf of the EoR’s client. The EoR ensures compliance with all applicable employment & immigration, tax and social security obligations on behalf of the client. An employee enters into service with an EOR (making the EOR the “legal employer”) yet executes work in favour of the client (i.e. the “economic employer”). In practice, the employment contract with the EoR includes base salary and variable income as provided for by the service user. However, since the EoR also needs to respect the additional (minimum) remuneration conditions of its applicable Joint Committee, such additional remuneration conditions will have to be applied as well. 
   
The EoR takes care of any and all administrative paperwork, the payment of the employee’s salary, the payment of social security contributions and tax withholding, etc. In exchange, the client pays a fee to the EoR. The (foreign) employer does not need to register with the Belgian tax and social security administrations and is not responsible for a smooth payroll process, nor does the foreign employer have to become familiar with the complexity of Belgian employment legislation. At first sight, using an EoR only seems to have advantages. 
However, there are restrictions! 
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​​Restrictions of the Belgian Employee Lending Act 

Under the Belgian Employee Lending Act, employee lending is defined as the situation in which an employer allows a third-party user to use the services of one or more of its employees in which the authority normally vested in the employer is (partly) exercised by such a third-party user.
   
Apart from some exceptions, the Employee Lending Act prohibits a user from giving instructions that qualify as exercising part of the authority vested in the employer. Whether or not employer’s authority is being (partly) exercised by a third-party user will (in practice) appear from a number of factual elements, such as amongst others (not limited to):
  1. the fact that the employee must obtain approval from the user to take holidays, 
  2. the obligation for the employee to report any absences to the user, 
  3. the fact that the user has the opportunity to impose disciplinary penalties upon the employee, 
  4. the user’s decision-making power to decide on salary increases, 
  5. etc.
   
In other words, when an EoR puts an employee at the disposal of its client (i.e. the foreign based employer), such client may not treat the employee as its “own” employee and exercise employer’s authority over this employee. 
Having such restrictions, one may wonder how an EoR can set-up a valid staffing solution on Belgian territory…
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​​How to set-up an EoR activity?

There are basically two possibilities for an EoR to set-up an activity in Belgium : 
  1. Either the EoR acts as a “mere” service provider, or 
  2. The EoR obtains a recognition as an “interim agency”. 
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The EoR obtains a recognition as an “interim agency”

From a Belgian point of view, interim work covers the situation in which a company calls upon the services of a recognized interim agency. The interim agency puts temporarily a “interim worker”, who is formally employed by the interim agency, at the disposal of its client.
   
Important is the fact that interim work is a (legal) exception to the general employee lending prohibition. In the context of interim work, the user is legally allowed to exercise (part of the) employer’s authority vested in the employer.
  
However, it is worth noting that the use of an interim worker is also legally restricted as it is only permitted for a limited number of reasons :
  1. the temporary replacement of a permanent employee, 
  2. a temporary increase in work, 
  3. the performance of exceptional work and 
  4. on the basis of “inflow” (employees first working as an interim worker to be hired by the client afterwards).
   
In order for the EoR to qualify as an interim agency, the EoR first has to go through an administrative procedure and meet certain requirements to obtain recognition as an interim agency. All in all, the recognition as an interim agency is a complex procedure. 
   
The recognition procedure is a regional competence. Because Belgium regionally consists of a Flemish region, Walloon region, Brussels-Capital region and a German-speaking community, there are four (different) proce­dures to consider. If the interim agency employs interim workers in each of those four regions, a recognition in all four regions is required. In practice, the qualification as an interim agency may not work for an EoR given the legal restrictions within which the use of an interim worker is allowed. ​
  

The EoR acts as a “service provider”​

In this situation, the EoR does not qualify as an interim agency but as a mere service provider. There is no need for obtaining a recognition. 
 
In order to avoid the legal prohibition on employee lending, a written service agreement must be concluded between the EoR (being the service provider) and its client, the employing entity (being the service user). The scope of the service agreement is to provide an actual service which is defined in the agreement. Also, the service agreement must clearly list in detail the exact instructions that the service user can give to the employee(s) of the service provider (EoR). Do note that these instructions can only be of a functional and operational nature. In other words, instructions can only relate to the way the services need to be supplied. But even then, the essential employer’s authority should at all times remain with the service provider. On the other hand, instructions regarding health and safety are always allowed. The service agreement also identifies the costs to be charged at the service user. Obviously, the execution of the agreed service must be fully consistent with the written provisions of the service agreement.
   
There is no real time limit during which a service agreement can exist between an EoR and the service user (factual employer). In theory, the service agreement can exist for an indefinite period of time, although from a Belgian point of view we tend to limit its application in time simply to avoid issues with the general prohibition of lending employees. The longer an employee works via an EoR set-up, the more the employee becomes part of the service user. ​
   

​Consequences of violating the Employee Lending Act

A violation of the prohibition of lending employees or a violation of the rules applying to interim agencies (and their users) may trigger substantial risks and liabilities, both from a civil law as well as a criminal law perspective.
  

​EoR and permanent establishment or other double tax treaty provisions

The service agreement will not solve issues relating to the presence (or not) of a permanent establishment for the service user. Although its visibility for Belgian authorities is less obvious (because there is no affiliation to the Belgian social security nor a Belgian company number attributed to the service user), there is a service agreement and a recharge of costs to the service user. Based on that, and of course given the nature of the activity performed by the employee put at the disposal of the service user (auxiliary or not), the presence of a permanent establishment cannot ruled out. In double tax treaties, there are neither specific provisions included relating to the services rendered by an EoR. Hence, normal rules apply which is also the case for social security purposes. 
  

​An EoR will not benefit from exemptions

Although the use of an EoR seems attractive, as a foreign employer you often miss out on tax and parafiscal benefits that the Belgian government has implemented. For example, as a foreign employer you can, under certain circumstances, benefit from a non-time-limited exemption from employer social security contributions for an amount of 3,100 euros per quarter (2024) when recruiting a first employee in Belgium (subject to Belgian social security). When you rely on an EoR, this exemption disappears and the usual social employer contri­butions apply. So as a service user of an EoR, you miss out 12,000 euros in employer social security exemption per year that the employee is employed. As a service user, you also cannot benefit from certain exemptions from payment of withholding tax to the Belgian Treasury, such as in R&D. This exemption relates to a system within which withheld payroll taxes do not have to be transferred in full to the Belgian Treasury (hence partial exemption). These are all cost-reducing measures that should make recruiting and working in Belgium attractive.​
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​Conclusion​

Yes, an EoR may look attractive for obvious reasons, but there are a lot of restrictions to consider, especially from an employment law point of view and the prohibition of lending employees. Also, an EoR is not always the most cost efficient way forward. As mentioned, working together with an EoR may impact adversely on cost-reducing measures applicable in Belgium. This needs to be analysed on a case-by-case situation. ​​​​​​

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