Employer of Record in the Netherlands

published on 26 April 2024 | reading time approx. 5 minutes

by Annelinde Janssen und René Sueters

The Netherlands implemented legislation about the Employer of Record (EoR) as per 1 January 2020 in article 7:692 of the Dutch Civil Code. The goal of this legislation was to regulate this type of employment and include a clear definition of EoR, namely handing over all administration and risks associated with being an employer to an independent party that specialises in correctly remunerating employees and managing all formal employer risks. The EoR regulation were introduced in particular to make a clear distinction between EoR and temporary agency work.

Registration »
Employment conditions »
Tax features »
Future Outlook »

Currently, requests for EoR-services are rising again as cross-border work has become more important. The EoR is mostly used by foreign companies which intent to hire international workers, without having a legal entity in the Netherlands or are aware of the legal obligations in the Netherlands. This concerns companies which operate internationally or project-based. Employers who allow their employees to work from home abroad might also use this concept to reduce their administrative burden. Locally, mostly small companies (start-ups) or companies with an irregular workload work on the basis of an EoR-construction.

There are several case laws on the EoR-construction, especially based on the old legislation. Before this legislation came into force, the employee was most likely employed by a temporary employment agency. The temporary employment agency looked for a job for the employee and put the employee to work at a hirer. This resulted in the discussion whether this construction was based on EoR or regular agency work. In the EoR-construction, the employee is recruited and selected by the economic employer, which will do the recruitment process without involvement of the EoR. The company outsources the formal organisation of the work to an EoR where the employee will be in service. This EoR takes care of the salary payment, pay slip, tax and premium payments, absence supervision if the employee is ill, etc. As the distinction between temporary agency work and EoR was not clear, EoR-providers used the (for the EoR more beneficial) employment agency regulation. This led to abuses, so the legislation was amended accordingly and led to a clear distinction between temporary agency work and EoR.

Please be aware that in the Netherlands an EoR therefore means that the EoR will become the formal employer and is the party in the employment contract with the employee, whereby the economic employer will be the material employer who has guidance over the employee.

Registration

Based on the Dutch Workers Allocation by Intermediaries Act, a registration as EoR-provider is mandatory. This means that the transfer of work must be registered in the Trade Register of the Chamber of Commerce. This is only a registration requirement, so no further content requirements apply to become an EoR.

If this obligation has been violated, then in most cases a penalty can be imposed by the public authority. It is also forbidden to make use of employees that work at a non-registered EoR-provider. This could therefore also be a reason to receive a penalty for the economic employer.

Employment conditions

Because the EoR is not a temporary employment agency, the EoR-employee is not covered by the collective employment agreement for agency workers. Instead, the employee is entitled to the same terms and conditions of employment as those applicable to the employees with equal or similar positions directly in service of the economic employer (as included in article 8a Dutch Workers Allocation by Intermediaries Act) and the EoR should provide an adequate retirement provision (similar scheme to that of the economic employer or an adequate own retirement provision). In case there are no employees in service at the economic employer in equal or similar positions, the EoR needs to apply the same terms of employment as those applicable to employees working in equal or similar positions in the professional or business sector of the economic employer. This could lead to applying the conditions of a collective labour agreement under Dutch law or an investigation of which employment conditions are common under Dutch law in a specific business sector. As a result of this equal wage obligation, EoR-constructions are not cheaper. Furthermore, in the event of dismissal as a result of a reorganisation, the employee of the EoR has the same protection as the employee of the economic employer.

In principle, there is no legal limit to how long an employee can work via an EoR with the same economic employer. This means that an employee can work indefinitely via EoR with the same economic employer, as long as the economic employer and the EoR continue to meet all legal obligations. However, the contract may automatically convert into an indefinite contract with the EoR if the contract has been extended for more than three times or has exceeded 36 months.

Tax features

An EoR must meet all administrative requirements as they apply to all employers. For example, payroll records must be kept and a monthly payroll tax return must be submitted to the Tax Office. On this return, wage tax and social insurance contributions must be declared and then paid by the EoR. In case the EoR does not fulfil its obligation with respect to the salary tax return and payment of wage tax and/or social insurance contributions, the economic employer can be kept liable.

The Recovery Act contains a special liability in case personnel are hired. When the staff works under the direction or supervision of the hirer, the hirer can be held liable for the non-paid wage tax and social insurance contributions. It is irrelevant here whether the hirer is established in the Netherlands. A hirer established abroad may also face this liability. Of course this liability only exists in case Dutch wage tax and social insurance contributions are due.

In order to reduce the liability, the economic employer can use the Blocked account (G-account). The economic employer pays part of the invoice on the G-account of the EoR. From the G-account, the EoR can only pay payroll tax and social security contributions to the tax authorities. The amount for which the economic employer is held liable is reduced by the amount deposited in the G-account.

If a foreign located economic employer conducts activities in the Netherlands through an EoR, then there may still be a permanent establishment or permanent representative of the economic employer. An EoR does not prevent such a possibility. In case the employee of the EoR acts exclusively on behalf of the foreign located economic employer and concludes contracts in its name, this employee can be regarded as a permanent representative of the economic employer. The same applies in case of, for instance, construction activities exceeding twelve months. In such a case, the economic employer will have a permanent establishment in the Netherlands.

The tax treaty between Germany and the Netherlands does not contain special provisions with regard to the EoR.

Future Outlook

The EoR could solve employment issues in the Netherlands, especially in case of cross border working. As the Dutch employment law includes many mandatory legal regulations, which is less common in other EU-countries, it is more easy for foreign companies to provide services in the Netherlands by making use of an EoR. Even though, there is an equal wage obligation which will not lead to a lower wage for the EoR-employee, all formal obligations will be taken care of by the EoR. This is beneficial for the foreign company which is not aware of the local legislation and does not have the intention to hire a local human resource manager. It has therefore become more of a de-risking service, instead of a “cheaper” way of hiring employees. However, tax risks on a permanent establishment or permanent representative will not be prevented by employment through an EoR. As quite some companies still seeking for the least risky way of employment, the EoR still has a future under the current legislation.