Payroll Pitfall nr 1 : Umbrella Company and Employer of Record

Umbrella Company (Business Belgium)

Written by Xavier Norman

07/07/2020

An Umbrella Company and an Employer of Record are frequently used by expanding companies that want to hire employees in their target markets. They are not familiar with the local rules relating to labor and don’t want to concern themselves with administration and paperwork. An Umbrella Company and an Employer of Record can support international employers in various countries, but not in Belgium. On the other hand, you can use the services of temporary work agency, and it is easy to start payroll on short notice.

Compliance

Compliance is the top concern of most employers. When starting-up in a foreign country, employers want to reduce the workload and the risk related to locally employed workers.

In many countries Umbrella Companies and Employer of Record are taking care of local payroll, employment and HR tasks on behalf of their clients.

Unfortunately, the employment market in Belgium is completely different. In Belgium, it is not possible to rely upon the services of an Umbrella Company or an Employer of Record. Temporary work agencies need a licence to operate in Belgium.

Forget the Umbrella Company

What is an Umbrella Company?

An Umbrella company is a company that employs self employed contractors who work on temporary contract assignments at clients, usually through a recruitment agency.

The contractor becomes an employee of the Umbrella Company.This means that the recruitment agency will pay the Umbrella Company. The Umbrella Company deducts the necessary PAYE and national insurance contributions and pays the employee’s salary. This includes sick pay, maternity pay and paternity pay.

With an Umbrella Company, the employment continues from contract to contract, meaning that although an employee may have multiple contracts with different clients, the employee only have one employer, the Umbrella Company.

Umbrella Company in Belgium?

The activities of Umbrella Companies are illegal in Belgium.Umbrella Company (Business Belgium)

The problem is that it is not permitted that a self employed contractor is treated as an employee. The principal difference between both is the link of subordination. Employees perform their duties under the employer’s authority. Self employed workers perform their duties in absence of any form of subordination towards their client. An employer can never have the authority over a contractor and exercise the power to decide on all matters related to the employment of a contractor.

Self employed workers have to affiliate to a Social Insurance Fund. They are solely responsible from the payment of the social security contributions to be calculated on their income.

Employer of Record is not possible

What is an Employer of Record?

An Employer of Record (EOR) is a company that provides back-office services as the employer while the employee performs work at a different company. Employer of Record are legally responsible for paying employees’ salaries, paying employees’ taxes, handling al types of employee benefits, …

With Employer of Record, each new contract will be a separate run of employment that will end when the employee’s contract with the clients ends

Employer of Record in Belgium?

If you want to be compliant with Belgian law, you cannot rely upon the services of an Employer of Record.

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. An employee working for an Employer of Record can never follow instructions from a client, which is a third party.

Although this type of labor organisation is very popular in some parts of the world like the USA, it is not wanted in Belgium. If the core business of a company is to find employees and hire them with a view on putting them at the disposal of a client, they fall under the legislation of the temporary work agencies in Belgium.

Temporary work agencies

In temporary agency workersBelgium, the provision of staff is prohibited, except temporary work agencies. The triangular employment relationship between client, employer (temporary work agency) and worker (temporary agency worker) is strictly regulated. No other person or legal entity can interfere with the structure of triangular employment relationship.

As a result, it is impossible to outsource a part of the activities of a temporary work agency (e.g. prospecting potential candidates, prospecting potential clients, etc.) to a third party. There is one exception if this third party is also recognized as a temporary employment agency.

Every temporary work agency, even if they are established abroad, needs to be officially recognized by the competent Belgian regional authority (Flanders, Wallonia or Brussels).

For payroll, a legal entity is not required

Payroll in Belgium (Pro-Pay)

Don’t be discouraged, it is possible to start a payroll in Belgium. Simple and not expensive at all.

Most countries require from a company with employees on assignment, to run payroll according to local standards with a registered entity. Not in Belgium. Here, the creation of a legal entity is not always necessary.

It is possible to register the foreign company as an employer without establishment with the Belgian authorities, under certain conditions. Consequently, the foreign entity will be considered as the employer. It is recommended for foreign employers without establishment, to take adequate tax advice, to check if they meet all conditions to be exempt from paying corporate tax in Belgium.

Employers without establishment in Belgium have the obligation to appoint a social mandate holder based in Belgium. This person, should keep the social documents at an address in Belgium. The employer needs to notify the head of the social inspectorate of this mandate by registered letter, in principle, before the social documents are drafted.

According to Eurostat, the Belgian hourly labor costs are high compared most other countries of the European Union. However, the labor cost for first time employers is more than reasonable.

Until the end of 2020, new employers can benefit from reduced employer costs for a first employee. Labor cost decreases because of lower employer social security contributions for the first up until the sixth new hired employee, given that the company never hired an employee in Belgium before. Good to know is that the employer cost concession applies during the entire period of employment.

A competent payroll provider can start payroll on short notice.

 

  1. In Belgium, foreign employers that want to hire employees in Belgium cannot rely upon the services of an Umbrella Company or an Employer of Record. But there are interesting alternatives if you want to hire employees.
  2. The creation of a legal entity is not always necessary. It is possible to register a foreign company as an employer with the Belgian authorities.
  3. The employer cost reduction in payroll results in an almost full exemption of the employer social security contribution for the first employee. Contact your payroll provider for more information.

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