Payrolling

What is payrolling?

In payrolling, the employee is formally employed by a payroll organisation, while in practice he or she works for another company – the so-called hirer. This hirer is responsible for recruiting and selecting the employee, but transfers the legal employment relationship to the payroll company. As a result, the payroll party is responsible for, among other things, paying wages, deducting payroll taxes and social security contributions, and complying with labour law obligations. This arrangement reduces the administrative burden on the hirer and minimises the risk of errors in wage payments, sickness or dismissal.

The legal basis for payrolling in the Netherlands is laid down in the Balanced Labour Market Act (WAB). According to the WAB, a payroll agreement exists if the payroll employer does not perform an allocation function; in other words, the payroll company does not actively match supply and demand in the labour market. A temporary employment agency, for example, does perform this function. The employee must be made available exclusively to one client, who is referred to as the “hirer”.

For which employers is payrolling interesting?

For start-ups or small businesses that do not yet have their own HR or payroll administration. For entrepreneurs who want to focus on their core activities without delving into labour law and payroll administration.

Payrolling can be a way to limit employer risks such as continued payment of wages in the event of illness, reintegration obligations and dismissal procedures, and is often used by companies that do not want to have their own staff on the payroll because they only use the staff for short periods of time.

It can also offer a solution for international companies without a branch in the Netherlands. Foreign companies that want to employ people in the Netherlands without having to set up a legal entity or payroll administration in the Netherlands themselves.

Equal treatment of payroll employees

Despite outsourcing the administrative obligations, the hirer remains responsible for good employment practices in practice, such as working conditions, work pressure, etc. Moreover, payroll employees may not be treated differently from the hirer’s own staff. They are entitled to the same terms and conditions of employment, even if a collective labour agreement applies to the hirer. They are also entitled to holiday leave, sick pay and pension. The usual chain provision of a maximum of three consecutive temporary contracts also applies.

These measures are intended to prevent abuse of the payroll construction and to ensure equal treatment of payroll employees compared to regular employees.

Termination of the payroll agreement

The payroll employee has the same protection against dismissal and the same rights as the hirer’s own employees.

If a payroll employer wishes to terminate the employment contract, as in normal dismissal situations, there must be legal grounds for this, which often lie in the actual work performed at the hirer’s premises, also known as the “material employer”.

Conclusion

In short, as a hirer, you do shift the administrative burden, but you remain responsible for the employee’s rights and it is not a way to hire cheaper staff.

Authors: Employment law solicitors Judy Sliepen and Myrddin van Westendorp