The Netherlands: Proposed Restrictions to Employer of Record Arrangements

The proposal includes the following possible changes:

• New de facto employer requirements. EORs would only be allowed to sponsor and employ highly skilled employees if the company at which the sponsored highly skilled employees will work (the “de facto employer”) either (a) applies for recognized sponsorship or (b) if the de facto employer is otherwise a start-up that does not qualify for recognized sponsorship. Currently, EORs need to be recognized sponsors but de facto employers do not.
• End of long-term EOR arrangements. EOR-sponsored highly skilled work permits would only be valid for two years and no longer have any possibility of renewal. After the two-year period, the employee would need to be employed and sponsored directly by a de facto employer if the employee wants to retain a work permit. Currently, EOR-sponsored highly skilled work permits are valid for five years and can be renewed repeatedly, meaning that EOR arrangements can last indefinitely.
• Stricter compliance requirements. EORs would also be subject to stricter compliance standards. These would include the following:
  • When filing an application, EORs would need to justify why the employment relationship requires an EOR arrangement as opposed to a standard employment relationship;
  • EORs would need to provide their sponsored employees with details about the EOR’s compliance and regulatory obligations; and
  • EORs would be subject to stricter government notification requirements. Authorities are yet to provide further details on such notification requirements.

These reforms, when approved, will make it more difficult to rely on EOR arrangements to hire highly skilled employees. This may be particularly significant for companies that rely upon EOR arrangements to resolve talent management challenges in the Netherlands. EOR arrangements are particularly relevant to companies that are new to the Dutch market, and who are looking to engage employees located in the country but avoid the administrative and monetary cost of establishing a formal presence. 

EOR arrangements can be summarized as follows:

• A company organized as an EOR acts as the formal and legal employer for an individual and then lends or leases the individual to a second company in another country that acts as the de facto employer, in that this company exercises actual managerial control over the employee and is the recipient of the employee’s substantive work output.
• The EOR, meanwhile, remains the formal employer of record and discharges human resources-related administrative and regulatory obligations, including income tax, payroll, social security, workers compensation, employee benefits, and insurance issues, among others. The EOR also acts as the employee’s immigration sponsor. 

EOR arrangements allow foreign companies to effectively, though not formally, hire employees in a given country while avoiding the administrative challenges and costs of establishing a formal presence in that country. 

These changes are expected to be approved and implemented at the next legislative review in 2025. We are closely monitoring the situation and will report on relevant developments.