Employer Of Record ' A Growing Trend For Employment Opportunities In The EU

• Published date: 13 April 2022
• Subject Matter: Employment and HR, Employee Rights/ Labour Relations
• Law Firm: Elias Neocleous & Co LLC
• Author: Ms Andrea Kallis Parparinou, Demetris Gregoriou and Aylin Zeybek

Unlike employers from European Union Member States, third-country employers seeking to employ personnel and carry out operations in a Member State do not enjoy the freedom of establishment or the freedom to provide services which is afforded to Member States by the Treaty on the Functioning of the EU (TFEU). Accordingly, third-country employers in this regard are limited in their options.

The general position in the Republic of Cyprus is that, in order for a third-country employer to employ personnel and carry out operations in its territory, it must register a local company or establish a branch, which acts as an extension of the third-country legal entity in Cyprus. Inevitably, this means that a third-country employer may be subject to certain tax and statutory contribution obligations, as well as expenses for incorporating and/or maintaining a local company or branch. They may also wish to instruct a professional service provider to carry out an assessment as to whether or not a permanent establishment would be created.

Consequently, third-country employers, including now also those emanating from the UK, are increasingly seeking alternative means of employing personnel in Member States, without being bound to the strict requirement of having local presence in a Member State and, hence avoiding the associated expenses.

Accordingly, investors who are keen to expand their businesses into the European Union have begun exploring different avenues/practices in order to be able to support their overseas structures and ensure greater sustainability in a simpler and more cost-efficient way. As a result, new relationship structures have started developing between employers and employees which need to be carefully examined.

One of the more recent trends which seems to be gaining popularity in EU jurisdictions are "Employer of Record" (EOR) companies. These are generally understood to be organisations established within a Member State that enter into an agreement with a third-country company to hire and pay employees on their behalf and take responsibility for all formal employment matters. An EOR company is meant to take the place of the employer and provide HR and payroll services for employees. Using this structure is said to allow third-country companies to indirectly engage with overseas employees in a Member State without having to set up a local entity.

Although it appears that an EOR abstains from participating in daily work activities, such as giving...