With payrolling we encounter three different parties: 1) the party where the payroll employee is formally employed (the payroll employer), 2) the party where the payroll employee actually works (the contractor/employer) and 3) the payroll employee.
Currently, a payroll agreement is regarded as a temporary employment contract. With the result that the payroll employer can make use of the “lighter” regime under employment law for employment agencies. This means inter alia that:
- the temporary employment clause applies, which means that the employment contract between the payroll employer and the payroll employee terminates by operation of law when the contractor/employer terminates the contract with the payroll employer. The use of such a clause is limited to 26 weeks, but this period can be extended by means of the collective labour agreement to a a maximum of 78 weeks (this also happens in practice);
- the provisions on succession of fixed-term employment contracts will only apply after 26 weeks. This period can also be extended by means of the collective labour agreement to a maximum of 78 weeks (and that is usually the case);
- the provisions on succession of fixed-term employment contracts can be set out by means of the collective labour agreement in such a manner that only after 6 employment contracts, or after 4 years, a permanent employment contract arises (this also happens in practice). In combination wtth the above the right to a permanent employment contract will therefore only arise after 5 1/2 years;
- the obligation to continue to pay salary on the basis of the collective labour agreement during the first 78 weeks can be excluded (this also happens in practice).
Regular employers cannot make use of this “lighter” regime under employment law.
Other problem areas
Undesirable differences can arise presently for payrolling with regard to the applicable terms of employment between an employee, who is directly employed by an employer, and the payroll employee, who works for the same contractor/employer through a payroll firm. The fact is that the effect of payrolling is that the payroll employee does not fall under the applicable collective labour agreement in the business sector concerned and/or the group pension scheme at the contractor/employer or in the sector in which the contractor/employer operates. Unfair competition arises due to this vis-a-vis the other employees in the sector in which the contractor/employer operates. Furthermore, the payroll employee is in a disadvantageous position vis-a-vis colleagues, who are directly employed by the contractor/employer.
Furthermore, at this time, on the basis of Section 8 of the Placement of Personnel by Intermediaries Act, only restrictive equal treatment takes place with regard to the terms of employment for employees, who are directly employed by, or who are in equal or equivalent positions at, the contractor/employer. This concerns the pay and hours and this can be derogated from by means of the collective labour agreement (which frequently happens in practice).
Balanced Labour Market Act amendment I: final payroll agreement
The government has emphasised that payrolling, as a tool for making life easier for employers, must remain possible. However, payrolling is not permitted to result in worse terms of employment for the payroll employees and in competition of the terms of employment for employers.
The Balanced Labour Market Act introduces a definition of the payroll agreement in the Civil Code. In accordance with this definition there will only be payrolling if the payroll employer does not fulfil an allocation function in the labour market (i.e. that the payroll employer does not bring the supply and demand of work together) and the payroll employee is exclusively made available to the contractor/employer.
The contract between the payroll employee and the payroll employer and the contract for services of the payroll employer with a contractor/employer determine whether there is payrolling in conformity with this definition. This means that it is not looked at per company whether there is payrolling or assignment, but that this depends on each individual triangular relationship.
Balanced Labour Market Act amendment II: equal treatment regulation
An equal treatment regulation is included in the Placement of Personnel by Intermediaries Act, on the basis of which the payroll employer is obliged to apply the terms of employment that would have applied if the payroll employee would have been in direct employment by the contractor/employer to whom the payroll employee is made available. The terms of employment are taken to mean the individual as well as collective and the pay and hours as well as the fringe benefits. The conditions that apply at the contractor/employer, if this concerns the dismissal of an employee, such as a redundancy package, or a ‘from work to work’ process, are included in this. These rules and regulations cannot be derogated from to the detriment of the payroll employee, neither individually, nor collectively and not even by means of the collective labour agreement.
Balanced Labour Market Act amendment III: the lighter regime under employment law no longer applies
Furthermore, the implementation of the Balanced Labour Market Act arranges that the special provisions that apply to a temporary employment contract (“lighter” regime under employment law) no longer apply to the payroll agreement.
The Amendments above will be introduced on 1 January 2020. In principle the amendments have immediate effect. Insofar as this concerns amendments related to 1) the provisions on succession of fixed-term employment contracts and 2) that apply to the employment contract after 26 weeks (or a longer period agreed by means of the collective labour agreement), it applies on the basis of the transitional law that the old law will continue to apply to the temporary employment contracts, which have been concluded in the context of payrolling prior to 1 January 2020. This prevents that, as a result of the amendments, in the context of payrolling an ongoing temporary employment contract becomes a permanent employment contract. It also prevents that the provisions on succession of fixed-term employment contracts become applicable to an ongoing temporary employment contract, while that is not the case on the basis of the current law. The new rules and regulations will apply to temporary employment contracts that commence after 1 January 2020, in the context of payrolling.
Also having regard to the administrative charges, the government has chosen not to oblige payroll employers, who cannot or do not want to join the pension scheme of the contractor/employer, to arrange an equal pension scheme. However, the right is given to the payroll employee to an adequate pension scheme, which must comply with the rules and regulations to be further set out. The expectation is that these rules will come into effect on 1 January 2021.