Can companies engage employees through umbrella companies or professional employer organisations?

Yes. There are two alternatives, set out below.

Firstly, it is possible to execute independent services agreements with outsourcing companies (independent contractors incorporated as legal entities providing specialised services). Companies may execute an agreement with a corporation providing independent services. The individual would not be directly hired by the company, but would be employed by the outsourcing company. Under the service agreement with the outsourcing entity, the individual would render his or her services for the company but cannot receive orders and instructions from the company and cannot be subordinated to it.

Alternatively, companies can execute agreements with temporary employment agencies (TEAs). TEAs are companies that contract for the rendering of temporary services on behalf of third parties. These individuals are hired directly by the TEA, which for all purposes is its employer. TEAs must be legal incorporated entities the corporate purpose of which is limited to the supply of personnel. To operate, it is mandatory for these companies to obtain a special authorisation from the Colombian Ministry of Labor.

The only entities permitted to provide these services are TEAs. Colombian law states that it is only possible to engage personnel through TEAs in the following scenarios:

• for occasional and temporary jobs (not lasting more than one month and not related to the regular activities of the company);
• to replace employees on vacation or leave of absence or who are unable to work due to illness or maternity; or
• to address increases in production, transport, sales, during harvest periods and to render services.

In any case, the relationship may not last more than six months, renewable for another six months.

Legal risks

The first alternative could be deemed illegal, as it may be considered illegal supply of personnel since the outsourcing entity would be supplying personnel to the company without being authorised to do so. In this scenario, both companies could be penalised by the Ministry of Labor with fines of between 1 and 5.000 minimum monthly legal wages (for 2021, the minimum legal monthly wage is COP 908,526 (USD 239)). In addition, if the company directly subordinates the individual, s/he may claim the existence of a direct employment agreement with the company.

In the second alternative, the use of this scheme is temporary (up to one year). If the time limit is exceeded, the following risks will arise:

• Imposition of sanctions by the Ministry of Labor of between 1 to 100 minimum monthly legal wages per employee, or sanctions between 1 to 5,000 minimum monthly legal wages for using a scheme for illegal intermediation that violates the employees’ rights; and
• Following litigation, an Employment Court may declare that the individual is in fact an employee of the company. In this scenario, the company could be obliged to pay all extra-legal benefits and the differential between what the employee has received and salaries and benefits paid by the company to its own employees.

Can companies engage employees through umbrella companies or professional employer organisations?

Yes. Companies are permitted to engage employees through umbrella companies or employer organisations in Denmark.

Can companies engage employees through umbrella companies or professional employer organisations?

Yes. In Finland, engagement of an employee through a professional employer organisation (PEO) without a local corporate presence is generally allowed. However, in these arrangements, an employee is considered a leased employee under Finnish law.

The rights to direct and supervise the work are transferred to the ‘user company’ together with the employer obligations directly related to the performance of the work and its arrangement (e.g. occupational safety and equal treatment). Other employer obligations (e.g. payment of salary, annual leave, occupational health, employee insurances) are usually not transferred to the ‘user company’ but remain with the PEO operating as a third party agency.

For user companies, there can be restrictions related to the use of leased employees in collective agreements. In addition, the user company must observe the requirements of the Act on the Contractor’s Obligations and Liability when Work is Contracted Out before contracting for the use of leased employees.

Can companies engage employees through umbrella companies or professional employer organisations?

No, not unless they have an official temporary work permit.

In Germany, it is not permitted to hire employees through an umbrella company or an employers’ association, unless these companies have an official temporary work permit and observe the prerequisites that apply to temporary work.

In principle, a foreign company can also employ German staff in Germany itself. If a foreign company does not wish to employ the staff working in Germany itself, it has the option of employing them through a temporary employment agency by way of temporary work. Only companies with an official permit to provide temporary workers are allowed to lend workers to other companies in Germany.

An official temporary work permit can also be obtained by a company whose business model is not solely the supply of workers. In principle, umbrella companies or employers’ associations can therefore also seek permission and subsequently lease workers to the foreign company. The restrictions that apply to hiring out employees must also be observed. Among other things, the hiring out and employment of temporary workers is only permitted if an employment relationship exists between the temporary worker and the hiring company (employer). In addition, requirements such as the maximum duration of temporary employment must be observed: the hirer may not assign the same temporary employee to the same borrower for more than 18 consecutive months.

Legal risks

If a foreign company nevertheless employs workers from an umbrella company, an employers’ association or any other company that does not have a temporary work permit, legal consequences and fines may result. The employment contract between the employee and the company that hired him or her is null and void if the worker does not object to this.

In principle, in these cases an employment relationship is established by law with the company for which the employee works. However, if the company in question is a foreign company, this will not apply. Nevertheless, the foreign company may be fined up to EUR 30,000; for specific individual violations the fine may be up to EUR 500,000. In addition, both companies are liable for the employee’s wages and social security contributions due.

Can companies engage employees through umbrella companies or professional employer organisations? 

No. The employment of foreign workers through umbrella companies until the establishment of the foreign company’s branch in Greece is not a common practice.

Legal risks

This practice could also be extremely risky, since in the event of a random investigation by the competent tax and labour authorities, high administrative fines can be imposed. There may also be tax implications in relation to the employees involved. In the event of a risk of permanent establishment, companies are recommended to reconsider its future plans and proceed with the establishment of a local branch in Greece.

Can companies engage employees through umbrella companies or professional employer organisations?

Yes. In Kazakhstan, ‘outstaffing’ services may only be provided by local special purpose companies and branch offices of foreign companies, which must have an employment relationship with the employees being sent.

The employees being sent enjoy the same rights as the staff employees of the host party and may not be subjected to any discrimination.

Legal risks 

In the event of a violation of the ‘outstaffing’ procedure, the host company is at the risk of there being held to be an employment relationship between it and the employee being sent.  In this case, the company may be liable for administrative fines for the absence of an employment contract (EUR 355-885) and failure to pay salary (EUR 355-885).

Can companies engage employees through umbrella companies or professional employer organisations?

No. Companies are not permitted to engage employees through umbrella companies or employer organisations in Luxembourg.

Can companies engage employees through umbrella companies or professional employer organisations?

Yes. New Zealand law allows for triangular employment relationships, where an employee of an employer performs work for the benefit of a third party (controlling third party) which is entitled to exercise control or direction over the employee that is substantially similar to that the employer is entitled to exercise.

Legal risks

An employee (or the employer) in a triangular employment relationship can apply to the Employment Relations Authority to join a controlling third party to a personal grievance claim, whereby the controlling third party may be liable for remedies to the extent that the actions of the controlling third party caused or contributed to the situation giving rise to the personal grievance. A further risk is that the employee may claim they are actually an employee of the controlling third party.

Can companies engage employees through umbrella companies or professional employer organisations?

Yes. However, these types of companies and organisations are very uncommon in Switzerland because there is no need for them. Under Swiss law, it is possible for employees either:

• to be employed by a foreign company; and/or
• to work for a company in the process of formation.

Legal risks

Under Swiss law, an umbrella company or a professional employer organisation is most likely to qualify as a staff leasing company with the corresponding mandatory obligations towards authorities, employees, and parties to the collective bargaining agreement.

Can companies engage employees through umbrella companies or professional employer organisations?

Yes. Ukrainian legislation does not directly prohibit nationals from being hired by a foreign employer to perform work in Ukraine until that employer completes the process of setting up a local legal entity or non-permanent establishment. Although there are relatively few judicial decisions on this matter, if an employee performs work in Ukraine, even on behalf of a foreign entity, the employment relationship will be governed by Ukrainian law.

A foreign entity is not required to be mandatorily registered as a non-permanent establishment. The practice of hiring Ukrainian employees through professional employer organisations or, so-called ‘outstaffing’ agencies, is also common. These organisations must be registered and licensed in Ukraine; however, it is not specified, under which circumstances an outstaffing agency can be attributed to the umbrella company. Ukrainian legislation does not specifically cover the assignment of employees by outstaffing organisations to foreign entities. 

Legal risks

Neither a foreign entity nor professional employer organisation has legal risks, provided that outstaffing activities are not artificial and the organisation concludes employment agreements with assigned employees, as well as carries out all accounting, tax and personnel duties. Otherwise, an outstaffing employee may be held to be ‘undeclared’, giving rise to tax obligations for a foreign entity or an outstaffing agency with fines to be paid for non-compliance with tax and labour obligations.