Recent years have witnessed a rise in the use of third-party employers by companies that want access to foreign workforce. Employer of Record (EOR) services are marketed by their providers as being the go-to option when hiring in a foreign jurisdiction for reasons such as time efficiency, cost effectiveness and limitation of liability in comparison to hiring through a directly owned local legal entity or subsidiary.
While these advantages might be present in some jurisdictions, at European level, and even more so in Romania, the framework set by Directive 2008/104/EC and by national regulations which enhance the minimal requirements set up by the European legislator make the risk benefit equation in favor of using EOR services in a much narrower set of circumstances.
Romanian legislation allows companies to use (and provide) EOR services through a mechanism known as Temporary Agency Work which enables a local company (the “Agent”) to hire and place temporary employees to work under the authority and supervision of another company (the “User”). Entering into a Temporary Agency Work agreement subjects the parties to specific limitations of which, the ones that most impact the User are:
a. Providing (at least) the same level of working and employment conditions for temporary workers as for directly hired employees on similar positions – same salary package, benefits, amenities and training; b. Taking appropriate measures to guarantee the personnel’s safety during working hours and working related activities; c. Guaranteeing the due payment of the salary – provided that the Agent fails to execute the payment for more than 15 days, at the employee’s request, the User shall execute it; d. Recognizing as being fully applicable to the temporary agency workers the rights granted by Collective work / Bargaining agreements as well as all internal regulations in force at the User’s level.
Nevertheless, using an EOR service has benefits, it grants the User the possibility to terminate the agreement with the employee of record in a more flexible manner based on the agreement between him and the Agent. Further on, the User is not required to operate in Romania under a legal entity which might prove to be a competitive advantage for short term projects.
Due diligence required when considering EORs The EOR must be authorized by the Romanian Ministry of Labor in accordance with Gov Ordinance no. 1256/2011. In order to produce effects, the agreement between the Agent and the User most consist the following provisions: a. duration of assignment; b. job description, required skills and education, schedule and working locations; c. the actual working conditions – under Romanian law working conditions can be classified as normal, unusual and special; d. the work and personal protection equipment that the temporary employee is required to use;
e. any other services and facilities benefiting the temporary employee; g. the value of the contract concluded with the temporary employment agency, and the remuneration of the employee.
Alternative solutions: Besides using an EOR service, there are mainly two viable alternative options to easily access workforce:
- Incorporating a company and hiring under Romanian Law. An LLC structure is usually the most suitable due to its fast registration procedure, low shared capital requirements (EUR 40) and limitation of liability;
- Individual contractors. Under Romanian Law, in order to conduct economic activities, any individual must obtain an authorization and be registered with the Fiscal Authority. The existence of this authorization is of paramount importance, as contracting with an unauthorized person might pose the risk for the agreement to be qualified as employment and therefore the company might be forced to pay same level wages and benefits.
Conclusion Even though the Romanian legal framework that regulates EOR services operates on an equality of treatment principle and therefore grants the employees of record similar rights to regular ones, it might prove to be the right choice in specific circumstances. Should the intention be to hire for short periods of time and have a flexible approach in terminating the agreement with the employee, using an EOR service might prove to be the best option. However, due to favorable taxation and low management costs, establishing a local presence and hiring through an own LLC or subsidiary remains the go to option for complex or multiple projects that are set to span throughout a longer time period.
