A so-called "Employer of Record" (EOR) company hires and employs a worker on behalf of another company (the EOR's client company), the latter benefiting from the work of the employee in question.
This type of service is permitted in many countries and allows a company to have employees at its disposal without having to manage employment declarations and payroll administration. It is frequently used by companies that do not have a legal entity in the country concerned.
The use of an EOR company is permitted in many countries, but in France it faces a strict legal framework, which in principle prohibits the profit lending of workers.
In practice, EOR companies will often use in France the legal framework of portage salarial, which must satisfy a number of conditions in order to be considered valid.
A demanding legal framework that is often misunderstood
Portage salarial is governed in France by Articles L. 1254-1 et seq. of the Labour Code and by the national collective agreement for payroll portage of 22 March 2017.
This arrangement allows an individual who finds one or more assignments to carry out on behalf of client companies to become the ported employee of a portage company. The portage company collects the sums paid by the clients and pays part of these sums to its employee as salary, after deducting management fees and social contributions. In practice, the employee finds their own clients and organises their work freely, which creates few constraints and obligations for the portage salarial company, whose role is primarily to manage the administrative aspects related to the hiring and employment of the ported employee.
The most important conditions for portage salarial to be validly used are the following:
- The assignment must be occasional and temporary - portage salarial is not designed for a worker who would work exclusively and on a long-term basis for a single client company;
- The ported employee must have expertise, qualifications and autonomy that distinguish them from an “ordinary” employee (directly hired and employed by the client company), and that allow them to find their own clients and agree with them on the terms of performance of their services and their price;
- The client company cannot exercise powers of direction or control over the ported employee in the same way as a regular employer;
- The duration of the assignment cannot in principle exceed 36 months with the same client company.
In practice
In practice, these conditions are often disregarded. People recruited through EOR companies are often recruited by the client company, which will propose, at the time of formalising an employment contract, the use of the portage salarial arrangement, even though the employee will work exclusively for the client company, under its effective direction, integrated into its teams, subject to its schedules and processes - in exactly the same way as an ordinary employee.
The risks incurred
A client company that uses a ported employee outside the legal framework may incur liability, as may the portage salarial company.
In addition to the payment of specific fines related to non-compliance with portage salarial rules, the consequences can be significant:
• Reclassification as an ordinary employment contract with the client company: the ported employee may bring a claim before the French Labour Court and seek recognition as an employee of the client company, with all the resulting consequences in terms of seniority, collective agreement benefits, severance pay, etc.;
• Illegal lending of workforce and unlawful labor subcontracting: the use of portage salarial outside the legal framework may expose the companies concerned to sanctions applicable to illegal lending of workforce and unlawful labor subcontracting, if it appears that such use has had the effect of causing a detriment to the employee or of circumventing the application of statutory provisions or provisions of a collective agreement or workplace agreement (i.e., if it appears that the ported employee was deprived of certain rights and benefits that they could have enjoyed had they been directly employed by the client company);
• Concealment of work: in the most serious cases, particularly where the real employment relationship with the client company is intentionally concealed, penalties may include URSSAF reassessments and criminal prosecution for undeclared work.
Our recommendations
If you use a portage salarial or EOR solution to have people work in France, we recommend carrying out a rapid audit of your situation, focusing in particular on the duration and actual nature of the assignments, and on the degree of effective integration of the employees concerned into the organisation of the client company.
Depending on the findings, a range of solutions may be available: regularising the situation, using an existing entity within the group, establishing a suitable local structure…
