Balanced labor market law: legal basis for payrolling

On May 28, 2019, just before the summer recess, the Labor Market Balance Act ("WAB") was passed in the Senate. The law will take effect (in phases) from January 1, 2020. Earlier, Lonneke Nouwen informed you about the changes related to the on-call agreement. The WAB will also have major consequences for payrolling.

In fact, payrolling is given its own definition in the Civil Code, explicitly distinguishing it from the ordinary "broadcasting.

Payrolling, temping ... what was the difference again?

Both payrolling and staffing involve a three-party relationship. The employee has an employment contract with his employer (the payroll company or the temporary employment agency), but works for a third party, the hirer. An assignment agreement exists between the hirer and the employee's employer.

The basic principle is that with temporary employment, the temporary employment agency itself recruits and selects the employee and then brings supply and demand together. With payrolling, on the other hand, the hirer itself recruits and selects the employee and then places him or her with the payroll company so that the hirer is not burdened with employer issues such as the continued payment of wages and the administrative obligations during illness. Between staffing at one end of the spectrum and payrolling at the other, there are many variants of both constructions.

WAB

In late 2016, in a long-awaited ruling, the Supreme Court ruled that payrolling and temporary employment, despite the different purposes the constructions serve, more or less amount to the same thing legally. That ruling opened the door wide for payroll companies to take advantage of the lighter labor law regime applicable to temporary employment employers. Thus, payroll employers can also make use of a deferred and more extensive chain-of-contract arrangement as well as the possibility of having the employment contract end easily(er) through the agency clause. Also, as a rule, payroll employees are now entitled to less good working conditions than employees employed by the hirer itself, resulting in them being much cheaper than "regular" employees.

The legislator wanted to put a stop to this state of affairs. Payrolling must still be possible, but from now on it must be seen as actually "unburdening the employer. Evading employment conditions should no longer be possible. Payroll employees must in principle be treated the same as employees employed by the hirer.

The new legal definition

The WAB now provides that payrolling exists if, in short, the following two criteria are met:

• There is no bringing together of supply and demand, and
• The employee works more or less exclusively for one hirer.

If these criteria are met, the lighter labor law regime may not be applied, but the "normal" rules that apply to other employees at the hirer also apply.

An equal treatment provision is also included in the law, under which payroll employees receive the same primary and secondary benefits as employees directly employed by the hirer. In addition, payroll employees will be entitled to an "adequate" pension provision. This should prevent competition on employment conditions.

Both the new definition and the equal treatment requirement will lead to applicability discussions, we expect. But payrolling will thus remain possible, even after the WAB takes effect. It is likely that the changes will translate into higher costs for the client, though.

Want to know more? During our seminar "Employment law under construction" on Thursday, October 10, 2019, we will elaborate on these and all other changes brought by the WAB. You can still register here!