In recent years, numerous websites have emerged offering foreign companies an attractive proposition: “Hire employees in Spain without setting up a local entity.” These platforms, often referred to as “Employer of Record (EOR),” “Global Employment,” “International Payroll” or “Remote Hiring,” act as intermediaries. Formally, the employee is employed by a local entity (the platform or one of its partners), while the foreign company ultimately organises and directs the work.
At first glance, this model may appear to be a practical solution for international remote working. However, in certain circumstances it may fall within a legally sensitive area: the possible unlawful supply of workers.
What exactly do these websites do?
In general, they offer the following services:
- Hiring employees in Spain “on behalf of” a foreign company without a permanent establishment
- Managing payroll, taxes, Social Security contributions and other basic obligations
- Providing a “legal framework” enabling the employee to work remotely for the foreign company.
The critical issue is not the existence of the service itself, but how the employment relationship is structured in practice: who organises the work, who bears the risks, who controls performance and who integrates the employee into their organisation.
When does an unlawful supply of workers arise?
In Spain, Article 43 of Royal Legislative Decree 2/2015 of 23 October, approving the consolidated text of the Workers’ Statute, provides that an unlawful supply of workers exists in particular where at least one of the following circumstances applies:
- Where the purpose of the service contracts between the companies is limited to making the employees of the supplying company available to the user company.
- Where the supplying company does not have its own genuine and stable business activity or organisational structure.
- Where it does not have the necessary resources to carry out its activity or does not actually perform the functions of an employer.
As similar presumptions also apply under German law, your tax residence can only be determined with certainty if you have a permanent home available to you in only one of the two countries. Example: you are registered at your own property in Spain and do not have any property in Germany available for your own use. In such a case, your tax residence is clearly in Spain.
What are the consequences of an unlawful supply of workers?
The parties involved are jointly and severally liable for obligations towards the employees and the Social Security system.
If an unlawful supply of workers is established by a court, the employees have the right to choose to become permanent employees either of the supplying company or of the user company.
In addition to this joint and several liability, financial penalties may also be imposed, depending on the employment law infringement committed.
Furthermore, depending on the jurisdiction, this practice may also constitute a criminal offence. In Spain, this is regulated under Article 311 of the Criminal Code (Organic Law 10/1995 of 23 November). Penalties range from six months to six years’ imprisonment as well as fines of between six and twelve months. Whether a criminal offence has actually been committed will always depend on the specific circumstances of the individual case.
In EOR models, the risk increases in particular where the following characteristics are present:
- The foreign company gives direct instructions, determines working hours, objectives and work equipment, and supervises the employee’s activity on a daily basis.
- The employee is organisationally integrated into the client company (company email account, organisational chart, internal meetings, reporting lines, etc.).
- The local platform does not provide any genuine work resources and does not exercise actual management or control over the work, but merely fulfils basic employment law formalities.
- The arrangement does not constitute an independent service, but merely the provision of personnel.
What if the employees work from home or remotely?
The risk may even increase, as this may, together with other circumstances, be regarded as an indication of an unlawful supply of workers.
However, this does not change the decisive issue: who actually exercises the employer’s power of direction and control? If control and organisation come from the foreign client, the arrangement is more likely to resemble the supply of personnel than a genuine employment relationship with the formal employer.
In addition, following the judgment of the Court of Justice of the European Union of 24 October 2024 (C/2024/7293), which broadened the concept of temporary-work agencies, the user company may be regarded as a temporary-work agency within the meaning of Directive 2008/104/EC of the European Parliament and of the Council of 19 November 2008, regardless of whether it is administratively authorised as such, with the corresponding legal consequences.
Does this mean that EOR platforms are illegal?
Each case must be assessed individually. We therefore recommend that, before engaging such platforms, companies carefully examine how the services are actually implemented in practice and take the risks described above into account.
There are currently also other ways of hiring employees in Spain, including for home-office or remote-working arrangements, without establishing a permanent establishment and without relying on EOR models. We therefore recommend obtaining expert advice before making such a complex decision in order to avoid unnecessary risks and disadvantages for the company.
If you would like to learn more about hiring employees to work from home, click here.
Author:
J. Francisco Santos Postigo
Lawyer
CEO, Partner, Director Labour Law
info@sspartners.es
Tel: (+34) 951 12 13 06
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