Understanding Employer of Record (EOR) Services
Employer of Record (EOR) services often refer to a situation where a company employs workers on behalf of other businesses, handling all formal employment responsibilities including compliance, payroll, taxes, and benefits. Meanwhile, the client and ultimate beneficiary, often a foreign company with no local entity or branch office, manages the employees’ day-to-day activities themselves. The purpose of outsourcing the formal employer obligations is typically to quickly establish operations in a new country or to avoid having to establish a legal entity or branch office and risk violating local employment laws.
Limitations under Norwegian law
Norwegian law does not have specific regulations for EOR services. However, the Working Environment Act’s mandatory rules on legitimate ways to acquire labour impose limitations on what can be legally agreed upon. Providers and purchasers of EOR services cannot bypass these limitations.
An EOR arrangement where the employee perform work for the client while being formally employed by the EOR provider, will normally be considered ‘hiring’ under the Working Environment Act, if the employee is subject to the client’s management and control. Hiring workers from other undertakings are only permitted if the strict conditions of the Working Environment Act are met, and thus the client may find themselves in a situation that involves a breach of the statutory hiring regulations.
The EOR provider, on the other hand, may face challenges as it will likely be deemed a temporary work agency, subject to Norwegian statutory legislation. Under Norwegian law, it is illegal to operate as a temporary work agency unless the company has been approved and registered as such in advance.
To the extent that EOR-related services do not conflict with Norwegian law, it will typically be where the provider does not supply labour but specific services where the provider itself manages the work and is responsible for the results. This can be the case with the provision of services such as payroll management, recruitment services etc.
Main risks in case of non-compliance
There are several risks associated with non-compliance with the ‘hiring’ and ‘staffing agencies’ regulations under the Norwegian Working Environment Act and relevant regulations.
Firstly, the employees may claim employment with the client. In such cases, the employee has a right to equal treatment in terms of economic conditions, specifically the same conditions as the client’s own employees.
Sanctions relating to the prohibited hiring of personnel from a temporary work agency include orders and coercive fines. The Labour Inspection Authority may wholly or partially cease the activities of the enterprise until an order is fulfilled. Additionally, the Labour Inspection Authority may impose an infringement penalty for breaches of the hiring regulations, with the maximum amount being the greater of 4% of the enterprise’s annual turnover or 50 times the National Insurance basic amount.
Breaches of the regulation concerning public approval of temporary work agencies may be subject to criminal sanctions. This includes intentional or negligent hiring from temporary work agencies that are not approved by the Labour Inspection Authority in accordance with the regulation.
Possible tax and reporting obligations include that the client could be liable for tax and reporting obligations in Norway, and the activity in Norway could potentially also qualify for tax (‘permanent establishment’).
Concluding remarks
The scope of EOR-related services that can be legally offered and purchased in Norway is more limited than in many other countries. Although the practical need may be considerable, it is crucial to assess the legal implications and ensure compliance prior to entering into such agreements due to the risks associated with non-compliance for both parties.
Need Help Navigating Norwegian Labor Laws?
At Hjort we specialize in helping businesses navigate the complexities of Norwegian labor laws. Whether you’re exploring EOR services or need assistance with compliance, our team of experts is here to guide you.
