Payrolling Highly Skilled Migrants? Here are the pro's and con's

It happens regularly: Dutch employers hiring Highly Skilled Migrants through a secondment co-operation. The Highly Skilled Migrant signs an employment contract with a secondment company (or payroll company), and is seconded to work under the direction and supervision of a different company (the client). Why do employers use this construction? What are its advantages and disadvantages? What risks should employers assess in this process? In this article, Arend van Rosmalen LL.M., partner at Mynta Law, sets out the important points to consider.

Why payroll Highly Skilled Migrants?

An employer may have many reasons to hire a Highly Skilled Migrant through payrolling. First, payrolling is not only common for Highly Skilled Migrants, nor is it only common for hiring foreign nationals. The same reasons that employers have for having certain Dutch employees work for them through a payroll contract (in particular flexibility of the employment relationship) can apply equally well to foreign employees. However, specifically when employing Highly Skilled Migrants, , the use of payrolling additionally represents a pragmatic solution to problems raised by immigration law.

To understand this, employers should take a look at the Foreign Nationals Employment Act (Wav). The main rule in this Act is that any business is prohibited from letting any foreign national perform any "work" in the Netherlands, regardless of the legal form through which that "work" is being performed for the benefit of the business. After having set such an almost all-encompassing prohibition, the Act and its implementing legislation then provide for numerous specific exceptions to this broadly formulated ban on employment. The Highly Skilled Migrant scheme is such an exception, and one that Dutch employers frequently use. In the vast majority of cases the policy works like this: if a foreign national has a residence permit as a Highly Skilled Migrant, this foreign national is allowed to work in the Netherlands, but only as long as the following three conditions continue to be met:

1. The foreign national must always work on the basis of an employment contract for a "recognized sponsor";
2. The salary of the highly skilled migrant must always meet the applicable salary criterion; and
3. In addition, the salary of the foreign national must be in line with the market.

You can read more about the different salary criteria and the market conformity requirement in other articles on this website. Payrolling is related to the first requirement: recognition as a sponsor.

Recognition as a sponsor

In immigration law, the term "sponsor" means nothing more than "residence giver." A Dutch citizen who applies for a residence permit for a foreign partner is, in this sense, their "sponsor", just as a university or institution of higher education that applies for residence permits for its foreign students or researchers also assumes the role of "residence giver" or "sponsor". "Recognition as a sponsor" implies, in addition, that the IND has assessed and approved the reliability and (financial) continuity of an employer in the context of an advance application for recognition. The advantage of recognition is that the IND treats applications of recognized sponsors with priority, on the basis of good faith - the recognized sponsor only has to answer a few general questions and fill in data, and the IND grants the requested residence permit almost without a substantive test. The counterpart to this is the considerable responsibility placed on the sponsor. This responsibility is not entrusted to every employer. Smaller businesses and relatively young companies in particular may see an application to this effect cut short, for example because the IND does not have sufficient confidence in their financial continuity.

When is payrolling of Highly Skilled Migrants a good solution?

Payrolling Highly Skilled Migrants forms a good, albeit usually temporary solution in roughly three situations:

1. The employer is temporarily unable (or unwilling) to apply for recognition as a sponsor (yet);
2. The employer needs a highly skilled migrant only very occasionally;
3. The employer cannot (or does not want to) wait for an application procedure for recognition as a sponsor.

The first situation often involves startups or companies that have only recently established themselves in the Netherlands. For startup companies, the application process for recognition as sponsor means a much greater administrative burden than for longer established, well-reputed companies. The outcome of such an application is also considerably more uncertain. For example, an employer with no or insufficient turnover yet, and a large amount of debt on its balance sheet in connection with an investment in the form of a loan, must take into account that the IND will look very critically at the financial feasibility of its business plan. It may then be tempting, in the short term, to opt for the much greater security offered by using a payroll company that is already a recognized sponsor.

For an employer who only needs the Highly Skilled Migrant in the Netherlands for a very short time, the application process for recognition as a sponsor can be impractical. Often, the quick turnaround time of Highly Skilled Migrant applications submitted through recognized sponsors (including payroll companies) also plays an important role. Even in such a situation, employers may choose the convenience and great certainty of using a recognized payroll company. A variation on this may be when the Highly Skilled Migrant will become entitled to a permanent residence permit fairly soon. The employer can then make an assessment in which the risk of something going wrong with that is estimated to be too small compared to the costs and uncertainty of an application for recognition as a sponsor.

Finally, there are specific situations in which an employer (or employee) may have a strong interest in not having to wait for the application for recognition as a sponsor. For example, there are specific situations in which the uninterrupted continuation of an employee's employment is important for maintaining the reduced salary criterion. In such situations, there is a very strong interest for both the employer and the employee to extend the latter's residence permit without interruption. Payrolling then offers a practical solution for this as well.

Are there disadvantages to payrolling Highly Skilled Migrants?
Certainly. Although payrolling of Highly Skilled Migrants can be a good solution for specific situations, there are also disadvantages that an employer should take into account. In general, the following three disadvantages can be distinguished:

1. The costs of payrolling
2. Reduced transparency about (financial) continuity
3. No guarantee of proper compliance with the Foreign Nationals Employment Act

The most obvious disadvantage of payrolling Highly Skilled Migrants is the cost. Payroll companies often charge a monthly administration fee. In addition, payroll companies are required to offer a pension plan, and the employer contributions paid by payroll companies are also higher than average.All of these costs are passed on to the client, who has to pay for this on top of the employee's salary.

A second disadvantage for the client is the fact that it has no, or at least much less, insight into the financial health of the payroll company. The fact that the payroll company has been recognized as a sponsor by the IND in the past may offer a very small assurance in that light, but it should not be overestimated. The list of recognized sponsors is long, and the IND cannot possibly keep checking the solvency of all recognized sponsors. In addition, payrolling is generally a rather risky business: the employer has to pay high monthly (salary) costs and depends on all the employers, its clients, to provide payment on-time. If a client refuses to pay, an acute financial problem soon arises. The administrative fee that the payroll company itself earns as profit is usually not so high that it would be able to absorb a financial setback for an extended period of time.

Finally, the client must realize that the payroll company, by assuming the formal role of employer and sponsor, does not indemnify the client from the risk of (unintentional) violation of the Foreign Nationals Employment Act. Payroll companies also make mistakes from time to time, of course. Clients tend to assume that mistakes at the paryoll company are not the risk of the client, but that is where they make a mistake. This is because the Foreign Nationals Employment Act maintains a chain liability, which means that the client can also be held liable by the Dutch Labor Inspectorate for mistakes made by the payroll company in abiding by the Foreign Nationals Employment Act. The client should not take this lightly: in the recent past, the Dutch Labor Inspectorate has regularly uncovered fraudulent constructions in which payroll companies - in their own words unintentionally - had allowed themselves to be used by immigration fraudsters. Payroll companies are therefore generally being inspected more rigorously and more often than average.

What can you look out for as a client?

When selecting a payroll company, a client can perform a number of checks that (partially) overcome the risks described above. The hirer can check the following online:

1. Consult the public register of recognized sponsors
2. Consult the register of the Labour Standardization Foundation
3. Check whether the payroll company is affiliated with Stip Pensioen (mandatory for temporary employment/payroll companies)
4. Waadi check with the Chamber of Commerce
5. Consult the public inspection results of the Dutch Labour Inspectorate
6. Consultation of annual accounts at the Chamber of Commerce

The behavior of the payroll company's representatives is also often a good indication. Does a payroll company not ask you any critical questions? Then you can assume that it does not have a critical attitude toward other clients either. This is not a good signal, considering the serious responsibility that recognition as a sponsor places on the payroll company. A payroll company that asks you some critical questions, for example about the market conformity, CV, diplomas and substantive work of Highly Skilled Migrants selected by you, takes its migration responsibilities seriously. This is a good sign.

Conclusion

Payrolling Highly Skilled Migrants can be a pragmatic solution to specific situations and problems, especially around recognition as a sponsor. The payroll construction clearly offers added value for these types of situations, mainly because of the high security and speed with which applications for Highly Skilled Migrants submitted by recognized sponsors are granted. At the same time, there are also disadvantages, mainly related to the cost and the smaller degree of control an employer has over an external supplier. There are some ways in which these risks can be reduced, however, by investigating the potential payroll company in advance.

Do you have questions or are you considering knowledge migrant payroll within your organization, and would like advice? Please feel free to contact me.