Payrolling

Payrolling is the arrangement in which an employee is formally employed by a payroll company but works exclusively for the client, which recruited the employee itself and directs the work. Since the Balanced Labour Market Act, a payroll employee is entitled to the same terms and conditions as the client’s own staff.

Legal basis

Article 7:692 of the Dutch Civil Code defines the payroll contract: an agency contract where the placement did not come about through an allocation function of the employer and where the employee is placed with that one client only. Article 8a of the Placement of Personnel by Intermediaries Act gives the right to at least the same terms as employees in the same or equivalent roles at the client, including the collective agreement. The lighter agency regime does not apply: the agency clause and the extended chain rule are excluded, and there is a right to an adequate pension scheme.

How it works in practice

The distinction from agency work lies in the allocation function and in exclusivity. If the agency found the candidate itself and can place them elsewhere, it is agency work. If the client introduced the employee, it is payrolling, whatever the contract is called. For the client this means a duty to supply its own terms and conditions to the payroll company, including allowances, holidays and leave arrangements.

Where it goes wrong

Contracts are labelled agency work while the facts amount to payrolling; in a dispute the actual position prevails. A second error is failing to pass the client’s own terms to the payroll company, after which the employee claims arrears retrospectively. Third, clients underestimate that they can be jointly and severally liable for the salary due.