Employer of Record in Spain: Making it Easier to Hire Employees in Other Jurisdictions

​The concept of "local legal employer" or "employer of record," which enables companies to access talent in other countries, has burst onto the scene in Spain as a new form of hiring in the midst of the telework boom.

Technology has meant that the pool of talent available to many companies is no longer limited by geography, providing access to staff anywhere on the planet. This, in turn, has triggered new organizational models and the need for new precautions when it comes to regulatory compliance.

The past two years have shown the two faces of economic globalization. No one will have missed the calls that have been made to relocate businesses and industries to closer economic environments. Nor the fact that, in many sectors and branches of activity, work need not be done onsite at the company's facilities. While teleworking already existed and was known before March 2020, lockdown saw it really take off, with a dramatic increase in implementation.

While it is too soon to know how Spain's Law 10/2021, of July 9, 2021, on distance working will affect the consolidation of this way of working in Spain, teleworking has become another tool—essential in certain cases—for companies to organize their human resources globally and is also a key factor for many when evaluating and considering their work situation.

In this global landscape, companies are compelled, by both strategy and need, to try to expand their market and gain a foothold in new territories.

Traditionally, this international expansion has taken the form of setting up companies in the country in question, in order to operate in that market. Today, however, the possibilities offered by technology and instantaneous communication have brought about other alternatives that allow companies to access talent easily anywhere in the world.

On the one hand, companies can rely on independent professionals and outsource services to other companies, regardless of where they are located. In this vein, in the specific case of Spain, the bill promoting the startup ecosystem, better known as the Startups Law, is one of the first to regulate the concept of the "digital nomad," which the bill identifies, in its preamble, as "people whose jobs allow them to work remotely and to change residence frequently, combining highly skilled work with immersive tourism in the country of residence." The bill seeks to foster the creation of a hub of remote talent in Spain that can be tapped by companies around the world.

On the other hand, for some time now, the concept of "local legal employer," better known by its English term "employer of record" or abbreviation "EOR," has been popping up more and more. Although EORs are well established in English-speaking countries, they have sprung up in Spain as a result of the pandemic.

They are business entities that adopt the formal role of employer and handle all the external administrative burdens—for example, hiring, terminations, payroll and social security contributions—thereby enabling companies to expand internationally without having to have an administrative structure in the country in question, since the EOR takes on that role because it is validly set up in that jurisdiction.

Businesses clearly benefit from the ease and flexibility of being able to use an EOR when expanding their activity into the country in question, giving them more time to evaluate whether greater investment and presence in that country is necessary. That being said, when setting up in foreign markets businesses also need prior knowledge of regulatory requirements in a number of areas, including labor legislation.

This is why, in terms of international expansion, it is prudent to seek prior advice on the requirements for engaging the services of companies or independent professionals, and to know the elements that constitute an employment relationship. It may be that, in some jurisdictions, the employer is considered to be unique and that therefore it is not possible to have two employers at the same time, which is what could be understood to occur when using an EOR, since the EOR assumes the formal role of employer, while the client company manages the employees' work and obtains the fruits of their labor.

In conclusion, the new opportunities offered by technology, including the metaverse, open up a series of questions that the applicable legal frameworks must resolve in order to provide legal transactions with that prized yet often elusive element: certainty.

Julen Fonseca Gatzagaetxebarria is an attorney with Garrigues in Bilbao, Spain. © 2022 Garrigues. All rights reserved. Reposted with permission of Lexology.