The Employer of Record Solution and its Alternatives
Hiring in France: Employer of Record (EOR) vs. Foreign Employer Status
A guide to hiring as a foreign company in France while maintaining compliance
Choosing between an Employer of Record (EOR) Solution and … ?
Attracting and retaining talent is a top concern for businesses in many industries. Due to increased digitization and the prevalence of the work-from-home paradigm, companies no longer have to limit themselves to local talent. To attract highly qualified employees, a competitive employment package is crucial. Employee benefits and incentives, including flexible working arrangements such as remote work, can make a significant difference to qualified candidates.
However, hiring in a foreign country like France can be a daunting challenge.
Hiring Contractors vs. Employees
Some companies may decide to avoid employing staff altogether, instead opting for independent contractor engagements. This can be a risky and costly move. In France, an engagement characterized by a relationship of subordination may be classified as an employment relationship. If French authorities consider the true nature to be employment, it could lead to severe consequences for the company.
Thus, compliance becomes a central issue, and choosing the right solution is crucial.
Employer of Record (EOR) vs. Foreign Employer Status
When seeking to hire an employee in France as a foreign company, you might come across different terms, such as Employer of record (EOR), umbrella company, Professional Employer Organization (PEO), co-employment service, as well as the French terms, ‘portage salarial’ and ESEF status.
Understanding your options is imperative to identify the ideal solution for your unique case. However, definitions of these terms may vary between countries as they are often used inconsistently, especially online. In fact, some concepts may not even exist in certain countries.
In France, a company wishing to hire without setting up a legal entity has two options:
1) Wage portage: the French equivalent of an EOR solution;
2) Foreign Employer Status ESEF – hiring the employee directly as a foreign company.
At a Glance: Comparison of the Employer of Record (EOR) Solution to the Foreign Employer Status ESEF
Foreign employer status ESEF
Triangular employment arrangement
Employee directly hired by the foreign company
Creation of a legal entity
Nature of activity
Only for exceptional tasks
Costs & Setup
Starting from €600 for your first employee, in some cases as much as €1200, depending on your employee’s salary *
Starting from €90 for your first employee, fixed prices per payslip *
€500 for registration and benefit setup
Mostly automatically generated contracts, additional fees for amendments
Employment contracts drafted by French lawyers, fees on request
One to several days
Completion of setup, including benefits, takes about one month
* Some EOR Providers charge between 9 to 12 % of the total employment costs. For an employee with a monthly salary of €7000 (corresponding to a monthly employment cost of €10080), monthly fees range between 907,20 and 1209.60 € per month.
* In addition to monthly payroll processing fees, companies from the U.S.A., Canada, China and Switzerland are required to appoint an accredited tax representative in France for the payment of the employee’s wage taxes.
1. Wage portage: The French Employer of Record (EOR) Solution
In France, the local equivalent of an EOR solution is the “portage salarial,” or wage portage in English. It consists of a tripartite contractual relationship where a wage portage company hires the employee to work for a client company. Wage portage is a regulated activity in France; the EOR-provider must have official authorization to operate in this capacity.
Limits of the Employer of Record Solution
The French version of the EOR solution is limited in two aspects—the nature of the engagement and its maximum duration. Regarding the nature of the engagement, the client company can only resort to this solution for occasional tasks that are not part of its regular, permanent business activities. Next, the duration is limited to a maximum of 3 years. The non-respect of these conditions by the client company can lead to hefty fines of up to €7500. You can find more information about wage portage on the official French government website.
Employer of Record: The Quickest Solution
The main advantage of the EOR option is that it is usually the quickest solution to set up, with employee benefits already in place. Many EOR providers onboard new hires in one or a few days.
2. Alternative to the Employer of Record Solution: The French ESEF Status
For employers who seek to permanently hire an employee in France without setting up a legal entity, the ESEF status is an excellent alternative to the standard EOR solution. ESEF stands for “Entreprise sans Établissement en France,” translating to “company without establishment in France.”
Under this arrangement, the foreign company will hire the employee directly. Your company will be registered in France for social declaration purposes alone while operating from a foreign address.
A French payroll provider like My Payroll Pro France will ensure that your employees are managed in complete compliance. Our payroll services go beyond just calculating wages. From the registration as a Foreign Employer ESEF to the setup of your employee benefits, we handle everything. Regarding the employment contract, we recommend letting it draft by qualified French lawyers, to make sure that your company’s interest are protected from the beginning.
Foreign Employer Status: Direct Access to Local Knowledge & a Budget-Friendly Solution
Working with a local payroll provider will give you direct access to expert knowledge absent any communication breakdowns you might experience when working with global EOR providers. It is a budget-friendly alternative for navigating foreign hiring without the added costs an umbrella company may incur.
Risk of Creating a Permanent Establishment
Regardless of whether you opt for an EOR or ESEF solution, you should be aware of the risk of creating a permanent establishment for tax purposes. It becomes relevant for instance when your employee generates taxable revenue for your company in France. For more information please check the official government website. If you have doubts, we recommend to seek advice from tax experts.
The French version of the Employer of Record is strictly regulated. With it, the client company could resort to wage portage for a one-off service that requires expertise it does not have. It is a quick but rather costly solution.
However, for foreign companies wishing to hire talent in France permanently, the French EOR solution is an unfit choice as it is not designed for extended engagements that coincide with regular business activities. In this case, the foreign employer status ESEF is an ideal alternative to the costly Employer of Record solution.
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