Legal pitfalls with EoRs in the Nordics

The meaning of permanent employer organizations (PEOs) and employers of record (EoRs) often creates confusion and is mixed up in practice.

With PEOs, the intention is to have the administration relating to the employees carried out by a third party. This structure is possible in Denmark, Norway, and Sweden and does not give rise to many issues as companies create separate legal entities.

With EoRs, however, the intention of using the structure is to prevent the establishment of a separate legal entity. The term EoR does not exist in Denmark, Norway, or Sweden. Instead, using an EoR will likely be a permanent agency worker arrangement. That creates a series of different problems.

New structures, new problems

It is becoming increasingly normal for companies to hire employees through EoRs. However, issues that generally arise in the Nordics include:

• Risks of a permanent agency worker arrangement
• Creation of a permanent establishment
• Obligations to register as an employer
• Creation of a dual-employer relationship
• Issues with awarding benefits such as stock options
• Difficulties concerning the termination process
• Protection of intellectual property

Some of the issues may be addressed through the right contractual arrangements between the company and the EoR. However, even with such arrangements, it is likely that many of the issues will remain.

IUNOs opinion

Companies might consider hiring employees through EoRs when accessing the markets in the Nordics. However, when using a structure that is not recognized within the Nordics, the structure may create more problems than it solves.

IUNO recommends that companies consider alternative solutions to EoR. Such solutions may include establishing a branch, registering as a foreign employer, or using independent consultants. The right solution will ultimately depend on what activities companies are planning within the new market.