Posting, delegation or secondment: is it invariably necessary?

 

Posting, delegation and secondment are the terms habitually used, according to the different geographical areas and legislations, to refer to the process of temporarily transferring an employee (or several employees) from an organization – posting organization – to a different business – hosting organization.

 

 

 

The prime objective employers intend to pursue by adopting this approach is to regularize and to some degree justify the circumstance that an individual employed by a different organization, the delegating company, may perform his/her working activity for any given period of time in an organization, the hosting company, of which this is not an employee. Employers can indeed use this means for a variety of reasons; the delegating company can assign one or a number of employees to the hosting company in order for these, for instance, to:

 

- Design, develop and implement specific projects;

 

- Provide the training necessary to enable the staff of a purchasing company to properly use a particularly complex machinery or device;

 

- Execute some temporary tasks requiring a degree of expertise and professionalism unavailable within the hosting organization.

 

This solution is revealing increasingly appealing to multinational companies and big corporations to support the setting and development of new operations in different geographical areas and the implementation of global-wide change projects. The recourse to this option is also particularly frequent amongst employers of the same group to implement internal and global mobility practices, provide individuals opportunities for professional growth and development and to ensure the required expertise to be in the right place at the right time.

Traditional model

The secondment of an employee typically entails this to physically perform his/her working activities in the premises of the hosting organization. Notwithstanding, the posted person invariably remains an employee of the delegating organization, is thus this which continues to: - Be in charge of the seconded individual payroll;

- Pay the related social security contributions and National Insurance costs;

- Exercise the disciplinary control over the posted employee. 

 

The labour costs and the additional expenses eventually faced by the delegating employer (travels, accommodations, meals, etc.) can be rebilled by this to the hosting company whether the two parties, as usually happens, previously sign a service level agreement (SLA). In some instances, a written service agreement is considered by the legislation as a necessary prerequisite for the transferor being able to rebill the costs incurred by this to the transferee. Yet, with particular reference to this aspect, it is crucially important to acquire full knowledge of the local legislation in order to find out whether, to avert later complications, these costs have to be rigorously rebilled to the hosting employer without adding any mark-up on top of the costs actually incurred by the delegating employer.

Posting represents by definition a temporary arrangement whose duration typically depends upon the reasons for the employee having been posted and hence on the scope of the assignment. Whether the motive for posting an employee is represented by the completion of a particular project, for example, the employee will continue to perform his/her work at the hosting employer premises until the project has been completed. Nonetheless, some regulations may provide for posting not to exceed a given time limit.

 

 

 

Since posting has to be intended as a temporary arrangement, some rules (as, for instance, in the case of Europe, Regulation – EU – No 465/2012 of the European Parliament and of the Council of 22 May 2012, amending Regulation No. 883/2004) may provide for this option not to be used to replace a previously posted person whether this was filling the same position, for the same intended purpose. Whenever the assignment has to be executed in a foreign country, before taking any initiative employers and their employment law specialists should hence ascertain whether such limitations are provided for by the local legislation.

 

 

 

The employer and the posted employee invariably sign a written agreement in which are detailed the main terms and conditions of the assignment. This implies that it has to be shown in the agreement: the details about the length of the assignment (or its estimated duration), the travel and eventually the living away from home allowances, the reason for the individual secondment and the activities the posted employee is expected to perform.

 

 

 

This document has to be clearly prepared with extra care. According to the circumstances and whether considered functional and advantageous by the employee, this could use the written document to support his/her right to permanently stay on the new post and be employed by the hosting company. It is not indeed only a matter of what it is put in writing in the agreement, also the practical execution of the assignment must in fact adhere to the local legislation.

 

 

 

Leadership-transfer-intended approach

Employers are increasingly adopting delegation with the only aim of transferring the individual(s) functional lead from the transferor to the transferee. According to this method, employees continue to report in solid line to the manager of the delegating organization, but these actually report in dotted line to a manager of the hosting company, who essentially gives delegated employees the working instructions. 

This approach is more often than not used by the employers of the same group of organizations with the main objective of concentrating in a single entity the control and management of a particular activity and ensuring that the related actions and initiatives are performed and implemented uniformly and consistently across all of the organization entities involved.

Differently from the traditional approach, in this instance employees do not physically perform their working activities in the hosting company, but continue to perform these in their original employer premises. By reason of the legal constraints possibly imposed by the local legislation, in such a case formally posting, delegating or seconding an employee could hence reveal to be unnecessary or even counterproductive.

 

 

 

Employee posting may be subject to a series of legal constraints and limitations provided for by two main categories of regulations, to wit: lease of employees and social security contribution payment rules. In essence, lease of employees regulations aim at preventing that organizations not meeting the legal requirements set by the local legislation and not having been expressly accredited by the specific authority to take up this activity may lease personnel to other businesses. Whether a law regulating the lease of personnel is in place in any given country, in order to eventually be able to relatively easily support posting as being truly “genuine”, and hence legal, employment law specialists must do their best to clearly differentiate posting from the lease of employees. Whether an organization should perform as its core activity the lease of personnel, for instance, this would clearly charge a mark-up to the businesses requiring its services. To clearly stress how the two approaches actually tell apart, the transferor should therefore invariably rebill to the transferee the real costs incurred as recorded by its accountancy department only, which are as such well-documented, too.

 

 

 

In some countries, legislation may impose some restrictions to the directive power exercised by the hosting company, providing for this activity resting with the posting employer. From the applications of the EU regulation and court case law across the European countries it has emerged, for instance, that the power to determine the nature of the activity performed by the posted employee must rest with the posting employer. This does not entail that the delegating organization has to necessary give posted employees detailed instructions about their daily duties and the way these have to be performed, but that the final outcome, both in terms of product and service, has to be defined by this (Social Europe, 2012). This requirement is clearly consistent with the legal tenet, introduced in some countries, according to which posting has to be invariably implemented in the interests of the delegating employer.

 

 

 

An additional aspect which needs to be duly taken into consideration is that concerning the payment of social security contributions. Posted employees may be covered by their home social security system for up to a given number of years (in Europe at large up to two years). Legislation may also provide for a break, whose length of time is expressly specified by the local regulation, before the same individual may be posted anew to the same employer.

 

 

 

In the event the delegation period is due to last longer than the maximum period provided for by the local legislation, it might be possible to request an exemption to the local Authorities. The exemption is essentially aimed at obtaining an extension of the duration of the posting period without prejudice to the posted employee rights in terms of social contributions payment. The length of the extension varies according to the agreement ratified between the relevant Authorities.

 

 

 

As discussed earlier, when employers have recourse to secondment with the only aim of transferring the individual functional lead, the seconded employee is not actually transferred but continues to regularly work in the transferor premises. In such cases, rather than adopting the traditional approach requiring an agreement to be signed with each individual, subject to a precise and sometime restrictive regulation, which might additionally be the object of difficult practical implementation vis-à-vis the objective the employers aims at attaining, the transferee and transferor should rather consider not to formally have recourse to posting, secondment or delegation. Under such circumstances, a matrix approach might prove to be far more appropriate and effective in the light of the intended objective. Rather than formally delegating a number of people, the directives necessary to ensure and monitor that things are done as expected, that is, according to the standards and procedures set and decided by the transferee, could be given to the executive or senior manager of the transferor relevant function or department in order for this to convey in turn the instructions to the employees concerned. 

This approach would be sorely similar to a matrix approach according to which the functional lead is assigned to the person(s) in charge of the specific activity, for instance, at central level. The most significant benefit of this option is indeed represented by the circumstance that this does not require the signature of any formal written document. Yet, rather than involving in the process a considerable number of people, this approach would require the involvement of the executive or senior manager in charge of the specific Unit in the local organization entity only.

 

As discussed earlier, in order to justify the rebilling of the individual labour costs the adoption of this approach only requires the subscription of a service level agreement between the two employers concerned, whereas no delegation agreement needs to be signed by the potentially delegating employer and its employees.

The executive or manager of the potential transferor will discuss the plan of action and next steps with his/her potential transferee counterpart and give instructions locally accordingly.

 

 

 

This approach offers indeed considerable advantages in terms of:

 

ü  Flexibility – whether some employees should no longer be available for any given period of time, different individuals could cover without any additional administrative burden;

 

ü  Implementation ease – no discussions have to be held with the individuals identified for the assignment and no delegation letter needs to be signed;

 

ü  Lack of time restraints – the implementation of this arrangement is not subject to any time restraint in terms of duration and hence renewal;

 

ü  Considerable reduction of legal risks – the introduction and execution of a functional matrix approach is very unlikely to give rise to any claims. The potential transferor manager(s) keeps constant contact with the functional leadership by video, call conference and travel when required. A functional internal reorganization might eventually be implemented by the potential transferor in order to allocate the most suitable manager to the different units and ensure the process to work smoothly and flawlessly.

 

 

 

The SLA-exclusively-based approach, notwithstanding, does not represent a solution completely immune from drawbacks. On the flip side, this approach may, for instance, entail a looser control over individuals compared to the traditional method. The circumstance that control is exerted elsewhere by means of an intermediate manager, that is to say indirectly, might risk posing some difficulties during the execution phase. Nevertheless, training sessions, video conferences and other similar means can occasionally be used to update and provide information on the technical procedures and topics associated with their assignment directly to the employees concerned.

 

 

 

Service level agreement distinguishing features

The agreement entered into by the two employers merely describes the provision of a service, it is not intended to contain the employees’ identification and details, and does not thus require the employees’ agreement and signature.

The duration of the service provision can be varied at relatively short notice, without any prejudice to the people performing the activities linked to the agreement. This may include the automatic expiration at the end of the pre-set term, unless renewal is expressly agreed at a given time before the agreement expiration date.

 

 

 

Another important factor is ensuring that the number of employees in charge of performing the activities is consistent and relevant to the scope and extent of the service provision.

 

 

 

The impact of the different possible layers of legislation

As discussed in several occasions earlier, when involving employers located in different countries, posting, secondment or delegation can be subject to a number of constraints coming from different levels of legislation. Some limitations can be provided for by the national legislation, whereas other restrictions can be imposed at European and global level according to the provision regulating this subject in the different countries. 

 

 

It has to be stressed the circumstance that as often as not the level of concern emerging from the different legislation layers varies and widens proportionally according to the extension of the geographical application of this option.

Whereas at domestic level the main legal concern is typically represented by the respect of some procedural requirements, at European level the legislator concern rises at National Insurance and social security contributions payment level. The aim is clearly that to protect employees from the risk that an exceedingly long assignment abroad may jeopardize their pension entitlement and rights.

 

 

 

Employers have to be prepared to deal with additional rules whereas in the countries they operate a specific legislation regulates the lease of employees.

 

 

 

At global level, in addition to all of the constraints which can exist at local level, employers have to be ready to manage secondment also in the light of the tax legislation applicable both to the employee and the employer in the country of the hosting company. With specific reference to the hosting employer location, organizations need to gain all of the necessary information about the tax legislation and eventually the local government assumptions about the circumstance that employee posting might be considered as a permanent establishment, that is to say as a means for the employer setting a local branch in the foreign country.

 

 

 

It clearly transpires that the wider the geographical extent of posting, the trickier this is to manage and the wider and deeper the impact of legislation. Whether an employer has an interest in posting an employee abroad and cannot count on a comprehensive legal expertise internally, this should not hesitate to seek professional legal advice in order to ensure that all of the requirements provided for by the relevant regulations are fully met. The legal implications associated with posting are in fact sorely wide; as we have seen, it is not only about employment law legislation, but also about tax and commercial law regulations. Professional legal advice can definitely avert employers suffering the undesirable and unpleasant consequences which can arise from not strictly observing all of the relevant regulations.

 

 

Longo, R., (2015), Posting, delegation or secondment: is it invariably necessary?; Milan: HR Professionals [online].