A Professional Employment Organisation, commonly known as a PEO, is a company responsible for recruiting workers to provide services from Spain to foreign companies. This arrangement enables foreign companies to avoid registering as employers before the Spanish authorities and fulfilling the associated obligations arising from the employment relationship.
This practice involves intermediary companies hiring workers, managing payroll, social security, and tax obligations, and then invoicing the services to the original employer. While such practices are legal in many EU countries, they conflict with Spanish labour law and closely resemble the concept known as the ‘illegal transfer of workers‘.
According to Article 43.2 of the Workers’ Statute, In any event, it is understood that the illegal transfer of workers within the meaning of this article, takes place when one of the following circumstances occurs: the object of the service contracts between the companies is limited to the mere provision of workers from the transferring company to the receiving company, or the transferring company does not have an activity or a stable organisation or does not have the means necessary for the development of its activity, or does not exercise the functions inherent in its status as an employer.
In this context, given that Professional Employment Organisations are not the actual employers and, therefore, do not exercise functions inherent to the status of an employer (such as management, control, or disciplinary regime, among others), there is a high risk of declaring an illegal assignment between the Professional Employment Organisation and the foreign company, which hires the workers.
Consequences of the illegal transfer of workers
The impacts of declaring the illegal transfer of workers are diverse:
- Since it is considered a severe infringement (Article 8 LISOS), companies may be subject to sanctions that vary in severity. The minimum fine is between 7,501 to 30,000 euros; the medium fine is between 30,001 to 120,005 euros; and at the maximum level, the fine can be between 120,006 euros and 225,018 euros.
- From a financial point of view, both the transferor and the transferee companies are jointly and severally liable for their obligations towards employees and the social security authorities.
- From an employment point of view, the workers concerned will have the right to obtain permanent status either in the transferor or the transferee company, as they choose
It is important to bear in mind that such situations may also have criminal consequences, although they are not frequent.
How to avoid the declaration of illegal transfer of workers?
At Mariscal Abogados, we recommend that companies intending to hire Spanish workers decide to register in Spain through one of the legal entities established by our labour and commercial regulations rather than resort to this type of organisation.
If you need additional information regarding Professional Employment Organisations in Spain,
This article is not considered legal advice