A New Way to Hire? Understanding the Employer of Record Model in Malta

Introduction

Employer of Record (EoR) arrangements have emerged as an attractive solution as businesses increasingly seek to expand into new markets and hire talent across borders without the cost and administrative burden of establishing a local presence. Under this model, an EoR hires workers on behalf of a client company and is responsible for handling employment administration, payroll, tax withholding and compliance with local employment law.

While the concept may appear to be relatively straightforward, its legal treatment varies from one jurisdiction to another. Businesses considering engaging workers in Malta through an EoR established in Malta should be aware of the local regulatory, legal and practical considerations that may arise depending on how the arrangement is structured and operated. This article provides an overview of the main legal and regulatory frameworks governing the EoR model in Malta.

Does Maltese Law Regulate the EoR Model?

The EoR model is not regulated by Maltese law as a standalone legal concept. Owing to its nature and the manner in which it typically operates in practice, however, this model is likely to fall within the purview of the Employment Agencies Regulations (Subsidiary Legislation 452.130) and the Temporary Agency Workers Regulations (Subsidiary Legislation 452.133). These Regulations regulate employment agencies, including temporary work agencies and outsourcing agencies. While both agencies assign workers to user undertakings on a temporary basis, the principal difference lies in which entity exercises effective supervision, direction and control over the workers:

• Outsourcing agency: supervision, direction and control lie with the agency;
• Temporary work agency: supervision, direction and control are transferred to the user undertaking.

In both outsourcing and temping, the agency is deemed to be the worker’s legal employer. Since an EoR retains the employment relationship while the user undertaking typically directs the worker’s day-to-day activities, an EoR will generally resemble a temporary work agency under Maltese law. This classification is significant because it determines the legal and regulatory obligations that apply.

If an EoR Operates in Malta, What Rules Apply?

1. Regulatory Requirements

Where the EoR falls within the scope of the Employment Agencies Regulations, it must obtain and maintain a licence issued by the Department for Industrial and Employment Relations.

2. Legal Framework

As the legal employer, the EoR must comply with Malta’s employment legislation, including the Employment and Industrial Relations Act (Chapter 452 of the Laws of Malta) and any regulations issued under it. Other employment-related legislation, such as the Health and Safety at Work Act (Chapter 646 of the Laws of Malta), is also applicable.

3. Contractual Arrangements

The allocation of responsibilities between the EoR and the user undertaking will also largely depend on the contractual arrangements between the parties. Well-drafted agreements are therefore essential to clearly define each party’s rights and obligations and reduce the scope for uncertainty.

What Risks Can a User Undertaking Face When Engaging a Local EoR?

1. Ensuring Regulatory Compliance

Businesses engaging an EoR that falls within the scope of the Employment Agencies Regulations should conduct appropriate due diligence to confirm that the EoR holds and maintains a valid licence to carry out its activities in Malta. Failure to do so may amount to an offence.

2. Assuming Certain Employer Duties

Although the EoR is generally regarded as the legal employer, the user undertaking may remain responsible for certain statutory obligations.

For example, the Health and Safety at Work Act defines an employer as “any person for whom work or a service is performed by a worker or other person who has an employment relationship with a worker.” On this basis, both the EoR and the user undertaking may be considered employers for the purposes of occupational health and safety legislation.

3. Misclassification Risk

In certain circumstances, the contractual characterisation of the relationship between the EoR, the user undertaking and the worker may be called into question based on the substance of the relationship, particularly the level of control exercised by the user undertaking over the worker’s activities.

Conclusion

While EoR arrangements offer a practical route to hiring talent in Malta without establishing a local entity, they are not without legal and regulatory complexity. Licensing requirements, employment-related duties and misclassification risks all need to be carefully assessed on a case-by-case basis.

Whether an EoR arrangement complies with Maltese law will depend not only on its formal contractual label but also on how it operates in practice. Businesses considering this model should therefore ensure that the arrangement is carefully designed from the outset and remains compliant throughout its effective duration.