March 2022 – Two years after COVID-19 was officially reported in Bulgaria, the local labour market appears to be steadily returning to its pre-COVID-19 tempo of growth, with market researchers reporting personnel shortages, particularly in the technology and IT sector. The pandemic has reshaped the way we work, and companies are now embracing remote work as an opportunity to access talent across borders. This process has naturally resulted in the increased engagement of Employer of Record service providers (“EORs”), which facilitate the process of hiring and administrating employees abroad.
This overview provides insights into how EORs may operate under Bulgarian law and also highlights important aspects to be considered by companies using EOR services.
1. EORs are not regulated by Bulgarian law. In Bulgaria, their business most often falls within the scope of temporary-work agencies or qualifies as outsourcing services.
2. Temporary-work agencies must be registered with the Bulgarian Employment Agency. They conclude employment agreements with employees and place them at the end-user undertaking (sometimes referred to as staff leasing). The temporary-work agency is generally responsible for the payroll and the employment documentation while the employee works under the end-user’s supervision and direction. A limitation of this model is the requirement of hiring temporary agency workers only for specific reasons listed in the Bulgarian Labour Code: (i) for the performance of a particular work/project, or (ii) for the replacement of absent employees. End-user companies are also limited to engage up to 30% of their personnel through temporary-work agencies.
3. In case of outsourcing, the employees are hired by and remain solely under the direction and supervision of the outsourcing company. The outsourcing provider delivers services to the end-user, often through designated employees. The outsourcing model is not specifically regulated in Bulgaria and is based on a service agreement between the provider and the end-user. There is also no requirement for the employment agreements with the personnel engaged in the outsourced service to be of a temporary nature. The outsourcing provider is, however, responsible for the overall work of the employees and not just the administration of the employment agreement. This specific may go beyond a company’s requirements for the scope of EOR services.
4. Due to the lack of explicit regulation and sufficient case law on the operations of EORs, providers of EOR services in Bulgaria often combine the temporary-work agency and outsourcing models. Several issues tend to arise when the agreement between the EOR and its client is not explicit, e.g., ambiguity as to whether or not a service has been provided or if employees have been assigned to work at the client’s undertaking; or lack of clarity as it who is supervising the employees. This may result in fines for both the provider and the end-user, as well as in the joint liability of the end-user company for the salary and social security contributions of the employees.
5. As EORs are often used by technology and IT companies, getting the EOR’s operations right and having a proper agreement with them may have an impact on the end-user’s right over the intellectual property created by employees engaged through EORs. For example, end-users might not be able to benefit from the general presumption existing under Bulgarian law that, unless otherwise agreed, the rights over software developed during the course of employment vest directly to the employer. Thus, copyrights over software created by employees engaged through EORs may remain with the EOR. This is because when using EORs, the end-user is not a party to the employment agreement with the employee. Therefore, the agreements governing this triangle have to be carefully drafted, with particular focus on clear and detailed intellectual property-related clauses.
The increased use of EORs in Bulgaria may trigger the need for clear regulations or guidelines on their operations in line with trends in other countries. Meanwhile, both EORs and their clients should remain conscious of how to structure their arrangements in order to achieve the desired outcome without the risk of financial or reputational losses.
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