Understanding the economic employer concept
The concept of an economic employer defines an employer not only by who signs the employment contract but by who actually:
Directs and controls the employee’s work,
Benefits from the work performed, and
Bears the costs of the salary or assignment.
In countries that apply this approach, the host company may be treated as the “actual” employer. This can trigger payroll registration and wage tax withholding obligations for business travelers or short-term assignees, sometimes from day one.
Country-specific considerations
Each country has its own approach to business trips involving an economic employer. Some countries have established a threshold for the number of days an employee can work in the destination country for a domestic client before meeting the requirements of an economic employer.
Countries without a threshold (e.g., Austria, Denmark, Germany, Norway, Poland, Slovakia, and the Czech Republic).
Countries with day-count limits (e.g., Sweden, the Netherlands, China, Switzerland, and the UK).
Steps employers should take to comply after receiving an “Attention” outcome in the compliance summary:
Confirm whether an economic employer situation exists
Review who benefits from the employee’s work and who controls it.
Identify if the local entity, client, or subsidiary is effectively acting as the economic employer. This could include:
The company assigning the employee’s tasks, setting priorities, and approving vacation or overtime.
The company controlling where and how the employee works, providing tools or badges, and having the employee’s working hours charged to the destination entity (e.g., via intercompany recharge).
Document this analysis, as it may be requested by tax authorities.
Assess potential payroll obligations
If the host entity is deemed the economic employer, it may need to withhold and remit income tax.
Handle withholding tax
Wage tax will need to be withheld from day one if local rules apply.
Relief from withholding could be available if proper payroll mechanisms and treaty conditions are met.
Maintain compliance documentation
Keep evidence of which entity benefits from the work performed and how costs are recharged.
Ensure timely submission of wage tax reports or filings, if required locally.
Review business travel structure
Avoid long-term business trips that blur the line between home and host responsibilities.
Consider contractual clarity: ensure that business trips are defined in writing to prevent the inadvertent creation of a local employment relationship.
Seek further expert advice
Since countries apply the OECD framework differently, check the country-specific requirements that may apply to your trip.
If needed, seek local confirmation on points like reporting or payroll treatment to prevent later corrections.
By following these steps, employers can mitigate the risks associated with economic employer situations and ensure compliance with the destination country's tax and payroll obligations.