How to comply with the Posted Workers Directive

John Weekes

18 Jun 2024 — 8 min read

How are businesses dealing with the Directives?

The pan-European nature of the legislative framework and the application of the rules to even short term cross border workers means that the PWDs – either the Enforcement Directive requirements or the Equal pay for Equal Work Directive provisions – apply to a huge number of European employers, potentially as early as the first day that they undertake international business.

Consequently there wide array of different approaches being taken to the problems the Directives throw up. While these approaches are in the main very bespoke to the businesses which use them, they can probably be grouped into five categories.

Do Nothing. For a variety of reasons (lack of awareness of the rules, low levels of corporate governance, lack of resources and/or bigger business priorities), the vast majority of European businesses are not yet in compliance with either the Enforcement Directive or the EP4EW Directive. While there has been a good level of publicity about the rules, and numerous third party providers are now prepared to offer solutions or education about the issues, it is very common for businesses where cross border travel and work is not widespread to be completely unaware that the rules even exist.

Clearly this creates a significant level of risk for the business, particularly as enforcement becomes more prevalent and the visibility of cross border work activity increases due to exchanges of information, the operations of the European Labour Authority, and the increasing switch to online reporting. From a risk perspective there is a significant difference between lack of awareness and deliberate non-compliance (for whatever reason) – the latter being treated far more seriously by enforcement authorities, with the former being, in most cases, treated as an issue leading to administrative penalties only.

Many organisations with international operations have pockets of awareness of the Directives and the obligations, but not at a high enough level to prompt action. HR functions typically have a good grasp of what is required from a labour law point of view for inbound visitors, but lack the infrastructure (eg visibility of posted workers) to take any concrete steps to promote compliance. This is exacerbated in situations where visitors are coming in from non-PWD locations (eg the UK or US) where the visibility of the legislative requirements is low and the perception being that, as they are based in non-EU locations, EU rules will not apply to their employees.

Even where there is awareness in the home or host entities, or both, knowledge might be superficial and there may also be a lack of understanding of what needs to be done, practically, to be compliant. While a host entity receiving a posted worker might be aware of the local labour laws that need to be complied with, most of the actions mandated by the legislation are required of the legal employer in the home country, rather than the host entity. While cooperation on the requirements can solve this knowledge/action mismatch, it is complicated to create the right forums and support structures to facilitate this.

Some organisations have developed and are deploying partial solutions to the compliance challenge. Typically this stage of development has occurred where sufficient awareness of the issues – and the risks – has developed and steps have been taken to deal with some of the tasks involved. In cases where there has been a level of labour law enforcement in the past (eg a labour audit in one location), this may have created sensitivity about compliance which has led to an increased focus on taking the right steps to protect that entity. So, for example, an entity would take it on itself to file notifications in respect of its outbound posted workers, liaising with host companies as needed, but may still be unable to deal with inbound visitors because there, of course, it is the sending company that has responsibility for compliance.

A centrally driven, but locally delivered process, which some larger, more integrated companies have adopted, is the most likely route through which organisations can reach meaningful levels of business-wide compliance. A centrally placed driver of compliance management can, even in the absence of a central process or widespread automation, push out knowledge, help educate the business about risk, provide input into funding decisions, and generally encourage businesses, either individually or as a group, to adopt good practices and facilitate the exchange of information that is necessary for a compliance process that involves both home and host entities. Compliance would typically be dealt with at an individual entity level and in many situations where a locally delivered process has been adopted, a risk-based approach has been taken where compliance activity is focussed in the locations with most risk for the business as a whole.

Lastly, and possibly most suited for the biggest organisation, we find the very few examples of a centrally mandated and centrally delivered process, with full oversight, governance and accountability. This type of approach typically emerges when there is a strong, central mandate for compliance (potentially as a result of the awareness of reputational damage that non-compliance can bring), a sponsor of a centrally delivered solution, a recognition that being compliance will require funding, and, in most cases, the availability of data and systems that will underpin central delivery.

Where should businesses be prioritising their compliance efforts?

While every business wishes, ultimately, to comply with all Posted Worker Directive legislation, practically it is a challenge for any business to be fully compliant due to

Cost
Resources centrally, and across home and host locations
The complexity of the law and the associated compliance processes
The availability of the data needed to be compliant in real time

So, if full compliance is not possible in the short term, what should businesses be prioritising to manage their risks?

High Risk Locations

It is clear that some EU members states are more focussed on PWD compliance than others, whether that is seen through the enforcement of the requirement to file pre-travel notifications, the applications of sanctions, or the prevalence of labour law audits (including those focussed on equal pay for equal work). To the extent that these locations are also those to which a business posts workers or sends them on business trips, those countries should be high on the list of priority countries for compliance efforts to be implemented, even if the actual numbers of travellers is small. Enforcement has consistently been a high priority for Spain and Austria, for example, and while these countries’ approach could change, any business with travel there should ideally be taking some steps towards compliance, even if universal compliance is not yet possible.

High Volume Locations

Much of the risk associated with PWD non-compliance is driven by the volume of Posted Workers being sent. Although, from a PWD penalty perspective, a host country such as Denmark might be a relatively benign location (ie penalties are small), if a business has such strong connections with Denmark that hundreds or even thousands of business travellers or project workers travel there for non-exempt work each year, it would seem to make sense to try to be compliant in that location in preference to lower volume host countries.

High Visibility Locations

Lastly, it is logical for companies to prioritize their compliance efforts in their ‘higher visibility; locations, at least initially. Having a significant corporate presence, or even a headquarters in a location is probably going to increase the chance of regular labour inspections, and similarly locations where a business have already been subject to a labour audit are arguably more likely to be the target of authorities’ compliance checks. While still retaining the goal of widespread compliance, it would seem to be prudent to put compliance measures in place in these higher visibility locations first. This is not to say that it makes the compliance efforts easy: ensuring that a business is compliant in its HQ location of, say, Belgium, could require all the businesses sending personnel into Belgium to perform compliance activities such as filing notifications or paying salary uplifts to meet the EP4EW requirements, but at least this would help manage any risk issues in a key location from a visibility and presumably reputational perspective.

What steps should businesses take to be compliant

The requirements of the PWDs are, at a country level, comparatively straightforward. Pre-travel notifications, the appointment of a liaison person and the retention of documents are not, in themselves, difficult tasks. It is the combination of volume, data and speed which cause the main difficulties. The EP4EW legislation does create more challenges but the application of a robust process can deal with most of the issues created as there is less time pressure on compliance.

Identify your target population

The main hurdles which businesses exposed to the PWDs compliance requirements are faced with are largely administrative in nature. Identifying who the PWD obligations apply to is key. Assignees are obviously very visible – many people are involved in the expatriation of an employee on a medium or long term basis – and so there is ample opportunity to gather the data, prepare filings and apply payroll processes to them pre-departure. Similarly, project workers are expatriated as part of a process which makes compliance much easier.

Business travellers, however, are much harder to identify and deal with. Their trip, which may well cause a PWD Notification obligation, may only be visible in advance to the traveller themselves or their line manager. Rarely is there a central process for managing business trips. The reasons for the trip may be nebulous or the trip may be multi-purpose, which may confuse the picture surrounding whether a notification needs to be filed, or is exempt. Most problematic of all is speed. Many business trips are planned at the last minute, leaving very little time for an administrative process such as that which enables PWD compliance to be applied.

Embedding steps which increase the visibility of business travel – for example at the point at which a ticket is booked – greatly enhances the ability of HR or another central function to deal with the compliance tasks.

Understand local rules

As mentioned earlier, the implementation of PWD was done at a national level and so the rules are, in effect, different depending on the destination location for the Posted Worker. Understanding the data requirements in those host locations, and also the processes that need to be followed to be compliant, is key, and local HR would seem to be the obvious group to provide further insight. They will, in all likelihood, be familiar with local labour law already, and can comparatively easily find out other host country information and/or liaise with the local authorities for support as necessary.

Data

As we have seen, data is central to PWD compliance, and in particular to the requirement to file a notification. Although host country data requirements do change, approximately 80% of data points are consistent across all locations. Understanding what data you need to file a notification, and assessing what you currently have access to and how you will extract and manipulate that as part of the filing process is the critical first step. Once that is done, developing an approach for obtaining the missing data (whether that is individual’s passport number, the static data of the host country entity where the work is being done, like their company registration) will bring you to a point where, in principle, you have all you need to file a pre-travel notification. Post travel data – for example a cross border worker’s pay information, which would be needed to assess whether local wage legislation is being complied with – is important but can be gathered in slightly slower time if necessary, as the EP4EW requirements are not part of the pre-travel process and no host country authority has even shown an appetite for insisting on compliance in this area in real time.

Notifications

Lastly, businesses need to decide what sort of PWD processes make sense for their organisation. Do they want a highly automated, centrally managed process? Culturally, does it make sense to give the responsibility to the individual traveller to deal with some of the requirements themselves, or is taking it completely out of their hands likely to be more effective? Do the volumes of Posted Workers or the number of host locations create momentum for one type of solution over another? These are key considerations and there is certainly no ‘one size fits all’ solution to the challenges the legislation throws up.