A professional employer organisation (PEO) is a human resources company that is contracted by a company (the client ) to take over certain administrative functions, such as human resources, payroll, taxes, employee benefits and the like.
Use of a PEO gives typically rise to a co-employment model, as a result of which: (i) the PEO hires the employee and becomes their formal employer, but (ii) the employee’s working services are effectively used for the benefit of the client, who issues on a daily basis the instructions to the employee in order that they can continue in their work.
Given that the employee’s work is used by a party (the client) that is not the formal employer, the activity of the PEO could effectively be considered as one of staff leasing (somministrazione di lavoro) according to Italian law.
Staff leasing in Italian law: general legal framework
Under Italian law, the working services of an employee must be used by the company which is also their formal employer (that is, by the company with which the employee enters into an employment contract).
An exception to that principle lies in staff leasing, which permits a company (the user) to use the services of an individual who has formally been hired by a third party (the staff leasing agency).
Staff leasing involves the creation of two different contractual relationships: a contract between the staff leasing agency and the user (a business contact regulating the terms and conditions of the staff leasing) and an employment contract between the agency and the employee.
The relationship between the user and the employee is a de facto relationship deriving from the contract entered into between the staff leasing agency and the user.
Staff leasing is regulated by Legislative Decree 81/2015 which, in order that the staff leasing is deemed lawful, provides (a) the requirements that the staff leasing agency must satisfy; (b) the circumstances in which a business cannot use staff leasing; and (c) the substantial requisites of the staff leasing.
Authorisation for staff leasing agencies
Staff leasing services – hiring employees with a view to leasing them out to third parties (users) – can only be provided by the so-called agenzie per il lavoro, that is, those companies which hold a specific authorisation from the Ministry of Labour and Social Policies.
Restrictions on user of services
The user must be a company based in Italy or, at least, a branch of a foreign entity, duly incorporated under the Italian law. The Decree provides specific cases in which the user cannot make recourse to staff leasing. These include, in particular, where the user has not carried out a health and safety in the workplace risk assessment, as required by Italian law (and carrying out a risk assessment presupposes the existence of a company or at least a branch of a foreign entity, duly incorporated under Italian law).
The Decree further provides that:
(i) the contract between the staff leasing agency and the user must be in writing;
(ii) the number of employees provided in permanent staff leasing cannot exceed 20% of the user’s own permanent employees; and
(iii) the number of employees hired for a fixed term under a staff leasing contract cannot exceed 30% of the user’s own permanent employees.
With reference to points (ii) and (iii) above, a different limit may apply if the user applies a National Collective Agreement.
Risks of using PEO in breach of legal requirements
If staff leasing is carried out without the due authorisation on the part of the PEO, and is not in compliance with the substantive requisites above, the staff leasing would be considered unlawful.
The risks for the user, from a fiscal or employment law perspective, would be as follows:
(i) creation of a permanent establishment (if the user is not a resident company in Italy);
(ii) creation of an employment relationship directly between the user and the employee, subject to the Italian rules;
(iii) liability for payment of fines and sanctions on the part of the user.
Hiring employees through PEOs
Hiring an employee using a PEO is a viable option under Italian law if: (i) the PEO is a duly authorised company to carry out staff leasing activity; (ii) the PEO is an Italian company or at least a branch is established in Italy; (iii) all the formal and substantive requirements for staff leasing are met.