Highly Skilled Migrant Scheme: Is This the End of the Payroll Model?
On November 8, the Minister of Asylum and Migration sent a letter to the House of Representatives expressing her concerns and announcing plans to limit the ability of recognized sponsor payroll companies to loan highly skilled migrants to third parties.
What is the Payroll Model?
A key requirement of the highly skilled migrant scheme is that the employer must be a recognized sponsor. For established companies with stable finances, becoming a recognized sponsor is usually not a problem, although the application process can take up to three months.
For startups or companies with less robust financial conditions, obtaining recognized sponsorship can be time-consuming and sometimes costly. The Dutch Immigration and Naturalization Service (IND) is required to involve the Netherlands Enterprise Agency (RVO) for companies operational for less than 18 months. In other cases, the IND may request RVO’s advice on a company’s sustainability and solvency, which often extends the application process due to the additional documentation required, such as a business plan and liquidity forecast.
Concerns may also arise for companies with prior penalties for illegal employment under the Foreign Nationals Employment Act or those whose leaders have criminal records, impacting their eligibility as recognized sponsors.
If, for any reason, a company is not yet a recognized sponsor and needs to hire a highly skilled migrant quickly, a recognized sponsor payroll company can offer a solution. The payroll company employs the highly skilled migrant and facilitates the swift granting of a residence permit, then loans the migrant to the hiring company for as long as required.
This practice is fully transparent to the IND, which is well aware of the details. Over the years, this process has become so ingrained that the IND’s communications are also directed to payroll companies.
Where Did It Go Wrong?
The November 8 letter reveals that since 2018, the IND received multiple signals indicating the loan model’s susceptibility to misuse.
The Minister highlights several categories of misuse, including:
- Individuals obtaining residence permits through loan models without living or working in the Netherlands.
- Sanctioned companies with criminally convicted managers hiring migrants unchecked via loan models.
- State actors potentially facilitating unwanted knowledge and technology transfers through loan models.
- Companies denied or stripped of recognized sponsorship hiring highly skilled migrants via loan constructions.
- Lenders setting up fake employment schemes for self-employed individuals.
The Measures
The intention is to generally exclude recognized sponsors from making highly skilled migrants available to other parties unless it falls under one of two exceptions:
- Allowing such arrangements if the hiring company is awaiting recognized sponsorship approval and needs a highly skilled migrant sooner, or in cases of mergers/acquisitions requiring a new application.
- Startups and scale-ups unable to meet all sponsorship conditions early on but needing specialized knowledge for growth. RVO will assess if a company qualifies as an innovative startup or scale-up and advise the IND on allowing temporary loan constructions. Finding appropriate solutions for this group is vital, potentially within the essential startup personnel pilot scheme.
Additionally, permits will now be issued for a maximum of two years, non-renewable.
Is This the End of the Payroll Model?
No, this is not the end of the payroll model. While these measures will impose restrictions, payroll services will remain feasible.
For hiring companies, payroll firms represent a significant cost that they typically aim to minimize. If possible, they keep loan durations under two years. Most companies view payroll as a temporary measure until they secure recognized sponsorship themselves.
Payroll companies generally avoid loans exceeding three years to prevent legal obligations for permanent employment contracts, a scenario they find undesirable. Thus, while the measures formalize a two-year ceiling, the practical impact may be limited.
However, gaps remain, such as companies intending to apply for a Blue Card and temporarily using a payroll company for quicker hiring. This situation invites questions about equal treatment for entrepreneurs onboarding foreign talent.
Much remains unclear, pending final changes to the foreign nationals’ directive.
For questions about the payroll model, call us at +31(0)20 223 24 66 or email us at info@arslanlitadvocaten.nl. We are here to assist you!
