What happens to employees when you stop using an employer of record?

When a company stops using an employer of record, employees do not automatically lose their jobs. The most common outcomes are a direct transfer to the client company’s payroll, termination with statutory notice, or a move to a new EoR provider. Which path applies depends on the employment contracts in place, the reason for ending the arrangement, and the jurisdiction’s labour law requirements.

In the Netherlands, Dutch employment law governs every step of this process, and the obligations are significant. Getting the transition wrong exposes companies to legal liability, employee claims, and operational disruption. The sections below address the most pressing questions decision-makers face when unwinding an EoR arrangement.

What are the options for employees when an EoR arrangement ends?

When an employer of record arrangement ends, employees generally have three possible outcomes: they transfer to the client company as direct employees, their contracts are terminated in accordance with Dutch labour law, or the EoR relationship is transferred to a different provider. The right option depends on the client’s business situation and the terms originally agreed with the EoR.

Transfer to direct employment is the most common outcome when a company has established a Dutch legal entity and is ready to bring its workforce in-house. In this scenario, the client assumes all employer obligations: payroll, tax, social premiums, and HR administration, that the EoR previously handled.

Termination is the appropriate route when the business is winding down its Dutch operations or a specific role is no longer needed. Dutch employment law sets strict rules around notice periods, severance, and procedural requirements, all of which apply regardless of whether the EoR or the client initiates the end of the arrangement.

Switching to a new EoR provider is less common but relevant when a company is dissatisfied with its current arrangement but not yet ready for direct employment. In this case, employees may be transferred between EoR providers, though this still requires careful handling of contracts and continuity of service.

Can employees be transferred directly to the client company?

Yes, employees can be transferred directly to the client company when the EoR arrangement ends, provided the client has established a legal entity in the Netherlands capable of employing staff. This is one of the most straightforward exits from an employer of record arrangement and is often the intended end goal for companies using EoR as a market-entry bridge.

The transfer must be handled carefully. Under Dutch law, the principle of overgang van onderneming (transfer of undertaking) may apply, which means employees retain their existing terms and conditions, including salary, seniority, and accrued benefits. The client cannot use the transition as an opportunity to renegotiate employment terms to the employee’s detriment.

Practically, the process involves issuing new employment contracts under the client company, ensuring continuity of payroll, and formally ending the EoR agreement. Employees should receive clear communication about the change and what, if anything, will be different in their day-to-day employment. Transparency at this stage reduces the risk of disputes and maintains workforce morale during the handover.

What happens to employee contracts and benefits during the transition?

During an EoR transition, employee contracts and benefits must be preserved unless there is a lawful basis to change them. Employees are entitled to continuity of their agreed terms: salary, leave entitlements, pension contributions, and any other contractual benefits cannot simply be reset because the legal employer is changing.

The EoR holds the employment contracts during the arrangement. When the arrangement ends, those contracts either transfer to the new employer or are formally terminated. If they transfer, the incoming employer inherits the obligations attached to them. If they are terminated, the statutory notice periods and any applicable severance must be honoured.

Benefits such as pension accrual require particular attention. In the Netherlands, pension obligations are governed by sector-specific schemes and collective labour agreements. A client taking on direct employment must ensure the incoming pension arrangement is at least equivalent to what the employee had under the EoR. Gaps in pension coverage, even brief ones, can create legal exposure.

Holiday accrual and any unused leave must also be accounted for at the point of transition. Employees do not forfeit accrued leave because their legal employer changes. The outgoing EoR and the incoming employer need to reconcile these balances clearly before the handover is complete.

Who is responsible for employees during the handover period?

During the handover period, the EoR remains the legal employer and retains full responsibility for payroll, compliance, and employment obligations until the transfer is formally completed. Responsibility does not shift to the client company until a specific, agreed date on which the new employment contracts take effect.

This distinction matters because the handover period can last several weeks. During that time, the EoR continues to process salaries, manage sick leave, and handle any HR issues that arise. The client company should not act as the de facto employer before the legal transfer is complete, as doing so can create ambiguity about who bears liability if something goes wrong.

Clear documentation is essential. Both parties should agree in writing on the exact handover date, the scope of responsibilities up to that date, and how any outstanding matters, such as pending expense claims or open disciplinary issues, will be resolved. A well-structured exit agreement between the EoR and the client protects both parties and ensures employees experience no disruption to their pay or entitlements.

What are the legal risks of ending an EoR arrangement incorrectly?

Ending an employer of record arrangement incorrectly exposes companies to claims of wrongful termination, breaches of Dutch employment law, and potential liability for unpaid entitlements. The risks are not theoretical. Dutch employment law is strongly protective of employees, and procedural errors carry real financial consequences.

The most significant risks include the following:

  • Failure to observe notice periods: Dutch law prescribes minimum notice periods based on length of service. Ending an EoR arrangement without honouring these periods can result in claims for compensation.
  • Unlawful changes to employment terms: Attempting to reduce salary, benefits, or seniority during the transition without employee consent is a breach of contract and may trigger legal action.
  • Continuity errors: A gap between the end of the EoR contract and the start of the new employment contract can interrupt statutory entitlements, including pension and social security contributions.
  • Transfer of undertaking violations: If the transition qualifies as a transfer of undertaking and the client fails to honour existing terms, employees can challenge the change and seek reinstatement of their original conditions.
  • Misclassification risk: If the arrangement is wound down carelessly and the worker continues to provide services without a clear employment structure, there is a risk of the Dutch tax authority classifying the relationship as bogus self-employment, with fines for both parties.

Given the stricter enforcement environment in the Netherlands from 2025 onwards, companies should treat EoR offboarding with the same rigour they apply to onboarding.

How should companies plan the exit from an EoR to avoid disruption?

Companies should begin planning the exit from an EoR arrangement at least three to six months before the intended transition date. Early planning allows time to establish the legal entity, prepare employment contracts, align benefits, and communicate clearly with employees, all without creating gaps in compliance or payroll.

A structured exit plan should address the following steps:

  1. Confirm the legal entity is ready: The client company must be registered and operational in the Netherlands before it can employ staff directly. Entity setup takes time, and rushing it creates risk.
  2. Audit existing employment terms: Review every employee’s contract, salary, benefits, accrued leave, and pension entitlements. The incoming employer inherits these obligations and needs a complete picture before the transfer.
  3. Agree a handover date with the EoR: Set a specific date on which responsibility transfers. Document this formally in a written exit agreement.
  4. Issue new employment contracts in advance: Employees should receive and sign their new contracts before the transition date, not on it. This avoids any period when they are without a valid employment agreement.
  5. Brief employees clearly: Explain what is changing, what is staying the same, and who their new HR contact will be. Uncertainty at this stage damages trust and can prompt unnecessary attrition.
  6. Align payroll systems: Ensure the new payroll provider or internal HR system is ready to process the first salary run under the new arrangement without delay.

Companies that treat EoR contract end as a project, with a defined timeline, clear ownership, and legal oversight, consistently experience smoother transitions than those that handle it reactively.

How Blue Lynx supports EoR transitions

Blue Lynx manages the full lifecycle of employer of record arrangements, including structured, compliant exits. With over 37 years of experience in Dutch employment law and HR administration, the Blue Lynx team ensures that transitions are handled correctly from both a legal and operational standpoint.

  • Full audit of existing employment contracts and entitlements before any transition begins
  • Coordination of handover timelines to prevent gaps in payroll or compliance
  • Support for entity setup, including access to vetted legal and accounting partners
  • Preparation of new employment contracts in English and Dutch
  • Ongoing HR support during and after the transition period
  • NEN4400-1 certified and fully GDPR compliant throughout the process

Whether you are planning to bring your team in-house, switch providers, or simply need clarity on your obligations before ending an EoR arrangement, the right guidance makes the difference. Speak to a Blue Lynx consultant to discuss your specific situation.

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