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Employer of Record in Bulgaria

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​​​​​​​​​​​​​​​​​​​​​​​​​published on 9 April 2024 | reading time approx. 6 minutes

The legislative regulation of temporary employment services in Bulgaria is the closest concept to the notion of EoR. As there is no explicit regulation to the general concept of EoR, the main differences to temporary employment arise from the requirements of the law regarding the companies that provide temporary work services and their specific features.



Is the concept of EoR known in your country? Is the concept of EoR regulated by law in your country?

The concept of Employer of Record (EoR) is not explicitly regulated by Bulgarian law. However, in Bulgaria this type of contractual relationship is not prohibited and is not alien to the economic picture in the country. There are many companies focused in providing employment services to other companies, acting as the legal employer. Their business model includes provision of labour and tax compliance solutions for foreign or local companies in Bulgaria.

Special features of the activity within the framework of the EoR concept or temporary employment

Although there is no specific legal framework in Bulgaria dealing with the concept of Employer of Record, the activities of such entities are governed by existing laws and regulations on labour and business regulations. These include:
  • Employment regulations: EoRs must comply with the requirements of Bulgarian labour legislation regarding employment contracts, working hours, minimum wages, termination procedures, employee benefits and safe working conditions.
  • Taxation: The EoR is usually responsible for withholding and remitting taxes and social security contributions on behalf of employees in accordance with Bulgarian tax laws. However, in certain cases, there might be specifics and all or part of the above-mentioned obligations may be transferred to the economic employer.
  • Employment Agency Registration: Depending on the services they provide, EoRs may need to register with the Bulgarian National Employment Agency to operate legally in Bulgaria. This is the case for the provision of temporary employment services.
  • Data protection: EoR must also comply with data protection regulations when handling employee data, in accordance with the General Data Protection Regulation (GDPR).

In Bulgaria, the EoR concept most often falls within the scope of temporary employment. The regulation of temporary employment was introduced in Bulgarian legislation with the transposition of Directive 2008/104/EC.

The legislative regulation of temporary employment services in Bulgaria is the closest concept to the notion of EoR. As there is no explicit regulation to the general concept of EoR, the main differences between it and temporary employment arise from the requirements of the law regarding the companies that provide temporary work services and their specific features.

The relations between a company offering temporary employment, an employee and a company using the service are regulated by the Labour Code and the Employment Promotion Act.

Article 107p of the Labour Code regulates the employment contract with a company that provides temporary work, and the following articles regulate the obligations of the company that provides temporary work, as well as the user company, the relations between the two companies, the rights and obligations of the employee, as well as the beginning and termination of the assigned work.

Article 74f ff. of the Labor Promotion Act regulates the terms and conditions for registration with the National Employment Agency of companies that provide temporary work.

The temporary employment model and its regulation does not cover many of the possible cases of employment of record and labour leasing. This may give rise to some issues leading to misunderstanding and ambiguity, which in turn implies legal uncertainty.

One of the main limitations for the application of the temporary employment refers to the requirement to hire workers through temporary employment agencies only for specific reasons listed in Article 107p, para. 4 of the Labour Code: a) to perform a specific work/project or b) to replace absent employees. Other cases fall outside of the scope of an employment contract for temporary work.

According to Article 107p, para. 2 of the Labour Code, end-user companies are also limited to engage up to 30 per cent of their personnel through temporary-work agencies. It is therefore presumed that the services caried out by temporary workers have supporting functions and are indeed with a temporary nature.

The employment contract for temporary work is limited in time, which is why only fixed-term employment contracts are concluded. Following that there is no regulation on open-ended contracts related to the EoR concept.

According to the Article 74f ff. of the Labour Promotion Act, temporary-work service providers must be registered with the National Employment Agency. They conclude employment contracts with employees and provide them to the end-user company (sometimes referred to as staff leasing). The temporary-work service provider is generally responsible for the payroll and the employment documentation while the employee works under the end-user’s supervision and direction.

One of the key requirements for an temporary work provider in Bulgaria is to have active Employer Responsibility insurance. This insurance is intended to protect the organization against potential liabilities.

Further requirements regarding the temporary employment services are provided in detail in the abovementioned legal acts.

According to the Bulgarian legislation, there are no license requirements to be met by the companies using a temporary employment service. The Labour Code only specifies the obligations of the user-company in its relations with the employee and the provider of the service.

The employees hired under the conditions of temporary employment have equal rights with employees on permanent contracts. The employees are entitled to receive all benefits and compensations related to a permanent employment.

What are the special tax features of the EoR concept in your country?

From Bulgarian tax perspective in the general case the EoR is considered the taxable entity responsible for the timely withholding and remittance of the due personal income tax and the social security contributions of the employees. This is the case, for example, when the labour leasing relationship exists between two local legal entities.

Some specifics need to be considered when there is a cross-border situation. According to the legal definition an “employer” within the meaning of the Bulgarian Income Taxes on Natural Persons Act is any local entity and/or foreign person / legal entity which performs economic activity in the country through a permanent establishment or a fixed base and/or a representative office within the meaning of the Investment Promotion Act who or which is a party to a contract for labour leasing by a foreign entity. Therefore, in such cases the “employer”, who is liable for the withholding or remittance of the due personal income tax and social security contributions is the local entity and/or foreign person / legal entity which performs economic activity in the country through a permanent establishment or a fixed base and/or a representative office within the meaning of the Investment Promotion Act, namely the economic employer. The relationship between the economic employer and the employee in these cases is deemed according to the Bulgarian Income Taxes on Natural Persons Act an employment relationship for tax purposes. It should be noted that in the Double Taxation Treaty between Bulgaria and Germany there is no explicit clause regarding “hiring out of labour” cases. Regarding the social security contributions, however, the situation may be different and the EoR may still be obliged to withhold and remit the due social security contributions, even though the due tax may have become a responsibility of the economic employer.

When it concerns business activities in another country the EoR concept is also relevant for the assessment of the risk of creation of a permanent establishment. As mentioned above, an employment relationship is deemed in certain cases, even though there is no formal employment contract between the economic employer and the individual. Therefore, hiring out of labour/labour leasing relationships may lead to a creation of a permanent establishment for the economic employer. Additional conditions must be analysed in these cases. 

Due to many specifics that may have influence on the tax assessment of the different cases, it is recommendable that each case is assessed separately. 

How do you anticipate the concept of EoR evolving in your country from your perspective?

The increased use of EoRs in Bulgaria and the potential issues may trigger the need for clear regulations or guidelines on their operations in line with trends in other countries. Meanwhile, both EoRs and their clients should remain conscious of how to structure their arrangements in order to achieve the desired outcome without the risk of financial or reputational losses.​

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