Intra-group secondment at startups and scale-ups: when moving staff internally becomes payroll

Why intra-group secondment is particularly relevant for growth companies

For startups and scale-ups, working with multiple companies is the rule rather than the exception. Think of a holding company with various operating companies, a separate entity for IP, a foreign subsidiary, or a payroll entity where employees are formally employed. On paper, this structure is often logical. In daily practice, however, the lines quickly become blurred.

A developer is on the payroll of one entity but works entirely for another group company. An operations lead supports multiple entities but is managed by only one operating company. Or a team is centralized while the substantive management remains decentralized. Internally, this often feels like normal organization within a corporate group. Legally, it is more nuanced.

With intra-group secondment, an employee deals with two different roles within the same group. There is a formal employer—the company with which the employment contract was signed—and a de facto employer—the group company where the employee actually works and under whose supervision and direction the work is performed. It is precisely this distinction that makes this structure relevant for founders, HR teams, and legal teams.

What exactly is intra-group secondment?

Intra-group secondment occurs when an employer within a group makes employees available to another affiliated company so that they can perform work there under that company's supervision and direction. This can involve an operating company lending staff to a sister company, or a holding company or payroll entity that formally employs staff and has them work at another group company.

It is important that this provision of staff within the group can be considered a business activity. In that case, it is not an incidental or informal internal solution, but a structurally organized way of working. This is especially evident when an employee works exclusively or almost exclusively for one other entity within the group, while the formal employer itself plays hardly any independent role in the daily operations.

This is recognizable for tech companies. A central employer entity can be attractive for reasons of scale, governance, or risk management. But that very central setup can lead to the employment relationship being legally classified differently than many entrepreneurs expect.

When internal secondment is legally viewed as payroll

An important point is that intra-group secondment generally qualifies as payroll when it is a business activity. This is particularly the case if the employee is made available exclusively to another group company and the lender does not perform an allocative function.

That allocative function essentially revolves around actively matching supply and demand in the labor market. For a traditional temporary employment agency, this includes recruitment, selection, and mediating between different clients. Within a corporate group, this is often missing. Especially with a payroll entity, the role is usually limited to formally employing and then lending staff to group companies. In such a setting, classification as payroll is logical.

This shifts the legal starting point. What feels internally like a purely intra-group personnel solution then falls not under the standard temporary employment regime, but under the payroll framework. For startups and scale-ups, this is a significant difference, as payroll is subject to different rules and restrictions than temporary employment.

Not every internal deployment of staff is automatically payroll, by the way. If the provision of staff does not take place as a business activity, but is incidental and collegial within the group, then it does not necessarily constitute temporary employment or payroll. This is precisely why the actual setup is decisive. Anyone who structurally has staff working within the group must therefore look beyond just the organizational chart or the chosen contracting party.

Secondment is different from a change of employer

In practice, intra-group secondment is often confused with an internal transfer to another group company. Legally, this distinction is crucial.

With secondment, the employment contract remains with the formal employer. The employee starts working for another entity, but does not change employers. With a change of employer, also known as a contract transfer, the bond with the old employer ends and a new bond is formed with another group company.

That distinction seems technical, but it has major consequences. A change of employer does not happen tacitly just because someone is actually working elsewhere. This requires an offer and acceptance. The mere fact that an employee works daily for another entity within the group does not mean that the other entity has become the employer.

For startups and scale-ups, this is an important point of attention regarding internal mobility. Especially in fast-growing organizations, people, roles, and budgets are often shifted pragmatically. But if contracts are not explicitly adjusted, the original employer remains the formal employer in principle. Ambiguity about this can cause problems later, for example, in the event of dismissal, liability, or claims regarding employment conditions.

A mobility clause can be useful within a group, as it can state in advance that an employee is willing to perform work for another group entity or to enter into employment there. Even then, it remains wise to document the chosen structure very precisely, so that it is clear whether it concerns secondment or an actual change of employer.

What does payroll qualification mean in practice?

Equal employment terms carry significant weight

When intra-group secondment occurs as a business practice, the seconded employee is entitled to the same employment terms that would have applied had the host company hired the employee directly. This applies not only to salary but also to other collective and individual employment conditions.

For growth companies, this is a point to take seriously. A dedicated HR entity cannot simply apply its own, more modest package of employment terms if employees are structurally working within another group company where better terms apply. Conditions regarding dismissal, such as a social plan or outplacement support, can also be part of this comparison framework.

This equal treatment becomes particularly relevant as a startup group begins to professionalize. While differences between entities might be resolved informally in the early stages, tension arises more easily later on when employees discover that their formal contract does not align with the terms of the business unit where they actually work.

Pensions cannot be overlooked either

In addition to equal employment terms, pensions play an important role. In the case of business-related intra-group secondment, an adequate pension scheme must be provided for the seconded employee if employees in equal or equivalent positions at the host company are entitled to one. If the host company does not employ such staff itself, it may align with the sector in which the host company operates.

For startups and scale-ups, this is often not a minor detail, but a financial and operational priority. In younger companies, pension schemes are sometimes only reviewed structurally at a late stage, by which time the group structure and personnel deployment have already become complex. Especially with a dedicated HR entity, it is wise to verify in good time whether the scheme still fits the reality of the organization.

The duty to inform requires advance preparation

With intra-group secondment, proper documentation is not a luxury. Before the secondment begins, the host group company must share the relevant employment terms with the employing entity. Furthermore, it must be stated in writing that the employment contract is a payroll agreement.

This means that companies cannot simply rely on a general internal agreement that employees are "just working for another subsidiary." Anyone who fails to document the arrangement properly risks subsequent disputes regarding the nature of the employment relationship, the applicable terms, and the consequences of ending the secondment.

For tech companies, where speed often takes precedence over formality, this is precisely the kind of issue that can prove unnecessarily expensive later on. Not because the structure itself is impossible, but because the actual situation and the contractual documentation have diverged.

Why intra-group secondment does not benefit from the flexible temporary employment regime

A payroll qualification also means that the lighter regime normally applicable to temporary employment contracts cannot be freely utilized. The rationale behind this is clear: intra-group deployment should not be used to shift employees internally to avoid the accrual of rights or dismissal protection.

This is a relevant warning for startups and scale-ups. A dedicated HR entity is sometimes viewed as a flexible layer within the group, but the possibilities for deviation are limited, especially in the case of structural internal deployment. The scope for working with extended chains, lighter dismissal rules, or similar advantages is much smaller here than entrepreneurs sometimes realize.

Anyone using a group structure to centralize personnel deployment must therefore look not only at efficiency and governance but also at the boundaries of that structure from an employment law perspective.

Successive employment: usually not, but watch the transition

A logical question is whether the group company where the employee actually works then qualifies as a successive employer. In principle, the answer is no. With intra-group secondment, there is no change in the employer. The formal employer remains the same, and no employment contract is normally created between the host company and the employee.

This is relevant for various regulations where successive employment may play a role, such as the chain provision, probationary periods, notice periods, and transition payments. Therefore, mere secondment within the group does not make the host company a successive employer.

That may change when the employee is hired directly by the host company. In that case, successive employment may indeed become an issue. For startups and scale-ups, this means that the moment of transition is legally much more significant than the period preceding it. An employee may have worked for the same operational business within the group for years, but the legal playing field only truly shifts upon direct employment.

Transfer of undertaking: permanent secondment can have far-reaching consequences

One of the most underestimated aspects of intra-group secondment is its role in a transfer of undertaking. If an employee is permanently seconded within the group and the business unit where they actually work is transferred to a third party, that employee may, under certain circumstances, transfer along with it.

This is a significant issue. The formal employer is not necessarily the deciding factor. In the case of permanent secondment, the de facto employer—the unit where the employee actually performs their duties—can become the decisive factor in the assessment.

For startups and scale-ups, this is particularly relevant during carve-outs, restructurings, the sale of business units, or the spinning off of activities into a separate entity. Anyone who has formally centralized their staff but, in practice, has them working structurally within a specific business must realize that this operational reality can carry significant weight if that business is transferred.

Not every secondment leads to such an outcome. The structural and lasting connection to the transferred unit is what matters here. But precisely for this reason, transactions require a close look at the actual deployment of personnel within the group, rather than just the names on the employment contracts.

The de facto employer has more than just operational influence

Although there is, in principle, no employment contract between the seconded employee and the host group company, that relationship is not legally empty. The group company where the employee actually works does indeed have obligations.

That de facto employer must, for example, act as a good employer and also plays a role in assessing economic circumstances and redeployment. In other words: whoever is in actual charge also influences the legal risk.

For founders and management teams, this is an important insight. A structure in which one BV is the formal employer and another BV manages everything does not automatically divide responsibilities into two neat, separate boxes. The operational reality remains legally relevant.

In special situations, the parent company may also come into the picture, for example, when liabilities have been accepted within the group or when the distinction between legal entities is abused. This is not easily assumed, but it does underscore that group structures do not offer unlimited protection when the actual organization operates differently than the paper reality suggests.

What should startups and scale-ups check right now?

For young growth companies, the biggest gain usually lies not in avoiding intra-group secondment, but in setting it up correctly. A few questions are essential in this regard.

Do you work with a personnel BV or another central employer entity? Look beyond the contractual structure and focus on the practice: who recruits, who selects, who manages, and for which entity does the employee actually and structurally work?

Are employees deployed exclusively at one group company? Then it is wise to explicitly assess whether the arrangement should be treated as payroll, with all the associated consequences for employment conditions, pensions, and documentation.

Is there internal talk of "just moving" staff to another BV? Check whether this is truly a secondment or a change of contract. That distinction should not remain implicit.

And is a restructuring, sale, or internal carve-out on the agenda? Then the actual deployment of personnel within the group should be a standard part of the analysis. Especially with permanently seconded employees, this can help determine the outcome.

At Startup-Recht, we regularly see that these questions only come to the table late, usually when a reorganization, investment, or transaction is already in play. It often turns out that the practice has been years ahead of the legal setup. By taking a sharp look at intra-group secondment earlier, you prevent growth from leading to unnecessary employment law friction.

Conclusion

Intra-group secondment is a useful tool for startups and scale-ups, but it is not a legally neutral internal solution. Anyone who structurally deploys personnel within a group will quickly have to deal with the payroll framework, equal employment conditions, information obligations, and restrictions on the flexible temporary employment regime.

Furthermore, secondment is different from a change of employer, and the actual work situation within the group can carry significant weight in cases of successive employment, dismissal issues, and transfers of undertakings. That is precisely why it is wise for growth companies not only to structure smartly but also to remain legally precise.

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