Carve-outs in Europe: the HR side of a transition services agreement

In 2026, buying part of a European company moves people without their payroll, HR systems or, often, their employer. A transition services agreement lets the seller keep running some of those services after closing. However, staff in the Netherlands and across the EU still need a lawful employer and payroll from Day 1.

How is a carve-out different from buying a whole company?

In a corporate carve-out, you buy one division rather than a whole company. As a result, its people often arrive without the functions that supported them. Payroll, HR administration, benefits and IT usually stay with the seller. By contrast, in a share deal for a whole company, the employer stays the same.

For the seller, a carve-out is a divestiture. It can sell the division’s assets directly. Alternatively, it first moves the division into a new company and sells the shares, often called a hive-down. Either way, employees move to a new employer at some point. US buyers will recognize the asset purchase vs stock purchase question here. So confirm the seller’s route early, because it decides which employment rules apply.

Which employees transfer in a carve-out, and how?

When a division moves to a new employer, its employees usually move with it automatically. Under EU Directive 2001/23/EC, their existing rights and obligations pass to the new employer on the transfer date. Moreover, neither seller nor buyer may dismiss anyone because of the transfer itself.

The Netherlands applies these rules through its Civil Code. Four points stand out for a US buyer:

• Shared liability: as of October 2026, business.gov.nl states the seller stays jointly responsible for one year.
• Works council: as of 2026, the Dutch Works Councils Act requires one where at least 50 people normally work. The seller must seek its advice on a transfer of control while that advice can still shape the decision.
• Information: both parties must tell employee representatives the date, reasons, implications and planned measures. Without representatives, employees hear this directly.
• Terms: collective agreement terms continue, while supplementary pensions follow separate rules.

Staff who split their time between the division and the wider seller are a grey area. Therefore, map them early with counsel. In the UK, the TUPE regulations play the same role.

What can a transition services agreement cover for HR and payroll?

A transition services agreement can cover services the seller already runs for the division. Typical examples are payroll processing, HR systems, benefits administration and IT access. However, the seller acts only as a service provider, and only for a limited period. A TSA agreement therefore leaves the employer’s legal duties with the buyer.

Each service usually has its own schedule, fee and end date. Because the seller handles employee data for the buyer, the parties usually also need a GDPR data processing agreement. In the Netherlands, payroll returns then run under the new employer’s own payroll tax number.

HR and payroll item	Can the seller provide it?	What the buyer still owns
Payroll processing and payslips	Yes, as a service	Employer status, payroll registration and returns
HR systems and records	Yes, with agreed access limits	Data processing agreement and migration plan
Benefits and pension administration	Sometimes, depending on scheme rules	Replacement plans before the service ends
Being the legal employer	No, not for transferred staff	Local entity, payroll registration or another lawful route
Employee relations and works council talks	No	Its own HR leadership from the transfer date

What must be in place on Day 1 if the buyer has no entity yet?

On Day 1, every transferring employee needs a lawful employer that can pay them. In an asset deal, that is the buyer entity taking over the business. If that entity is a US company, it becomes the employer of your Dutch staff. Dutch employment law and payroll obligations then apply.

Common routes include:

• Form a local acquiring entity before closing, so staff transfer straight into it.
• Register the acquiring company as a foreign employer and get a loonheffingennummer.
• Agree a deferred local closing, so the Dutch business transfers once your entity is ready.
• Use an employer of record in Europe for people outside the transfer, such as new hires.

Note that staff who transfer by law go to the buyer, not to an employer of record. Moving them on needs their agreement and legal advice. In addition, each route raises tax questions, including permanent establishment risk. For a fuller comparison, read who employs your people in Europe between signing and closing.

How do you exit a transition services agreement without a gap in payroll?

Plan the exit on the first day of the transition services agreement. First, set a cutover date and work backwards. The new payroll needs its registration, employee data, benefit enrollments and bank details before then. Ideally, run a parallel payroll and compare the results line by line.

The separation of payroll deserves extra care, because errors reach employees directly. Before cutover:

• Align the cutover date with a pay period and the new filing calendar.
• Migrate employee data, year-to-date pay and leave balances.
• Enroll staff in replacement pension and benefit plans, so cover does not lapse.
• Resolve every parallel-run difference before going live.
• Tell employees what changes on their payslip.

Finally, build extension options into every TSA carve-out, since registrations and data migration can overrun.

Running the HR side of a transition services agreement with Octagon

Since 1987, Octagon has helped organizations move talent across European borders, with compliance as the starting point. In a carve-out, we act as an acquirer’s HR function in Europe until it builds its own. For carve-out HR support from signing to TSA exit, email sales@octagon.nl.

Transition services agreement FAQs

What is a transition services agreement?

A transition services agreement is a contract in which a seller keeps serving the buyer after a deal closes. Some call it a transition service agreement. It usually covers payroll, HR systems, IT and finance. The buyer pays for these services while it builds or buys replacements. Each service normally ends on an agreed date.

Can payroll stay with the seller after closing?

Yes, as a service, but not as the employer. The seller’s payroll team can keep calculating and paying salaries for transferred staff. Legally, however, the buyer becomes their employer on the transfer date. Payroll returns therefore run in the buyer’s name. A data processing agreement should also cover the seller’s use of employee data.

How long does a TSA usually run?

No law sets a standard length. Instead, buyer and seller agree a term for each service, based on how long replacing it will take. Services that need registrations, data migration and testing, such as payroll, can take longer. Agreements therefore commonly include extension options and a firm end date.

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