The Supreme Court recently issued an important ruling on when self-employed contractors must be treated, for tax purposes, as employees. According to the Supreme Court, it does not matter what the contracting parties agree about the working relationship and what they want. The court considers only how the parties actually dealt with each other during the working relationship to be important.

What does this ruling mean for practice?
In itself this ruling does not change all that much, but it does sharpen the focus on the topic once again. This probably also has to do with the self-employment web module that is replacing the minimum-rates-for-the-self-employed bill, the Web Module Assessment of Employment Relationship (WBA). This module was launched on 11 January 2021 for a trial period of 6 months and contains an online questionnaire with which (business) clients will soon be able to get clarity on the question of whether an assignment may be carried out outside employment. If that is the case, a client’s declaration is issued. Clients then have the certainty that they do not need to pay payroll tax and employee insurance contributions, provided the web module has been filled in truthfully.

Now back to the ruling. This is in particular an important ruling for self-employed contractors in the higher segment. These are the more highly educated self-employed people who charge a high rate and who have made a deliberate choice to work as self-employed. A self-employed person often does this for the sake of, for example, more favourable tax treatment, so that they keep more net income. If the work to be carried out is on the borderline of self-employment, and could therefore in fact sometimes be an employment contract, the client, confirmed by this new ruling, could even more easily get caught out. Whereas previously, when qualifying a working relationship, the court also took into account what the self-employed person themselves had in mind (i.e. genuinely only wanting to work under a contract for services), now only the actual situation is considered. The parties’ intent when entering into the contract plays no role whatsoever in the tax and employment-law qualification of the working relationship.

So what are the tax and employment-law consequences of this?
Firstly, the tax authorities will claim social insurance contributions for the period during which the self-employed contractor was actually employed by the client. Furthermore, a self-employed contractor could, for employment-law purposes, suddenly turn out to be an employee after all, despite both parties explicitly having wanted a self-employment relationship when entering into the contract. If the self-employed contractor becomes ill, or is no longer engaged, they could in that case argue that they were actually an employee after all, with all the adverse financial consequences and risks (for the employer) that entails. Think here of the obligation to continue paying wages during illness and dismissal protection. In this article we explain what employers need to think about to avoid this risk, but also which construction could be a suitable alternative.

Court assessment of self-employed status
An employee must follow instructions from their employer on how to carry out the work. A self-employed contractor has much more freedom. The authority relationship is in fact the most important element of the employment contract (Section 7:610 of the Dutch Civil Code). When a court has to assess whether there is an employment contract or a contract for services, it will mainly look at how this authority relationship was actually given substance in the specific case. Since the Supreme Court ruling of 6 November 2020, the court therefore no longer looks at what the parties wanted (the parties’ intention). So even if the self-employed contractor did not want to enter into employment, they can still later invoke the additional benefits of an employee if the parties actually dealt with each other in that way.

Points of attention when engaging self-employed contractors
Self-employed contractors can therefore very easily switch to an employment contract if an authority relationship has arisen in the meantime. Their own earlier explicit statements at the start of the relationship, that they wanted to be engaged as self-employed, do not change this.

Does this mean that clients had better stop using self-employed contractors? No, as long as the client abides by the rules of the game to prevent an authority relationship, there is nothing wrong. Below are some tips to prevent the self-employed contractor from being regarded as an employee.

1. The client must prevent themselves from directing and supervising the self-employed contractor

The client and self-employed contractors should enter into as little of an authority relationship with each other as possible, otherwise there is false self-employment. The client must make clear agreements about the result of the assignment, but should not give (or give as few as possible) instructions on how the result is to be achieved. If done properly, no substantive instructions should be needed either, because the self-employed contractor has specialist knowledge.

2. The client must ensure as few similarities with staff as possible

The client should preferably not have the self-employed contractor perform the same work as their employees. If done properly, the self-employed contractor also receives higher pay than employees carrying out similar work. Furthermore, the self-employed contractor should also not be treated as one of the employees. Clients should not, for example, hold performance review meetings with self-employed contractors, should not have self-employed contractors attend mandatory training or company activities (team outings), and should not pay their tuition costs either. Another (serious) commonly made mistake when using self-employed contractors is continuing to pay them during illness and holidays.

3. The client must leave the self-employed contractor free

The client should leave the self-employed contractor as free as possible to determine the location where they carry out the work, and as free as possible regarding the working hours they may determine themselves. Furthermore, the self-employed contractor should, as much as possible, use their own equipment, such as laptop, books, etc. The client should also bear in mind not to let the self-employment relationship continue for too long (max 12 months), to keep the risk of a change into an authority relationship and dependency as small as possible. It is important for the client to assess the (actual) working relationship every so often.

4. The client must let the self-employed contractor arrange their own affairs

The client should not require the self-employed contractor to take out business or professional liability insurance. Such a requirement runs counter to the self-employed contractor’s entrepreneurial freedom. The self-employed contractor should therefore also be left free to accept other assignments from other clients.

5. The client should have an expert assess the situation

Contracts with self-employed contractors must not contain any agreements or elements resembling those of an employment contract. There are a number of “prohibited” contractual provisions that can be a strong indication of an employment contract. A client would be wise to always have an employment/contract lawyer look at such a contract. Furthermore, an expert can also objectively assess whether an authority relationship actually does or does not exist, and/or how this can be prevented.

6. As a client, fill in the self-employment web module before the work starts

This internet tool went online on 11 January 2021 and is intended to combat false self-employment. If a client is in doubt as to whether they can engage a self-employed contractor for a particular assignment, they fill in the online tool with about forty questions. Incidentally, those questions are about the assignment, not about the contractor.

One of these three outcomes then follows:

• Work can be “done outside employment”. The web module gives a client’s declaration, which clearly tells the client that they do not need to pay social insurance contributions. Provided, at least, that they ensure the assignment is carried out as filled in. Note: at this pilot stage, however, it does not yet give definitive certainty.
• There is an “indication of employment”. This means there are several indications that the assignment cannot be done this way by a self-employed contractor. The advice is either to temporarily hire someone as an employee, or to structure the assignment differently.
• “No judgment” is given. The web module cannot provide clarity; this is a borderline case.

Alternative self-employment construction: billable-hours BV
Self-employed people can also choose to remove any “appearance” of false self-employment by using a construction that is used, among others, by ImpectForce or Uniforce. Clients can, of course, also make this construction mandatory for the self-employed contractors they engage. In short, the construction comes down to the self-employed person, together with a party such as ImpectForce or Uniforce, setting up a billable-hours BV (DUBV), in which they are both shareholders. However, ImpectForce or Uniforce can fully decide whether the statutory director (the self-employed person) can be appointed, dismissed, suspended, etc. The self-employed person is thus under the authority of ImpectForce or Uniforce. That is why the self-employed person enters into an employment contract with the DUBV. In the articles of association it is then agreed that the intention is for the self-employed person to be hired out to third parties, and that the self-employed person is prohibited from entering into an employment contract with that third party. The tax authorities do enter into an agreement with Uniforce or Impectforce, in which they accept this set-up, and through which the self-employed person is thus insured, within their own BV, for unemployment insurance, sickness benefits, disability insurance, etc.

In this way, the BV properly pays the social insurance contributions, and the client/hirer is assured that no back-payment assessments and fines will be claimed from them by the tax authorities under the DBA and “false self-employment” rules. For employment-law purposes, the self-employed person also cannot be regarded as an employee.

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Questions or advice?
The corporate legal advisers of The Legal Company specialise in employment law. If the above raises any questions for you, or you would like help/advice on other legal issues in the area of employment law, please contact us by emailing info@thelegalcompany.nl, calling 020-3450152, or filling in our contact form .

Nothing changes as constantly as laws and regulations. Please note that our blogs may no longer reflect current laws and regulations and may therefore be outdated. If you have questions or an issue relating to this blog, or wish to obtain legal assistance, please contact us.