False self-employment: what is it and what are the risks?
More and more people are choosing to become self-employed. But not every self-employed person is truly self-employed. When you are under the authority of a client, you run the risk of false self-employment, a form of social fraud. In this article, we discuss exactly what false self-employment means, how to avoid the risk of it and what the consequences and penalties are.
What is false self-employment?
False self-employment occurs when there is a hierarchical relationship between a self-employed person and his client. After all, as a self-employed person, you are not allowed to work under authority, and in such a case you would in fact have to be employed.
Clients may have various motives for this, such as avoiding social security contributions, vacation pay and other benefits enjoyed by employees.
To determine whether a person is truly independent, there are four criteria that are considered. These apply to sole proprietorships as well as partnerships.
- The will of both parties to work on an independent basis should be clearly stated in the agreement.
- Free organization of your work: as a self-employed person, do you have the freedom to plan and carry out your own work? Can you make your own decisions about the task to be performed?
- Free interpretation of your working hours: as self-employed, you decide how much and when you work. This does not mean that you cannot follow a company’s set working hours, but you should at least have the freedom to decide to do so.
- No relationship of authority: Is there a relationship of authority between the self-employed person and his client? Red flag alert! Perhaps you started self-employment to be your own boss. Thus, a relationship of authority between you and your client is an absolute no-go as a self-employed person.
How do you avoid the risk of false self-employment?
Thus, to avoid the risk of false self-employment, it is important that you check for yourself whether you have enough freedom to be recognized as self-employed.
Draw up a clear contract stating your rights and obligations as a self-employed person and those of the client. The contract should also clarify the nature of the relationship between the self-employed person and the client and the degree of freedom the self-employed person has in carrying out the assignment. Beware of exclusivity clauses: they do not belong in a self-employment contract. Also typical terms such as vacation pay and year-end bonus suggest a typical employee relationship rather than a client-employee relationship.
The following checklist will help you check off whether or not you are at risk of being assessed as a false self-employed person:
- Do you determine your own working hours?
- Can you employ people yourself?
- Do you make certain investments yourself (laptop, work materials)?
- Do you set your own price?
- Can you work and make decisions completely freely?
- Can/may you work for multiple clients?
The above criteria are non-exhaustive, but positive answers will help you prove in advance that you are truly independent.
Consequences and sanctions
If inspection by the National Social Security Administration reveals false self-employment, they will reclassify you from a self-employed person to an employee. This has severe financial implications for your client. He will be required to pay overdue social contributions, possibly supplemented by additional penalties (flat rate contribution increase of 10% + interest).
Also, the employee in question may be entitled to a permanent contract and thus be able to continue working for the client on a long-term basis.
As self-employed, you lose your tax benefits inherent in your self-employed status (such as VAT deductions on your invoices).
A clear cooperation agreement between self-employed worker and client is crucial to avoid the risk of false self-employment. If you only work for one client, you need to be careful about the form of collaboration and the agreements made. The sanctions for this form of social fraud are not harsh, so when in doubt, always get proper advice!