Everything You Need to Know About False Self-Employment Among Freelancers
False self-employment among freelancers is a growing concern that the government is increasingly addressing. As of January 1, 2025, stricter enforcement measures will be introduced to clarify the relationships between freelancers and their clients.
In this article, we provide a comprehensive overview of what false self-employment entails, the upcoming changes, and the consequences for both freelancers and clients. It is essential to be well-prepared for these changes to avoid financial and legal risks.
What is False Self-Employment?
As a freelancer, you generally decide where, when, and how you work, while also being entitled to entrepreneurial tax deductions. Being self-employed, you are responsible for paying your own income tax and national insurance contributions, unlike an employee in regular employment.
However, false self-employment occurs when a freelancer appears to work independently but is, in fact, in a disguised employment relationship. This happens when a freelancer works under the authority of a client and performs tasks similar to those of an employee. In such cases, the freelancer does not enjoy the associated labor rights.
How to Identify False Self-Employment
False self-employment can be identified by several characteristics:
– Long-term assignments with one client: This may indicate dependency and a possible disguised employment relationship.
– Lack of entrepreneurial risk: If you do not risk income loss or make investments, you may be working under conditions similar to employment.
– Performing the same tasks as permanent employees: If you, as a freelancer, perform the same duties as employees, with no significant differences in responsibilities or working conditions, this could be a sign of false self-employment.
A useful way to check whether you are truly working as a freelancer or potentially falsely self-employed is by using the checklist from the Tax Authority. This checklist helps you gain insight into your situation and identify potential risks.
Practical Example
An IT program manager has been working exclusively for the same organization for three years, with a fixed work schedule and assigned projects. This situation may be classified as false self-employment, especially if the manager has no other clients and follows the same working conditions as the company’s internal staff.
What Are the Consequences for Freelancers?
False self-employment can have significant financial and social consequences:
– Financial impact: The lack of employee rights, such as sick pay, holiday pay, and pension contributions, can lead to long-term financial uncertainty.
– Social impact: Freelancers in a false self-employment situation may feel isolated and insecure due to the lack of access to social safety nets.
Tips to Avoid False Self-Employment
1.Have multiple clients: Diversify your client base to avoid dependency on a single party.
2.Make clear agreements about your independence and document them in a contract: Ensure that your contracts clearly state that you work as a freelancer, with specific agreements about the nature of the work and the absence of supervisory relationships.
3.Be alert to situations where your client tightly controls your work: This could be a signal of false self-employment. Set clear boundaries and maintain control over how you perform your work.
What Are the Consequences for Clients?
Clients who hire falsely self-employed freelancers risk fines and additional tax assessments if the Tax Authority determines that there is a disguised employment relationship. This can cause both financial damage and reputational harm.
Example of a fine: A company hired a freelance software developer for several years, who became fully integrated into the team and worked under the direction of a project manager. After an inspection by the Tax Authority, it was determined that this was a case of false self-employment. The company received a substantial back tax assessment and a fine.
Legislation: What Will Change?
The laws and regulations surrounding self-employment and the hiring of freelancers are designed to protect both freelancers and employers. From January 1, 2025, the government plans to crack down on false self-employment by ending the enforcement moratorium. This means the Tax Authority will intensify checks on disguised employment relationships.
Additionally, the government is working on the “Clarification of Employment Relationship Assessment and Presumption of Employment (VBAR)” bill, which aims to protect freelancers and encourage employers to offer fair employment contracts.
Future Developments in IT
The IT sector is rapidly changing with the rise of technologies such as artificial intelligence and cloud computing. This offers opportunities for freelancers but also increases the risk of false self-employment.
The growing demand for specialized IT professionals may lead to long-term work relationships that resemble employment contracts. With stricter enforcement starting in 2025, clients and freelancers need to be aware of these risks.
Organizations must review their contracts and work methods to comply with new regulations, while freelancers should diversify their clients and make clear agreements to avoid false self-employment.
Do You Have Questions or Need Advice on False Self-Employment?
False self-employment is a complex and important topic. It can have financial and legal consequences and affect the future of both freelancers and clients. Therefore, it is crucial to stay informed and take the right steps to prevent false self-employment.
Are you a freelancer or client and want to learn more about false self-employment? Contact one of our Business Managers. They are ready to help you with all your questions and concerns about self-employment and employment relationships. This way, you will be prepared for the changes coming in 2025.
