On 6 Octo­ber 2023 the inter­net con­sulta­tion began for the draft bill “Cla­ri­fic­a­tion of employ­ment rela­tion­ship assess­ment and leg­al pre­sump­tion.” This bill aims to settle the long-stand­ing debate on pseudo-inde­pend­ent con­tract­ors. What does the bill entail? Or rather: what does it not entail?

First, it is import­ant to estab­lish what the bill does not entail. The bill is not a change in the law but provides cla­ri­fic­a­tion for assess­ing wheth­er a rela­tion­ship qual­i­fies as an employ­ment rela­tion­ship. There will be addi­tion­al cri­ter­ia for dis­tin­guish­ing between an employ­ee and an inde­pend­ent con­tract­or. More on this shortly.

No trans­ition­al law
Since the cur­rent frame­work for assess­ing wheth­er a rela­tion­ship qual­i­fies as an employ­ment rela­tion­ship (Sec­tion 7:610 of the Dutch Civil Code) does not change with the bill, employ­ers must already con­sider the cur­rent state of jur­is­pru­dence as lead­ing and remain­ing so. In oth­er words: if, based on cur­rent law and jur­is­pru­dence, it is already debat­able wheth­er there is an inde­pend­ent con­tract­or or an employ­ee, then the out­come will not change in the future when the bill takes effect. Jur­is­pru­dence has shown over the years that the status of an inde­pend­ent con­tract­or can change and sud­denly the inde­pend­ent con­tract­or qual­i­fies as an employ­ee, lead­ing to sig­ni­fic­ant fin­an­cial con­sequences. Employ­ers may have been back­ward by the tax authority’s enforce­ment morator­i­um, which will be repealed by 1 Janu­ary 2025, or they may hide behind the labor market’s tight­ness and the inde­pend­ent contractor’s sup­posed desire to con­tract in that man­ner, per­haps for fin­an­cial bene­fits. This, how­ever, seems to insuf­fi­ciently account for the sig­ni­fic­ant employ­ment law risks. Employ­ers must now ask them­selves, if by wait­ing for the law, the con­clu­sion that an inde­pend­ent con­tract­or is actu­ally an employ­ee becomes irre­vers­ible, from when does this apply? Con­sider the risks, for example, of the right to con­tin­ued pay dur­ing ill­ness or enti­tle­ment to a pen­sion. Espe­cially if you as an employ­er are affil­i­ated with an industry-wide pen­sion fund, an inde­pend­ent con­tract­or who later qual­i­fies as an employ­ee may be entitled to pen­sion over his employ­ment his­tory, while the employ­er has not paid premi­ums for him/her. This could lead to tower­ing claims. Dir­ect­ors who already know that this risk is lat­ently present in their organ­iz­a­tion must real­ize that they could be liable under cer­tain cir­cum­stances for defi­cits regard­ing their employ­ees’ pen­sion con­tri­bu­tions.

Since there will be no trans­ition­al law, the fur­ther cla­ri­fic­a­tion of wheth­er there is an inde­pend­ent con­tract­or or an employ­ee in the new law could con­trib­ute to chan­ging the nature of the rela­tion­ship, but the moment this hap­pens could already be in the past. A wait-and-see response now may pose a great­er risk later.

Addi­tion­al cri­ter­ia
The addi­tion­al cri­ter­ia included in the bill for determ­in­ing wheth­er there is an employ­ment con­tract or a con­tract for ser­vices are an elab­or­a­tion of cur­rent jur­is­pru­dence. The cri­ter­ia are as fol­lows:

1. Is there work-related dir­ec­tion from the employ­er (mater­i­al author­ity)? and/or;
2. Is the work organ­iz­a­tion­ally embed­ded in the employer’s organ­iz­a­tion? and
3. Is the work per­formed at one’s own account and risk? In oth­er words: is there genu­ine entre­pren­eur­ship?

Cri­ter­ia a and b point to an employ­ment rela­tion­ship. Yet, even if (to some extent) one or both cri­ter­ia are met, an inde­pend­ent con­tract­or rela­tion­ship may exist if cri­terion c is met.

The min­is­ter can fur­ther cla­ri­fy the above cri­ter­ia (with examples) by min­is­teri­al reg­u­la­tion. Also con­sider the Tax Administration’s Payroll Taxes Hand­book 2023, which already out­lines some case pos­i­tions by the Dutch tax author­ity. The minister’s cla­ri­fic­a­tion will be very import­ant because it will only then become clear how cer­tain criteria/aspects weigh. This may also change over time and be more eas­ily adjus­ted or sup­ple­men­ted.

Fur­ther­more, a leg­al pre­sump­tion of employ­ment is intro­duced. If someone earns less than EUR 32.24 per hour, it is pre­sumed that there is an employ­ment rela­tion­ship. This rate is derived from the min­im­um wage, roughly mul­ti­plied by 1.2, account­ing for about 20% extra costs for work­ing as an inde­pend­ent con­tract­or. This amount is then mul­ti­plied by a factor of 1.5, seen as costs for acquir­ing new work. At the same time, the min­im­um wage is adjus­ted, as it is cal­cu­lated per 36 hours. If there is an inde­pend­ent con­tract­or rela­tion­ship des­pite a lower rate, the prin­cip­al of the self-employed must prove this!

Enact­ment
The bill is inten­ded to take effect on 1 Janu­ary 2025, with a trans­ition peri­od until 1 July 2025.

Gray area and pos­sible con­sequences
It is still unclear what will hap­pen if parties agree on a con­tract for ser­vices with a private lim­ited com­pany and are not liable for income tax. Does the same test apply, or is there by defin­i­tion a true inde­pend­ent con­tract­or? When will this con­struc­tion be pierced? A sim­il­ar ques­tion can be reques­ted for situ­ations where there is an income tax liab­il­ity, but the inde­pend­ent con­tract­or per­forms activ­it­ies clas­si­fied as “res­ult from oth­er activ­it­ies,” often of a very tem­por­ary nature.

Con­clu­sion
The imple­ment­a­tion of this bill will res­ult in many inde­pend­ent con­tract­ors being clas­si­fied as employ­ees, with all pos­sible claims and con­sequences that entail (think of sick pay, enti­tle­ment to paid vaca­tion, man­dat­ory pen­sion con­tri­bu­tions, etc.). As men­tioned, this can also apply to the past, due to the lack of trans­ition­al law. Con­sider, first and fore­most, those in the health­care and con­struc­tion sec­tors. How­ever, organ­iz­a­tions out­side these sec­tors should also be vigil­ant. It is there­fore essen­tial to crit­ic­ally exam­ine your own pop­u­la­tion of inde­pend­ents and not adopt a wait-and-see response. This involves not just the con­tent of con­trac­tu­al agree­ments, but also their exe­cu­tion in prac­tice. Of course, the tax and premi­um law qual­i­fic­a­tions must also be crit­ic­ally examined.

If you appre­ci­ate this, we are eager to con­tin­ue the con­ver­sa­tion with you to fur­ther map out the con­sequences for your organ­iz­a­tion using a mul­tidiscip­lin­ary approach (togeth­er with our col­leagues from EY Belastingad­viseurs LLP).

 

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