The State Secretary of Finance recently announced that enforcement of the Act for Deregulation of Assessment of Working Relationship (“Wet deregulering beoordeling arbeidsrelatie) (hereinafter: “Wet DBA”) will be suspended until January 1st, 2018. With implementation of the act, the State Secretary of Finance has sought to simplify the qualifying of a working relationship between a client and an independent contractor and to prevent pseudo self-employment. However, instead, the implementation of this act has resulted in both political and social agitation.
The introduction of the Wet DBA has abolished the old Declaration of Independent Contractor Status (Verklaring arbeidsrelatie) (hereinafter: “VAR”), before the abolition of the VAR, the contractor could ask for a VAR, which then provided security for the client as it confirmed that the contractor was in fact an independent contract and not an employee of the client. Based on the VAR, the client was exempt from paying social insurance contributions while, for the contractor, the VAR gave assurance concerning his legal and fiscal status, provided of course that the work was done in accordance with the activities stipulated in the VAR. With the introduction of the Wet DBA, both the independent contractor and the client no longer have a safeguard from additional tax assessments.
So, how do contractors and clients obtain any certainty as to how their working relationship should be qualified legally?
To answer the question whether the relationship between a client and an independent contractor could be qualified as an employment agreement – which will result in obligatory payments of social insurance contributions and income tax – there are several elements of interest, namely: 1) the provision of labor, 2) payment and 3) a relationship of authority. In order for an independent contractor to qualify as a “self-employed person” it is, therefore, relevant to determine whether or not there is a relationship of authority between the client and the contractor and to determine the nature of this relationship of authority. In that regard, both the written agreement parties have concluded and the actual execution of the agreement are relevant. If the actual performance of the contract differs from the contents of the written agreement parties have concluded, then the working relationship will likely be qualified as an employment agreement by the Tax and Customs Administration.
If the Tax and Customs Administration finds that parties have in fact entered into an employment agreement then it may recover unpaid taxes. Consequently, in time, even the contractor can claim that an employment agreement was concluded, thus entitling the contractor/employee to various protections provided by employment law, such as payment during illness and statutory safeguards against dismissal.
Given the above, it is important that the client and the independent contractor carefully record their arrangements in an agreement and execute such an agreement in accordance with its contents.
What aspects are important when qualifying a working relationship as an independent contractor agreement or an employment agreement? To answer this question the following aspects should be taken into consideration:
1. Does the contract emphasize explicitly that parties agree that no employment agreement has been concluded?
2. Can the contractor be replaced during execution of the contract?
3. Does the contractor provide in its own resources for the purpose of performing the work? Example: own laptop, own tools etc.
4. Does the client give principal instructions on representativeness? For example, the contractor must wear certain clothing?
5. Does the contractor have to ask permission for vacation with the client or can the contractor decide on his own?
The above mentioned questions are some of the issues that have arisen from case law concerning the qualification of the working relationship. Of course, a judge will always review the agreement in the context of the specific circumstances, the intention of the parties and the actual execution of the contract.
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