The problem of bogus self-employment in Germany affects many clients and contractors in today’s times of shortage of skilled workers because they are often not fully aware of this challenge. The consequences are usually cost-intensive for both sides. But what exactly is bogus self-employment and how can it be recognised and avoided?
Definition of bogus self-employment
In general, the term bogus self-employment is defined as follows: an employed person pretends to be self-employed or an independent company, whereas he or she actually falls within the framework of dependent employment, i.e. he or she is actually an employee. This is the case, for example, if the client concludes a service contract with a self-employed person in which the contractor is subject to instructions or is actively integrated into the organisation and its processes, which he is not allowed to do as a freelancer.
Indicators for bogus self-employment
Possible clues / risks for the existence of a bogus self-employment can be manifold:
- Fixed workplace / fixed working hours in the client’s premises
- Fixed holiday arrangements by the client
- Long lasting activity for only one client
- Employees of the customer perform the same tasks as contractors
- The contractor is integrated into the organisation, bound by instructions and integrated into the organisation
- Contractor is a former employee of the customer
Identification of bogus self-employment
In order to determine the case of bogus self-employment a status assessment procedure is usually applied for at the DRV (Deutsche Rentenversicherung), either by the client or the contractor himself. Subsequently, information from all parties involved on the form of the contractual relationship as well as the corresponding contract documents are controlled in order to determine the social security status. Furthermore, social insurances or health insurance companies can carry out tax audits, as well as customs itself.
Consequences for the client
In case of bogus self-employment the client usually has to dig deep into his pocket, because the social security contributions have to be paid retroactively for up to 4 years and even up to 30 years if it was a conscious action. In the worst case the client makes himself liable to prosecution for non-payment of social security contributions. In addition, unwanted employee relationships can arise subsequently, whereby numerous protection laws for employees can come into force, such as protection against dismissal etc.
Contractual options for commissioning externals
The temporary employment agency (Arbeitnehmerüberlassung – ANÜ), formerly known as temporary employment, is a frequently used kind of contract. An employee is hired out to a third party for a fixed period of time in return for remuneration, while the rights and obligations towards him remain with the actual employer. The ANÜ licence is approved by the Employment Agency.
Another contractual option is the service contract (DLV). According to the German Civil Code (BGB), this is defined in such a way that one party, in this case the contractor, promises a certain performance while the other party, the principal, undertakes to pay a previously fixed fee. It should be noted that payment is not owed for the result but only for the performance itself.
A contract for work (Werkvertrag) on the other hand defines exactly how the result, i.e. the work, must look and function. The remuneration therefore usually only takes place after the work has been accepted by the client. A major entrepreneurial risk here is the liability for defects, according to which the contractor is responsible for subsequent performance in the event of a result that is not contractually agreed. If he does not remedy the defect, the customer himself is entitled to remedy the defect independently and to reduce the remuneration accordingly.