Over the past decade, the number of self-employed individuals without employees (freelancers) has increased by 85%. As of January 1, 2024, the Netherlands had approximately 1.6 million freelancers. Although this form of work can offer advantages, it is unfortunately also vulnerable to abuse, with individuals who are actually employees working under a service contract. To counter this, the Deregulation of Assessment of Labour Relationships Act (DBA Act) was introduced in 2016 and its successor, the Clarification of Assessment of Labour Relationships and Legal Presumption Act (VBAR Act), is currently being drafted.
False self-employment
A false self-employed person is someone who works under a service contract, but is, in reality, an employee with an employment contract under employment law. To qualify as an employee, there must be (personal) labour, wages and authority.
Labour implies that someone is required to perform productive work. This is also met in the case of a self-employed person. Wages refer to what the employer owes the employee as compensation for the work performed. This is also met in the case of a self-employed person. Authority, in short, means that the employee must follow the employer’s instructions and that the employer has the right to give these instructions. This is where the difference between an employment contract and a service contract lies.
When qualifying the employment relationship, it is important to look at the content of the contract, but also the actual execution thereof. All the circumstances of the case are important here.
DBA Act
In May 2016, the DBA Act was introduced with the aim to clarify when someone is working as a false self-employed person. The DBA Act regulates that when entering into an employment relationship, parties must provide clarity on the qualification of their employment relationship. The parties must decide together whether there is an employment contract or a service contract. False self-employment is prohibited.
If the Dutch Tax Authority suspects that there is an employment contract, even though the parties have concluded a service contract, and does not consider the client to be malicious, the Tax Authority will first provide instructions to the parties on how to structure the employment relationship to either (i) work outside of employment or (ii) establish an employment contract. The deadline for this is usually 3 months. If the instructions are not followed or are insufficiently followed, a correction obligation will be imposed. This means that the client or employer must correct inaccuracies or incompleteness in the payroll tax return via a digital correction notice. The Tax Authority may also impose additional payroll tax assessments and potentially a fine.
If the Tax Authority considers a client to be malicious, correction obligations, additional payroll tax assessments and a fine can be imposed immediately. Malicious intent is defined as a situation where a client ‘intentionally creates or perpetuates a situation of obvious false self-employment, knowing—or should have known—that an employment relationship actually exists.’
To assist parties who are uncertain about the qualification of the contract, the Tax Authority has developed several model agreements and a web module. Using a model agreement presumes the individual is considered self-employed, provided the actual performance aligns with the content of the agreement. The use of a model agreement is not mandatory. The web module is a questionnaire that provides guidance on whether or not someone should be offered an employment contract.
Enforcement of the DBA Act has been omitted, which means that the problem of false self-employment continues to grow. One of the reasons for this is that research by the Senate shows that the DBA Act does not provide the client with sufficient certainty as to whether there is an employment contract or a service contract.
As of January 1, 2025, the Tax Authority’s previously described guidance will expire. From then on, the Tax Authority can immediately impose correction obligations, additional tax assessments and possibly a fine in all cases when an incorrect qualification of the employment relationship is detected.
VBAR Act
The DBA Act did not provide the desired clarity on when someone is considered an employee or self-employed. Therefore, this law will be replaced by the VBAR Act, at the earliest, on January 1, 2026. The two main objectives of the VBAR Act are to reduce false self-employment and to establish a clear assessment framework to determine when someone is a genuine employee and when someone is self-employed. Thus, the bill contains a more precise definition of the concept of ‘authority’.
Under the new authority criterion, which will take effect with the law, the requirement is met if:
a. the work is performed under the employer’s direction, or;
b. the work or the employee is organisationally embedded in the employer’s organisation, and;
c. the employee does not perform the work at their own expense and risk.
In addition, an employment contract is presumed to exist if the worker has an hourly rate of €32.24 or less. In such cases, a worker can invoke the legal protections that employees are entitled to, such as the accrual of vacation days, continued payment in the event of sickness, protection against dismissal, and potentially the right to severance pay upon dismissal.
We will, of course, keep you informed of any further developments on this subject. If you would like assistance in reviewing your current service contract, please feel free to contact one of our employment law attorneys.