Working with freelancers: Do’s and don’ts
New Tech is booming and thus more and more freelancers (in Dutch popularly known as “zelfstandig zonder personeel”, abbreviated to “ZZP”) are entering the market of technological innovations; from blockchain to augmented reality and robotisation. Working with or as a freelancer has a number of (tax) benefits. For example, the independence – what’s in a name – goes hand in hand with the desired flexibility for those who are looking for qualified people, the the commissioning party, and the freelancer as the contractor. Another advantage is that the freelancer can realize more net compensation for performing the same activities as he would in the capacity of an employee.
This is partly because freelancers demand a higher hourly rate and can also make use of all kinds of entrepreneurial facilities in the Dutch income tax. The hourly wage for the salaried employee is in general lower because, for the employee, wage tax and employee insurance premiums must be withheld and paid on a monthly basis by the employer.
The question is however, from a tax perspective, under which conditions the contractor is to be considered an employee, with all (detrimental) consequences for the commissioning party. Therefore it is highly recommendable to qualify the employment relationship before calling-in a freelancer, such as for example a developer or a data scientist. Is there actually a self-employed person or is there actually an employment? In practice, we notice that the qualification of the employment relationship is only to be considered when the Dutch Tax Authorities present themself and ask this question. Asking this question can be important for both small and large-scaled projects.
According to the Dutch Tax Authorities, from a fiscal point of view there is “an employment” when the criteria “labor”, “pay” and “authority” are met. The fact that work is being done and remuneration is paid, is in many cases quite evident. More difficult is to determine the (scale of) the authority ratio. Decisive for the existence of an authority relationship is whether the person who performs work is subject to a certain authority by the commissioning party and that the latter is authorized to give instructions and monitors the progress of the work and the way in which the work is carried out. The more independent the freelancer, the less strong the argument that there is “an employment”. People that are active within the technology market often consider themselves very independent. Once again, the Dutch Tax Authorities do not always agree with this, which creates a lot of uncertainty. The government has therefore indicated that the current legislation will be changed. How, and to what extent that will happen is still unknown. However, what we do know is that the current legislation will be maintained until 1 January 2020 for clients who are “malicious”.
The policy of the Dutch Tax Authorities regarding the concept of “malice” can be found here. The Dutch Tax Authorities state that if a client could have known that there is actually an employment, he is malicious. The “could have known” determination is alarming. After all, as soon as the client can suspects that there is an employee relationship with the contractor, then there is malpractice and the Dutch Tax Authorities have the right to impose additional tax assessments and fines. To prevent the risk of adverse consequences, we have listed the following do’s & don’ts:
- Assessing the employment relationship(s). Holla has developed several checklists that can help you to gain insight into this.
- Establish contracts with the hired freelancers, which show conclusively that there is no employment. If desired, these agreements can be sent to the Dutch Tax Authorities for assessment, but this is not mandatory.
- There are model agreements on the website of the Dutch Tax Authorities, including one specifically for the ICT professionals. You can find them here.
- It is very important that you and the freelancer perform the work activities according to the contracted agreements. The contract as such cannot indemnify you from withholding wage tax and employee insurance premiums if you do not actually work in accordance with the agreement. This means that the actual facts and circumstances of the work activities are deceive for the question of whether there is an employment or real freelance work.
- Risking that the Dutch Tax Authorities visit your company without having a clear overview of your employees and freelancers, or having made an incorrect qualification of the employment relationships. It would be a shame to be confronted with extensive discussions with the Dutch Tax Authorities or the possible result of large additional tax assessments and fines when this could have been prevented.
Holla Advocaten has extensive experience in working with freelancers at start-ups, scale-ups and other technological innovative companies. In case you would like to receive advice on the qualification of employment relationships (including handy checklists custom made for your company), you need help to draw up the relevant agreements or require assistance in a discussion with the Dutch Tax Authorities? Please contact Tom Zondag, Demi van Zantvoort or Boris Emmerig. We are happy to assist you with our practical experience & DBA expertise!