Netherlands: New Legislative Proposal to Combat False Self-Employment

On Friday, 6 October 2023, the Clarification of Assessment of Employment Relations and Legal Presumption Act of the outgoing Minister of Social Affairs and Employment was placed on the internet for consultation. The aim of this bill is to put an end to false self-employment by clarifying the rules on the qualifications of the employee and the self-employed. If passed, this law will have major consequences for both employers and the self-employed. It is intended that this law will enter into force on 1 July 2025. No transitional law applies, which means that the measures have immediate effect upon entry into force. The internet consultation was open until November 10, 2023. After this, the Council of Ministers will discuss how the bill will proceed. The bill can then be amended if necessary.

In addition, the Cabinet also aims to improve and prepare enforcement now that it intends to abolish the enforcement moratorium on the 1^st of January 2025. The aim is to have the Tax Authorities actively collaborate with and assist parties who are willing and able to comply with tax and social obligations and to focus more on files where there is uncertainty about the qualification of the employment relationship.

 

What will change?

The aim of the law is to clarify whether someone works as a self-employed person or as an employee. For this purpose, the “employed by” criterion will be specified. The proposed Section 7:610 (2) of the Civil Code considers the performance of work to be employment if:

– the work is performed under work-related direction by the employer; or

– the work or the employee is organisationally embedded in the employer’s organisation; and

– the employee does not perform the labour for his own account and risk.

Additionally, as per the proposed Section 7:610(3) of the Civil Code, if the integration into the employer’s organisation is more prominent than carrying out the work at one’s own account and risk, then the work is considered to be performed in the service of an employer.

Finally, the proposed art. 7:610aa of the Civil Code establishes a legal presumption. If a worker can prove an hourly rate lower than EUR 32.24, an employment contract is presumed. It is then up to the employer to prove that there is no employment contract.

 

Consequences

If the law enters into force on 1 July 2025, no transitional law will apply. The immediate effect means that the rules apply to every existing and future employment contract and to every agreement with a “self-employed person” who will from then on be qualified as an employment contract under the legislation. It is, therefore, important to assess now whether agreements with self-employed workers who perform work for your organisation may qualify as employees under the proposed legislation. Based on this legislation, it will no longer be easy for a person to qualify as self-employed. Even if work is carried out at the worker’s own risk and expense, there will still be an employment contract if the management or embedding in the employer’s organisation is more important.

Key Issues

• The Clarification of Assessment of Employment Relations and Legal Presumption Act was proposed on 6 October 2023 with the goal of ending false self-employment.
• If enacted, major consequences are anticipated for both employers and the self-employed, taking effect on 1 July 2025 without a transitional period.
• The government aims to collaborate with Tax Authorities, intending to abolish the enforcement moratorium starting 1 January 2025.
• The law seeks to distinguish between self-employed and employee status, specifying the ’employed by’ criterion in the Civil Code.
• Proposed Sections 7:610(2) and 7:610(3) outline conditions where work is considered employment, focusing on work-related direction and organisational embedding.
• Art. 7:610aa establishes a legal presumption; an hourly rate below EUR 32.24 presumes an employment contract, with the burden on the employer to prove otherwise.
• If enacted, the law will immediately apply to all existing and future employment contracts and agreements with ‘self-employed persons.’
• Assessments are crucial for agreements with self-employed workers, as the legislation makes it challenging to qualify as self-employed, emphasizing organisational factors.

 

Key Action Points for Human Resources and In-House Counsel:

• Keep a close eye on legislative developments. If the proposed bill is enacted:
  • Current Contracts: Evaluate existing freelance agreements to determine if, based on the new law, there could be grounds for an employment contract being in place. Assess the implications for the organisation and strategise ways to mitigate this risk.
  • New Agreements: Consider the new legislation when entering into contracts with freelancers.

Key Issues

• The Clarification of Assessment of Employment Relations and Legal Presumption Act was proposed on 6 October 2023 with the goal of ending false self-employment.
• If enacted, major consequences are anticipated for both employers and the self-employed, taking effect on 1 July 2025 without a transitional period.
• The government aims to collaborate with Tax Authorities, intending to abolish the enforcement moratorium starting 1 January 2025.
• The law seeks to distinguish between self-employed and employee status, specifying the “employed by” criterion in the Civil Code.
• Proposed Sections 7:610(2) and 7:610(3) outline conditions where work is considered employment, focusing on work-related direction and organisational embedding.
• Art. 7:610aa establishes a legal presumption; an hourly rate below EUR 32.24 presumes an employment contract, with the burden on the employer to prove otherwise.
• If enacted, the law will immediately apply to all existing and future employment contracts and agreements with “self-employed persons.”
• Assessments are crucial for agreements with self-employed workers, as the legislation makes it challenging to qualify as self-employed, emphasizing organisational factors.