international employment law firm alliance L&E Global

3. How to Structure an Independent Contractor Relationship

In order to prevent a relationship of authority – which is one of the key elements of an employment relationship – it is common that a contract for services explicitly includes the independent contractor shall be at liberty to carry out his/her duties to perform the services at his/her own discretion. This also means the specific days and hours on which the independent contractor will perform the services on a weekly basis. However, it is possible to agree to a limitation (maximum number) of hours per week in which the independent contractor will perform the services.

No exclusivity
Seeing as the independent contractor should be entitled to perform professional services for other companies as well, exclusivity in respect of labour is also a key element of an employment relationship. Therefore, it is advisable the independent contractor performs professional services for other companies at the same time. This should also be included in the consideration of the contract for services as an assumption based on which the contract for services was entered into by the principal.

The employer's perspective
If the relationship between parties does not meet the requirements for self-employment, the employer/principal may be faced with claims for tax and social security contributions (under the "pay-as-you-team" system, by which an employer must deduct income tax and social security contributions from an employee's wages or salary and must pay this to the government once a month), and may also have to pay fines and, possibly, damages and compensation for termination of the agreement. Since almost all payments made under such claims cannot subsequently be recovered from the former employee, it is advisable for the employer/principal to make provisions for social security contributions for which he might be/become liable.

Any questions

Ask our member firm Palthe Oberman in Netherlands