1. Legal Framework Differentiating Employees from Independent Contractors

a. Factors that Determine Who is an Employee and Who is an Independent Contractor

The distinction between an employee and an independent contractor in Norway is based on whether the person performing the work is considered an “employee” pursuant to the Working Environment Act (“Arbeidsmiljøloven”). The distinction is also relevant for tax treatment and entitlement to social security and other statutory benefits.

Until 1 January 2024, the Working Environment Act contained only a brief definition of the term “employee”. The more detailed content of the employee term was developed through legislative preparatory works and case law. As of 1 January 2024, the definition of “employee” was further clarified in the Act, making it easier to assess whether a worker is an employee or independent contractor. The most central factors supporting classification as an employee have now been incorporated into the wording of the Act. The provision now reads as follows:

“For the purposes of this Act, an employee shall mean anyone who performs work for and is subordinate to another. When determining this, emphasis shall be placed on, among other things, whether the person in question makes their personal labour available on an ongoing basis, and whether the person in question is subordinate through management, leadership, and control.”

The purpose of the amendment was not to change existing law, but to provide clearer guidance in the legislation and to highlight the elements of dependency and subordination that are particularly central to the classification of employees.

Furthermore, a presumption rule was introduced, stating that a worker is presumed to be an employee unless the client shows it to be highly probable that an independent contractual relationship exists.

The notion of “employee” is a discretionary term, and the assessment of whether a worker is an employee or independent contractors shall, also after the amendment of the definition in the WEA, be based on a concrete overall assessment based on criteria’s developed through case law and preparatory works. The following criteria indicate factors that may support the existence of an employment relationship:

• The worker is obliged to make their personal labour available and cannot use assistants at their own expense
• The worker is obliged to submit to the employer’s management and control of the work
• The employer provides the workspace, machinery, tools, work materials, or other means necessary for the performance of the work
• The employer bears the risk of the work result
• The worker receives remuneration in some form of wages
• The relationship between the parties has a relatively stable character and is terminable subject to specific notice periods
• The work is performed mainly for one principal

This list is not exhaustive. The assessment must be carried out in light of the provision’s purpose. The concept of “employee” should be interpreted broadly, to ensure protection for those who need it.

b. General Differences in Tax Treatment

The employer must pay social contribution tax, calculated on the salary, which the employee is paid. Furthermore, the employee shall pay income tax and national insurance contributions.

An independent contractor, however, is obligated to pay taxes and VAT himself.

c. Differences in Benefit Entitlement

An employee is entitled to holiday pay from the employer, whereas an independent contractor is not. In addition, employees are entitled to statutory sick pay and accrue pension rights under the National Insurance Scheme. Employers are also obligated to establish a private collective pension scheme for all employees.
An individual contractor must pay or cover these kinds of benefits himself.

d. Differences in Protection from Termination

Independent contractors are not afforded statutory protection against termination at all – their rights in this respect are governed solely by the terms of the contract and general contract law. By contrast, employees in Norway are protected against unfair dismissal under the Working Environment Act. The formation, validity, and termination of contracts are also governed by the Contracts Act of 1918 (Avtaleloven) and general principles of civil law.

Pursuant to the Working Environment Act section 15-7, an employee may not be dismissed unless this is objectively justified based on circumstances relation to the undertaking, the employer or the employee.

One typical example of circumstances connected with the undertaking is rationalisation measures. Dismissal due to these circumstances is, however, is not objectively justified if the employer has other suitable work to offer the employee in the undertaking. Further, when deciding if a dismissal on these grounds is warranted, the needs of the undertaking shall be weighed against the inconveniences a dismissal will involve for the individual employee.

Each case must be assessed individually, meaning that grounds for dismissal may exist in relation to one employee but not necessarily in relation to another.

Further to the Norwegian case law the relevant selection criteria include:

• competence (e.g. education and work experience, quality of performance);
• seniority;
• personal suitability (e.g. leadership abilities, cooperation);
• social aspects (e.g. family responsibilities/financial situation, health, age, opportunities in the job market).

For a dismissal based on the employee’s non-performance to be considered fair, the employer must be able to demonstrate that:

• the employee was clearly informed of what kind of performance was required from him, including his work tasks and other kinds of obligations;
• the employee did not perform in accordance with the employer’s requirements;
• the employee was informed regarding his discrepancies and was given a chance to improve, without achieving sufficient improvement

Based on these guidelines, each case must be considered individually.

e. Local Limitations on Use of Independent Contractors

There are no limitations.

f. Other Ramifications of Classification

The Working Environment Act regulates maximum working hours for employees on a daily, weekly or yearly basis. The Norwegian Labour Inspection Authority enforces the provisions, and if they are found to be breached, the undertaking may be fined. However, these provisions do not apply for independent contractors.

In accordance with the Working Environment Act chapter 10, working hours is the time, during which the employee is at the disposal of the employer, while off-duty time is the time, during which the employee is not at the employer’s disposal. Pursuant to section 10-2 (1), working hours shall be arranged in such a way that employees are not exposed to adverse physical or mental strain, and that they shall be able to observe safety considerations.

Normal working hours must not exceed 9 hours per 24 hours and 40 hours per 7 days, cf. section 10-4 (1) and pursuant to section 10-11 (1) such hours shall normally be scheduled between 6 a.m. and 9 p.m. Work lasting more than 5 ½ hours a day shall be interrupted by at least one break. The break shall be at least one hour if the working hours are at least 8 hours per day.

Furthermore, working hours must be arranged so that the employee has at least 11 hours continuous off-duty time per 24 hours (daily off-duty time), which shall be placed between two main work periods. Furthermore, the employee is entitled to a continuous off-duty period of at least 35 hours per 7 days (weekly off-duty time). Night work and work on Sundays may only be imposed as far as prescribed by law, cf. Sections 10-10 and 10-11.

Work in excess of what the Working Environment Act prescribes as normal working hours, are regarded as overtime work, cf. section 10-6 (2). Overtime work must not take place except in cases when there is a specific and time-limited need for it, and must not exceed 10 hours per 7 days, 25 hours per 4 consecutive weeks or 200 hours during a period of 52 weeks. For overtime work a supplement of at least 40 per cent shall be paid, in addition to the pay received by the employee for corresponding work during normal working hours, cf. section 10-6 (11).

g. Leased or Seconded Employees

Another way of engaging labour in Norway is through the hiring of workers from staffing agencies. These agencies hire out their employees to companies that need additional labour without directly employing them. However, employers’ ability to hire labour from staffing agencies is limited and, in practice, is generally permitted only for temporary replacements of one or more employees, for specialists or consultants engaged in clearly defined projects within areas of expertise not available within the company, and for healthcare personnel, in order to ensure safe and proper operations. However, if certain collective bargaining agreements are in place, and exception may be made through agreements with the employee representatives.

This group of employees are covered by the Temporary Agency Work Directive and are generally entitled to the same salary and working conditions as if they were employed directly by the company which hires them.

h. Regulations of the Different Categories of Contracts

In Norway, the different groups of contractual relationships are defined by mandatory legislation within employment law, tax law and social security law. If an individual is not considered an “Employee”, the relationship is governed by general civil law.