End of the Enforcement Moratorium
The tax authorities announced on September 9 that they will fully enforce pseudo self-employment starting January 1, 2025. There was a so-called enforcement moratorium on pseudo self-employment, but it will end on the upcoming January 1. On the Tax Authority’s website, the following is announced:
On January 1, 2025, the Tax Authority will fully enforce pseudo self-employment. Companies and organizations hiring people as freelancers for tasks not performed independently may face fines and additional assessments. A transition period of one year allows employers and workers to avoid a penalty if they can prove taking steps against pseudo self-employment. Lifting the enforcement moratorium is one of the measures the government is taking to combat pseudo schemes and contributes to more certainty in the labor market.
Initially, this serves as a warning to clients of freelancers who risk being classified as employers by the Tax Authority in 2025, with all tax consequences, such as additional assessments. However, as will be shown below, the possible consequences are not limited to the fiscal; the scope of the penalties is not restricted to the direct clients of the freelancer. Clients of those clients can also face sanctions.
What is Pseudo Self-Employment?
First, let’s consider what pseudo self-employment really is. The Chamber of Commerce website provides a clear definition:
Pseudo self-employment arises when you accept a task as an entrepreneur but are actually in an employment relationship. The client is then your employer, failing to meet obligations towards the Tax Authority and you. The DBA Act (Decree Deregulation Assessment Labor Relations) makes both parties responsible for work relationship agreements, preventing pseudo self-employment.
True self-employment (and thus no pseudo self-employment) exists if:
- There is no authority relationship between the freelancer and the client:
- The freelancer receives no instructions or guidance on task execution;
- The hiring party does not control or intervene in the freelancer’s work during the task.
- The freelancer determines their own working hours and days;
- The freelancer cannot claim employee rights like sick leave, vacation days, or pension provisions;
- The freelancer invests in their equipment and does not accept service or office materials from the client.
- Replaceability: The freelancer can delegate the work to someone else.
- The freelancer executes the task at their own account and risk:
- There is a concrete result described in the agreement;
- The task has an end date by which the result is available;
- Financial risks for additional work rest with the hired freelancer.
The above is not exhaustive but is meant to give you a good idea of when a freelancer and client are in the danger zone of pseudo self-employment.
Pseudo Self-Employment and the Labor Inspectorate
In many cases, a determination of pseudo self-employment by the Tax Authority is not the end. The Labor Inspectorate can often impose fines. In the Inspectorate’s 2023-2026 multiyear plan, the following is stated:
An effective approach to fair work must also be seen in the context of various pseudo schemes that employers use as business models to reduce wage costs. Employers, intermediaries, and other actors on the labor market use these pseudo schemes. This leads to unfair competition and disadvantages employers who prioritize their staff and fair competition. Additionally, these schemes undermine the system of labor law, social security, and taxes. The Dutch labor market is characterized by a variety of permitted labor relations that unintentionally contribute to this.
In her policy outline on the labor market, the Minister of Social Affairs and Employment announces that changes in the labor market require a government that speaks out. The government sets societal norms and corrects undesirable developments. This includes enforcement on pseudo self-employment.
We read this as an announcement from the Labor Inspectorate that, like the Tax Authority, it intends to enforce pseudo self-employment.
Foreign Nationals Employment Act (Wav)
If pseudo self-employment is determined in the case of a foreign national (in this context, someone without EU nationality), the client risks an €8,000 fine for violating the Foreign Nationals Employment Act (Wav). Among other things, it prohibits employing a foreign national without explicit permission. Some residence permits allow free access to the labor market, but many permits entail limited or no labor market access.
A commonly heard example with us is that of foreign students. According to their residence permit, they may only work in paid employment with a work permit, and then only for a maximum of 16 hours per week. If the Tax Authority determines pseudo self-employment in a foreign student working as a freelancer in a restaurant, it automatically means the ‘client’ is violating the Wav because no work permit is available. It worsens if the student worked more than 16 hours a week.
Wav fines incorporate so-called chain liability. The client of the client, and even their client, can be fined the full amount. Returning to our foreign student example, if the restaurant owner deploys them for a catering job with company X, in the case of pseudo self-employment determination by the Tax Authority, the Labor Inspectorate can fine both the restaurant owner and company X the full amount. If company X has another client, that client also risks a fine.
Minimum Wage and Holiday Allowance Act (Wml)
It doesn’t end with the Wav, and hence not with potential foreign (pseudo) freelancers. The Minimum Wage and Holiday Allowance Act (Wml) ensures all employees have the right to a wage at least equal to the statutory minimum wage and holiday pay.
If it turns out that a freelancer, now regarded as an employee, earned below the minimum wage based on hours worked, the former client, now employer, is fined. This also applies to holiday pay. Generally, a freelancer does not receive holiday pay, making a violation likely.
In our foreign student example, this also applies, potentially resulting in fines for violating both the Wav and the Wml.
Conclusion
Clearly, much will change for freelancers and clients starting January 1, 2025. The Tax Authority and the Labor Inspectorate have made it clear they will enforce pseudo self-employment. The risk of hefty fines is very real.
Recently, our clientele frequently mentioned that their (large) clients were warned by both the Tax Authority and the Labor Inspectorate about upcoming enforcement and must get their affairs in order.
Questions about pseudo self-employment and the Labor Inspectorate? Call us at 020 223 2466, or email us at info@arslanlitadvocaten.nl. We are happy to assist you!
Author: mr. B.D. Lit
