False or bogus self-employment

Definition, avoiding risks, status determination procedure

The issue of bogus self-employment does not only affect freelancers, sole proprietors, companies and young startups. Also the other side, i.e. larger entrepreneurs who in turn employ self-employed persons with a nearly full workload, must absolutely be able to recognize existing risks and take the necessary measures. What you absolutely need to know in this context on the subject of bogus self-employment, you will learn on this page.

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Our services in connection with false self-employment

In connection with bogus self-employment, our lawyers and specialist attorneys for employment law, corporate law and tax law will be happy to advise you on the following topics at our offices in Hamburg, Berlin, Munich, Frankfurt and Cologne or by telephone or video conference from anywhere:

  1. Review of existing contracts and business relationships for qualification as pseudo-self-employed activity
  2. Advice and recommendations on measures to avoid pseudo-self-employment
  3. Support and implementation of a status determination procedure at the German pension insurance company
  4. Cost-effective initial consultation on the subject of pseudo-self-employment for legal information on the subject and initial assessment of the risks in a specific case
  5. Advice to managing directors and review of managing director contracts with regard to the social insurance obligation of managing directors
  6. Judicial and extrajudicial assertion of claims in the case of bogus self-employment from the de facto existing employment relationship (employment contract)
  7. Our attorneys work closely with our in-house tax advisors and can therefore identify and possibly mitigate the tax consequences of pseudo-self-employment at an early stage.

What does pseudo self-employment mean?

There are many words fpr one thing: False, Fictional, Bogus or Pseudo self-employed people are persons who appear to be self-employed but are actually dependent employees within the meaning of Section 7 (1) SGB IV - i.e. primarily employees.

If the parties assume that they are self-employed, but it later turns out that they are actually employed, this can have far-reaching consequences: The employer may then be obliged to pay the overall social security contribution retrospectively. This includes contributions to statutory unemployment, health and pension insurance as well as social long-term care insurance.

The employer can only recover these from the employee by deducting them from the current salary and only retroactively for a maximum of three months - so he is usually left to bear the costs alone. In addition, the so-called principle of accrual applies to this period, i.e. an arrears of contributions from June 2020, for example, can only still be withheld in July / August / September 2020.

However, if the salary paid to the allegedly self-employed person exceeds the usual remuneration as an employee, he may in turn be able to recover from the latter any excess VAT and fees paid. In addition, the tax office usually demands the previously unpaid wage tax. All this can be expensive for everyone involved! In individual cases, there may even be criminal consequences if intent can be proven.

Distinction: When am I self-employed?

A self-employed activity can usually be recognized by the following 5 important characteristics:

The person concerned can freely organize his activity.
He can freely decide on his working hours and his place of work.
He decides for whom he will work.
He bears his own entrepreneurial risk.
He has no vacation or continues to be paid in case of illness.

If you are self-employed, you are not actually subject to compulsory insurance. But beware: Who is self-employed, regularly works for only one client and does not have any employees who are subject to compulsory insurance and earn at least EUR 450 per month, is still subject to the statutory pension insurance obligation. In the first three years, however, he can apply for exemption.

Bogus self-employment: When am I an employee?

I am a dependent employee especially in an employment relationship. The following 5 criteria indicate dependent employment:

  1. The person concerned is subject to the instructions of the principal. He decides what I do, when, how long and where.
  2. The dependent employee is integrated into the work organization, for example has his own desk, his own internal mail address or is typically responsible for certain activities again and again without this being agreed.
  3. He receives his salary regularly, for example monthly, without this being dependent on a payroll or a previously defined performance target.
  4. He has a right to vacation, remuneration for overtime or continued payment of wages in the event of illness or participates in company pension plans.
  5. In any case, the employee works predominantly for one client. He is often subject to a non-competition clause that prevents him from working for competing companies.

These criteria are always interrelated. They do not all have to be present for the affirmation of a dependent relationship. Rather, an assessment of the specific individual case is required.

Attention: This applies to freelancers as well as to companies! The managing director of a GmbH (limited liability company) can also be a pseudo-self-employed person, especially in the case of a one-man GmbH!

In case of doubt: status determination procedure

If the parties involved are in doubt as to whether their relationship is self-employed or dependent, both contracting parties can, independently of each other, also voluntarily initiate a so-called optional status determination procedure with the German pension insurance.

If this is done in good time, i.e. within one month of the start of the activity, an obligation to make additional payments can be avoided. This is because even if the result of the procedure is that the person is in dependent employment, there is no obligation to make back payments for the previous months. Insurance contributions do not have to be paid until the German Pension Insurance announces the result. However, this only applies if

the employee agrees to a later start of the social insurance obligation and
he or she has taken out insurance against the financial risk of illness and for old-age provision for the period between the start of employment and the decision, which is equivalent in nature to the benefits provided by statutory health and pension insurance.
More information on the status determination procedure can also be found on the website of the German Pension Insurance.

Tips for avoiding fictional self-employment

So, in light of the above criteria, we can conclude with the following 5 tips to avoid qualifying as a bogus self-employed person:

  1. Working for several clients reduces the risk of bogus self-employment. Look for additional clients. If this is unavoidable, never work for a single client for too long. Breaks in between can prevent the impression of pseudo-self-employment.
  2. Use your own equipment where possible: your own workrooms, your own equipment, your own stationery, your own website and your own business cards. Book your own continuing education courses. Purchase your own professional liability insurance.
  3. Make sure that you are basically free to dispose of your working hours. Compulsory attendance from 9 a.m. to 6 p.m. every day should be avoided at all costs.
  4. Avoid an obligation to report regularly on your work status.
  5. Duties should always be assigned to you individually. Each project is assigned on the basis of its own contract. Avoid framework contracts that are valid over a longer period of time and cover "everything that comes up".

Caution: There is a particularly high risk if you were previously working for the same client in an employment relationship and are now performing the same activity as a self-employed person. Here you must definitely seek legal advice and take additional protective measures!

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