False self-employment

False self-employment is a constellation in which self-employed persons or freelancers work as employees, but are declared as self-employed. This means that the self-employed are in fact employed, but they are self-employed for tax reasons.

False self-employment has its origin in the social security obligation. Because when a company employs employees, it not only has to pay their wages, but also pay social security contributions. In the case of self-employed persons, this additional cost factor is omitted.

What are the basics of bogus self-employment?

The basis for the issue of bogus self-employment are the provisions of the Social Security Act. It defines who is considered to be self-employed and who is considered to be employed. The distinction must be made, in particular, on the basis of the criteria of the obligation to issue instructions, integration into the operation of the contracting undertaking and personal dependency.

False self-employment is not a cavalier offence, but an administrative offence that can be punished with high fines. Anyone who works as an independent entrepreneur should therefore make sure that he or she is actually self-employed and is not in an employee relationship.

In order to determine whether there is bogus self-employment, an examination of the actual working conditions is carried out. In particular, the following criteria play a role:

• Working time and place of work: Does the self-employed person have a fixed working time and place of work?
• Work equipment: Is the self-employed person provided with work equipment by the client?
• Organisation of work: Is the self-employed person involved in the organisation of work?
• Dependency: How dependent is the self-employed person on the client?

False self-employment applies in particular to self-employed persons who work for only one client and are only subject to their instructions in their activity. That is, the ordering person or company determines what the self-employed person has to do, when they have to do it, and how they have to do it. This is the classic case of bogus self-employment.

For self-employed people who work for clients in this way, it is important to deal with the topic. Because in the case of a bogus self-employment, clients have to pay the social security of the self-employed and, if necessary, also pay penalties. On the other hand, the self-employed can lose their social security protection and, in the worst case, have to make additional tax payments.

Sham self-employment: For which professions relevant?

The question of the professions concerned cannot be answered unequivocally, as bogus self-employment can occur in many industries. However, occupations in the IT industry, in the construction industry, in event and trade fair construction, in the field of care and in the transport and logistics sector are particularly often affected.

For affected self-employed, it is advisable to deal with the criteria of self-employment and to ensure that they are met. This means that they decide for themselves when, where and how they work and that they are not subject to instructions from an ordering person. It is also advisable to conclude a contract that clearly defines self-employment and excludes the obligation to issue instructions.

It may also be useful to seek expert advice to ensure that the activity as a self-employed person or self-employed person meets the criteria and that bogus self-employment can be excluded.

How can you protect yourself against accusations?

In order to protect themselves against accusations of bogus self-employment, self-employed people should make sure that their employment relationship is actually self-employed. This includes, for example, being able to independently determine their working time and place of work and also bearing the risk of the project. In addition, they should ensure that they do not receive instructions from the contracting authority and that their activity is independent and independent of the work of the contracting authority.

One way to prove self-employment is to draw up a contract that regulates all the conditions of the employment relationship. The above aspects should also be taken into account. It can also be helpful to attract other clients and thus reduce the dependence on a client.

An examination of bogus self-employment can be carried out by the tax office, the social insurance companies, the German Pension Insurance Federation or a labour court. Contractors or contracting entities may also request the audit (e.g. protection against dismissal).

In the examination of bogus self-employment, contracts, actual employment relationships and working conditions are examined. Auditors must find and prove evidence of bogus self-employment. If the following criteria are met, there may be bogus self-employment:

• The turnover by the ordering person or company accounts for 5/6 of the total turnover.
• The self-employed person has not permanently employed a co-worker subject to insurance.
• The self-employed person is permanently working for only one client (more than approx. 83 %).
• The self-employed person is restricted by the ordering person or the company in the working environment as well as in the control possibilities or the entrepreneurial freedom.

If these criteria are met, it can be assumed that this employment would affect the entrepreneurial risk and that there is a dependency.

To check bogus self-employment, you can ask yourself the following questions regarding the employment relationship. If these questions can be answered in the affirmative, this may tend to speak against bogus self-employment:

• Can the self-employed person divide and determine their own working hours?
• Does the self-employed person use his own brand for external presentation (e.g. business cards, advertising)?
• Is there a distinction between the tasks of the self-employed person and those of permanent employees?
• Is the self-employed person free from instructions from the contracting company?
• Does the self-employed person have to provide regular reports on services?
• Is the workplace freely selectable for the self-employed person (at least in part)?
• Is the hardware or software used subject to a check by the client?

The legal consequences of bogus self-employment can be serious for both clients and the self-employed concerned. In the worst case, this can lead to the additional payment of social security contributions and taxes. Self-employed persons can be held liable and may face heavy fines or even imprisonment. Clients can also be obliged to make payments if they are classified as employers.

In addition, bogus self-employment can also have a negative impact on the image of the self-employed, which can lead to a loss of business partners and orders. It is therefore important to inform yourself at an early stage about the topic and to pay attention to the correct handling of the employment relationship. In case of doubt, self-employed persons and clients should seek advice from lawyers or tax consultants.