What is it and who judges it?

Bogus self-employment is the term for an employment relationship in which a contractor contractually titled as self-employed is an employee according to objective criteria and would have to be registered as such subject to compulsory insurance. This can cost both the client and the contractor their livelihood if one of the relevant agencies discovers bogus self-employment.

An examination of bogus self-employment can be carried out by the German Pension Insurance Association, an employment tribunal, the tax office or social security agencies. A contractor or a client may also request an examination of bogus self-employment, for example, if a contractor wishes to sue for protection against dismissal or a client wishes to terminate a contractual relationship. In many cases, however, both parties are uninvolved in the initiation of an examination for bogus self-employment and a third instance, e.g. a court of law, the health insurance company, requests an examination of the bogus self-employment is involved, because, for example would like to claim contributions in arrears.

Who can be affected?

All self-employed persons who do contract work can be affected by bogus self-employment. Freelancers are particularly affected by this. In contrast to freelancers, “Freie Mitarbeiter” may also have a contractual relationship with the client, but this does not constitute an employment relationship. They also usually have a trade registered, whereas freelancers do not have to register a trade and do not have to pay trade tax.

Examples of affected occupations and industries in which pseudo self-employment may occur include:

  • Consultants
  • Employees in the film and television industry
  • Graphic designer, copywriter
  • Craftsman, construction industry
  • Honorary physicians, nurses/nurses, health care professionals
  • Real estate agents
  • Courier drivers
  • Teaching staff (lecturers, coaches)
  • Programmer
  • Cleaners
  • Freight forwarding (drivers, logistics)

This is how the verification of bogus self-employment works

During an examination of bogus self-employment, both the contracts concluded and the actual circumstances and conditions in everyday professional life are examined. Here, the auditors must find evidence of bogus self-employment and prove it. In this regard, the following criteria constitute pseudo-self-employment:

  • In principle, pseudo-self-employment exists if a self-employed person does not regularly employ an employee subject to compulsory insurance “and”
  • works permanently for a single client “and”
  • whose orders provide him with 5/6 of his sales.

Herewith this employment would influence his entrepreneurial risk. In addition, the authority to issue instructions is a criterion for pseudo self-employment. This may be the case if the self-employed person works in a working environment in which the client has control and management options that restrict the self-employed person’s entrepreneurial freedom of decision.

Test: Fictitious self-employment yes or no?

So, if you want to check whether your contractor falls into the zone of bogus self-employment, you should ask yourself the following questions:

  • Is the contractor free from instructions of the client?
  • Can the contractor determine his own working hours?
  • Are the contractor’s tasks distinct from those of permanent employees?
  • Is the contractor free from regular reports on performance?
  • Is the workplace (predominantly) freely selectable for the contractor?
  • Is the contractor free of hardware and software that allow control on the part of the client?
  • Does the contractor act as a self-employed person in the outside world?
  • Does the contractor use his own stationery, business cards with the name of his own company, etc.?
  • Is the contractor active in customer acquisition and advertising for his own company?

If you can answer yes to most of these questions, your contractor is more likely to fall outside the realm of bogus self-employment.

Consequences of bogus self-employment for the client

If bogus self-employment exists and can be proven, both client and contractor must expect legal and financial consequences.

In the case of the client, all liability and payment obligations apply retroactively as for normal employees in the case of bogus self-employment. This means that the client must retroactively pay the social security contributions for up to four years. This includes late payment penalties if a request for status determination on the part of either party does not produce a positive result within one month of the start of work. Otherwise, the social security obligation does not occur until an unappealable decision has been made.

In the event of bogus self-employment, the tax office may also demand retroactive payment of wage tax arrears. Here, too, the rule of up to four years retroactively applies. If willful fictitious self-employment is proven, fines, prison sentences and repayment demands for up to 30 years are possible.

The disclosure of VAT on the invoices of the bogus self-employed person also becomes invalid, i.e. the input tax deduction made is deemed inadmissible and the input tax amounts deducted must be corrected and repaid. From the moment of the determination of bogus self-employment, the previous contractor has all the rights that the company’s employees have.

Consequences of bogus self-employment for the contractor

The contractor also has to reckon with consequences of bogus self-employment. In the first step, his self-employment is terminated and he receives the status of employee retroactively to the beginning of the employment relationship. This gives him numerous rights, such as protection against dismissal, vacation entitlement or the obligation to continue to pay wages in the event of illness. In addition, in the event of bogus self-employment, he or she will receive net salary payments in the amount of the previous fee. However, this also means that in the case of a freelancer, the trade must be deregistered with the Trade Licensing Office and membership in the Chamber of Industry and Commerce ends at this time.

Both the client and the contractor are legally regarded as joint and several debtors in the case of bogus self-employment. The hitherto client may therefore deduct the employee’s share of the back social security contributions for the past three months from his future salary. The amount of the contribution depends on the fee or net salary.

Previously issued invoices must be corrected by the contractor if a bogus self-employment is identified. Thus, the reported sales tax must be declared invalid. The input tax deduction may not have been carried out or the input tax must be paid back to the tax office.

How we can avoid bogus self-employment

Unawareness does not protect from punishment

If you are on this page, you have already taken the first step: Find out about bogus self-employment! Because even in the case of bogus self-employment, unawareness does not protect you in a criminal case. As a self-employed and contracting company, we have a duty to obtain the necessary knowledge.

Carefully check the service contract or the general terms and conditions for the order and the order confirmation.

We should match the above criteria with our daily work routine and service contract. In particular, we should check whether I still bear my entrepreneurial decision-making freedom as well as my entrepreneurial risk myself when we work together. This includes that there is no authority to issue instructions to me as the contractor. The following aspects of our cooperation can protect us from bogus self-employment:

  • The Contractor is responsible for the payment of statutory dues (taxes, social security).
  • The exact fee for exact activities.
  • The Contractor may refuse orders and accept those of other customers.
  • The Contractor may use auxiliary personnel (own employees).
  • The Contractor shall not contribute more than half of its working capacity.
  • Determine the amount of the user fee for work equipment.

Separate hardware and software or premises

The so-called freedom of choice is also increased by using different software programs for contracting, time and effort recording or invoicing. Also, if you have an (additional) own workplace, this can underline entrepreneurial freedoms and protect against bogus self-employment. For this reason, I recommend that all activities not required on-site be contracted as off-site or remote activities.

Clear communication between client and contractor

In order to avoid misunderstandings or problems in borderline cases, I point out the topic of bogus self-employment to you with this page and the information it contains. Both sides bear equal responsibility in the event of bogus self-employment. As a contractor, you protect yourself by making clear statements regarding vacation schedules and assignments. For my part, as a contractor, I ensure compliance with the criteria.

Piterion

In order to exclude any risks on the subject of bogus self-employment, I offer you the activity via the service provider Piterion. With this option I am working for you as an employee of Piterion in a project assignment. In the booking system these positions are marked with the addition “Piterion“.

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