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Assessment of employment relationships and the DBA Act: Employee or self-employed person?

maandag 1 maart 2021

A widely used employment relationship is the ZZP construction. This employment relationship has a number of advantages for entrepreneurs and it is a good alternative to temporary work and (temporary) employment contracts. It is therefore a subject that has been the subject of much debate in recent years, more specifically, when is there an agreement for services or an employment contract? That qualification determines the applicable regime and whether payroll taxes must be paid to the Tax Office. This article looks at a number of important aspects, including: (1) the replacement of the DBA Act and (2) the fiscal and civil assessment of an employment relationship.

Replacement of the DBA Act

Since 1 May 2016, the Deregulation of Employment Relationships Act (Wet DBA) has been in force. This law has replaced the system with the VAR declarations. Based on the DBA Act, certainty is provided to clients through model and example agreements approved by the Tax and Customs Administration. Clients may also submit their own model agreement to the Tax and Customs Administration for approval. If an approved agreement is used, the client and contractor are indemnified against retrospective levies.

The DBA Act will be replaced in 2021. The reason for this is to combat false self-employment and competition on employment conditions. Clients do not pay employer's premiums for the self-employed, which makes them attractive. Also, no salary is paid during illness and there is no protection against dismissal.

Enforcement of the DBA Act

From 1 May 2016 until at least 1 January 2021 no enforcement will take place. Since 1 July 2018 the Tax Authorities only enforce in cases of malicious intent. This means that the client knows or should have known that there is an employment relationship and he deliberately allows this false self-employment to arise or continue.

Web module: employee or self-employed

Since January 2021, a web module has been made available for six months. After the end of this web module pilot, enforcement will be started (October 2021 at the earliest). Until then, the current enforcement policy remains in place.

The web module must provide advance clarity to clients as to whether work is within the scope of employment (employee) or outside employment (self-employed) and whether income tax and social security contributions must be paid. The web module provides certainty (exemption from payroll taxes) as long as it is filled in truthfully. During the pilot project, filling in the web module has no legal status, so that those involved cannot derive any rights from the outcome of the web module.

Assessment of employment relationship

The DBA Act and the upcoming amendments do not change anything about the substantive assessment of an employment relationship. It only provides certainty as to whether there is an obligation to withhold payroll taxes. Below is discussed how relationships are qualified from a tax law and civil law perspective.

Tax qualification (employment) relationship

If a company wishes to engage a contractor, it must assess whether payroll taxes are due on payments made to the contractor. This is the case if the relationship qualifies as an "employment relationship" within the meaning of payroll taxes. Clients are responsible for this assessment. If this assessment is wrong, an additional assessment can be imposed retroactively (up to five years), with or without an increase in a fine and/or interest.

The Payroll Tax Act does not have its own definition, so the civil term employment contract has been used. The essential core characteristics of an employment contract are: (1) the presence of a relationship of authority, (2) obligation to pay wages, and (3) obligation to perform personal labor.

Relevant indicators of an employment contract

The Tax Administration has drawn up policy rules that describe relevant indicators. The relevant indicators that must be assessed - in conjunction with each other - are:

  • Duration of the agreement: a long duration of a contract or a fixed contract is an indication of an employment relationship.
  • Scope of the work: if the contractor only works a few hours per week for the principal, this is an indication that there is no employment relationship.
  • Nature of the work: if the contractor's work is part of the principal's core activities, this is an indication of an employment relationship.
  • Level of remuneration: a remuneration that is clearly higher than the market rate is an indication that there is no employment.
  • Organizational integration: if the contractor is part of the organization of the employer, this is an indication of an employment relationship.
  • Liability of contractor: if the contractor is liable for damages arising from the work, this is an indication that there is no employment relationship.
  • Execution of work: if the contractor can determine how the assignment will be executed, this indicates that there is no employment relationship.

Civil qualification (employment) relationship

The DBA Act does not apply to the civil qualification. The use of a model agreement of the Tax Authorities (and web module) does not provide certainty as to whether or not an employment contract exists in the civil law sense.

Furthermore, the use of a model agreement does not remove the possibility that a contractor may take the position that he/she is an employee. Whether or not there is an employment contract is assessed on the basis of Article 7:610 of the Dutch Civil Code:

  • Work: employee is obliged to perform work personally and may not be replaced without permission.
  • Wages: the amount is not important and board and lodging and wages in kind can also be considered wages. Only an "expense allowance" is not pay.
  • For a certain period of time: there is no legal minimum.
  • Relationship of authority: employee follows instructions from employer. It is not required that employer actually gives instructions, but that he can give them. There is no authority if, for example, there is freedom in terms of working hours, work arrangement, method of execution and if the employee is allowed to perform other work in addition to the agreed work.

In assessing these elements, all the circumstances are important and they are weighed holistically, i.e. viewed in sense as a whole. In particular, the existence or absence of a relationship of authority is important.

It was recently held that the intentions of the parties are not relevant to the qualification question (HR 6 November 2020). It is not important whether it was actually the intention of the parties to conclude an employment contract. What matters is whether the rights and obligations agreed upon meet the legal description. That is the qualification. The question prior to that is, what rights and obligations have been agreed upon. That question is answered on the basis of the so-called Haviltex criterion. In short, this means that not only a purely linguistic interpretation of an agreement is considered, but that it comes down to the meaning that the parties in the given circumstances could reasonably attribute to the provisions of the agreement and what they could reasonably expect from each other.

Questions about the DBA Act or qualifying employment relationships?

Do you have questions about the Wet DBA, the changes to the Wet DBA or the qualification of employment relationships? Please feel free to contact our specialists: Lisa Kloot (Attorney at Law Employment Law) and David Harreman (Attorney at Law Tax Law).

Lisa Kloot

employees

+31(0)10 209 27 61 kloot@lvh-advocaten.nl
Rob Steenhoek

companies in financial struggle

+31 (0)10 209 27 52 steenhoek@lvh-advocaten.nl
David Harreman

enterprise and government

+31 (0)10 209 27 77 harreman@lvh-advocaten.nl
Madelon van Breemen

international

+31 (0)10 209 27 65 vanbreemen@lvh-advocaten.nl

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