Since 1 May 2016 a new procedure governs the utilisation of independent contractors by companies in the Netherlands. The reason for the new regulation is to prevent sham independence where a worker is classified as an independent contractor but are for all practical reasons an employee of the company. The reason why some workers are wrongly classified as independent contractors is to receive tax benefits because they are independent and the company (client) safes on payroll costs and limits their liability.
Previously a freelancer or an independent contractor (ZZP) needed a Declaration of Independent Contractor Status (Verklaring Arbeidsrelatie, VAR) as proof that their clients will not be held responsible for any payroll taxes with regard to these independent contractors working for them. With this declaration the Dutch Tax and Customs Administration confirmed that they consider an individual as an independent entrepreneur.
The new legislation replaced the VAR with model agreements. There is general and individual model agreements, as well as model agreements per sector and profession. However, the purpose remains the same: by concluding a model agreement, both client and contractor will know who will be responsible for paying payroll taxes.
These model agreements will stipulate that there is no employment relationship between the independent contractor and the client. An example of a stipulation in an agreement will be that that a builder must supply their own tools.
An inspection by the tax office may be done at the offices and workplaces of the client of the independent contractor to insure that stipulations of the model agreement is adhered to.
This amendment of the Dutch Labour Law is for many employers a source of concern due to the following reasons:
- An inspection of the tax office may reveal that there is actually an employment relationship and that the employer is responsible for back taxes, and
- That the independent contractor may later argue that there is actually an employment relationship especially in instances of sickness or reorganizing of work.
The inspection can cover a period of 5 to 7 year and it is clear that if the provisions of the model agreement were not adhered to, the back taxes will be massive.
The Independent Contractor AND the client will with the new legislation both be responsible to ensure adherese to the stipulations of the agreement.
Steps that a company can take to ensure that an independent contractor is utilized correctly:
- Ensure that the assignments of the independent contractor is in writing and that it is delivered as an independent contractor,
- Convene regular meetings with the independent contractor where he/she is invited in writing to attend and where his/her name is separately mentioned with other external service providers,
- Take minutes of the meeting and state that the person is an independent contractor,
- If an independent contractor attend an internal company meeting of employees, ensure that he/she is formally invited as an independent contractor,
- Keep all official correspondence with the independent contractor for 7 years and make use of an official company e-mail address in all communication,
- An independent contractor may not be instructed to attend training programs of the employer and if he/she does attend company training it must be stipulated that they attend it voluntary as an independent contractor,
- Make agreements in writing concerning the utilization of company facilities such as parking and office space,
- Ensure that regular invoices is received from the Independent Contractor.
André Beukes is an EU Management Consultant to international companies doing business in Europe. He provides clients with practical business support that makes a real difference doing business in the EU. “Put simply, I am here to help you meet your challenges. I believe in the importance of doing things correctly, meaning risks are reduced and problems are avoided.”