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15 april 2024

Independent Contractor vs Employee in 2024

In 2024 the Dutch legislation surrounding independent workers will change significantly. Moreover, the authorities have announced to increase inspections to reduce misclassification. Officially, the increase in inspections is set for 2024, but reports of increased activity have already reached us. That is why it is of the utmost importance to know the difference between an employee and an independent contractor under Dutch law. The article below aims to specify the key criteria in this classification. 

In addition, we will also discuss the conditions that need to be met for each type of work-relationship. This way you are sure you avoid misclassification or how to solve this problem.

(Update April 2024): In 2025, a new law named “Wet verduidelijking beoordeling arbeidsrelaties en rechtsvermoeden” is set to be introduced to clarify the ambiguous nature of employment relationships. While the law is expected to be enforced from July 1, 2025, its rules are already applicable to all current and future employment contracts.

This means that even ongoing agreements with self-employed individuals could be reclassified as employment contracts. Although tax authorities have been lenient on unintentional misclassifications so far, they have announced stricter enforcement starting from 2025. It’s advisable for organizations to review their current employment relationships to ensure compliance with the impending changes and avoid potential fines.

The 3 components of an employment contract

Employment is the default relationship between worker and the beneficiary of the work under Dutch law. An employment relation consists of three components:

  • Authority: The work is done under the direction and supervision of an employer;
  • Personal work: The work cannot or may not equally be done by another person;
  • Wages: Volunteering or internships are not included.

If these conditions are met, an employment relation exists, and an employment contract is deemed to have formed. Whether an actual contract has been signed, or what the ‘will of the parties’ is does not matter. The employment relationship and employment contract arise by operation of law, driven by the nature of the employment relationship.

Working as an independent contractor 

A contractor (also called a contract worker, independent contractor, or freelancer), is a self-employed worker who operates independently on a contractual basis. They are their own boss. This means that a contractor is not an employee; but instead, they run their own entity such as a sole proprietorship (in Dutch it is called “een eenmanszaak”) or a limited liability company (“een besloten vennootschap” in Dutch) and are contracted out by organizations to work on particular projects or assignments.

Their contract relationships can be short- or long-term, but there is always a large degree of independence. They can also do work for multiple companies at the same time. The flexibility over different assignments and the financial control are two factors that make contracting very interesting.

The pros of contracting

  • Freedom to take on assignments to your liking
  • Freedom of working multiple assignments at the same time
  • Freedom to choose short- or long-term engagements
  • Total control over the price of your services
  • Tax-exempt to a certain annual amount (until 2027)

The cons when contracting

  • Responsibility for paying taxes to the tax authorities 
  • Responsibility to organize your own pension 
  • Responsibility to organize income during sick holidays, sickness, end of an assignment
  • Responsibility to ‘run your business’ (website, marketing, investing etc.) 

In the end, Dutch authorities are supportive of professionals who want to work engagements under their own management and risk, but only if the worker is truly an independent professional.

Beware of a case of misclassification

The Dutch authorities are very concerned with contractor relationships where the professional is insufficiently independent. Such misclassification is seen as exploitation and regulated heavily.  

Even when the contract speaks of an engagement of an independent professional, if the actual working situation and relationship has too many characteristics of employment, the authorities will impose all employment-related regulations retroactively (employment tax, working hours, pension contributions etc.).

One of the most important ways of generating too much dependence is spending too much time on a single client. As a rule-of-thumb, if you spend more than 6 months (almost) exclusively on one assignment, the relationship may be classified as employment.

Other criteria are more subjective. E.g. the level of independence in the day-to-day activities, the degree of supervision and the practical possibility of having the work performed by a subcontractor.

Potential changes for independent contractors as of January 2024

Apart from increased enforcement of regulations, some new regulations are currently being discussed to take effect in 2024 or soon after:

  • Mandatory pensions
  • Mandatory disability insurance
  • Increased focus on ‘embedding’ of the worker in the processes of the business (The work should be incidental for the business, not part of the core processes) 

Dutch Employer of Record is here to help independent contractors

In the evolving work arena of independent contractors in the Netherlands, Dutch Employer of Record, the specialized Employer of Record in the Netherlands stands as a crucial ally, aiding contractors and companies navigating shifting regulations, including and not limited to the 2024 changes. For contractors, it offers guidance through Dutch employment intricacies, while also simplifying business establishment. Collaborating with Dutch Employer of Record ensures compliance, minimizes misclassification risks, and maximizes contracting benefits in an evolving work landscape.

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