Sub­stan­tial increase in the num­ber of inde­pend­ent con­tract­ors
The Cham­ber of Com­merce recently repor­ted that the num­ber of inde­pend­ent con­tract­ors has increased by 85% since 2014, a sig­ni­fic­ant surge. The Cham­ber of Com­merce does not spe­cify the reas­on for this increase. Offi­cially, no research has been con­duc­ted on the reas­on, but it is estim­ated that this is due to the abol­i­tion of the VAR declar­a­tion in 2016 and the intro­duc­tion of the DBA Act (the Employ­ment Rela­tion­ships Dereg­u­la­tion Act). As the DBA Act was per­ceived as unclear, it was decided that the Tax Author­ity would, in prin­ciple, not audit the use of inde­pend­ent con­tract­ors, and if an audit occurred, a reas­sess­ment would only fol­low in the case of malice by the parties. It turns out that such malice is vir­tu­ally nev­er alleged in prac­tice. This non-audit prac­tice is referred to as the enforce­ment morator­i­um.

What is the con­sequence? Many employ­ees leave their jobs to become inde­pend­ent con­tract­ors. In prin­ciple, this is con­trary to tax reg­u­la­tions, but the enforce­ment morator­i­um has res­ul­ted in a free-for-all from a tax per­spect­ive.

Tax devel­op­ments
A not­able devel­op­ment. Hence there is no tax audit, there is a pro­lif­er­a­tion in the mar­ket. The so-called inde­pend­ent con­tract­ors do not real­ize what this means for their insur­ance in terms of occu­pa­tion­al inca­pa­cit­a­tion, sick pay, pen­sion accru­al, mort­gage applic­a­tions, et cet­era. A high­er net income seems to be an import­ant motive, while in fact, this high­er net amount should cov­er insur­ance costs. Due to the severe short­age in the labor mar­ket, many inde­pend­ent con­tract­ors can also demand much high­er rates. The gov­ern­ment also points to the entre­pren­eur­i­al facil­it­ies in the income tax return as a reas­on for the high­er net income, but in prac­tice, these are of min­im­al added value.

The men­tioned enforce­ment morator­i­um has been exten­ded sev­er­al times, but it now seems that it will end on 1 Janu­ary 1 2025. The Tax Author­ity recently pub­lished a new ver­sion of the Enforce­ment Plan for Employ­ment Rela­tion­ships 2024, and this top­ic has been extens­ively dis­cussed in the First Cham­ber. From 1 Janu­ary 2025, the Tax Author­ity will start audit­ing and enfor­cing again. It is unlikely that the new legis­la­tion (which should cla­ri­fy the concept of employ­ment rela­tion­ship) will also take effect on that date (see also the blog from HVG Law). How­ever, accord­ing to the First Cham­ber, both issues are sep­ar­ate. Even though the new legis­la­tion will no be imple­men­ted until1 July 2025 at the earli­est, the firm inten­tion is now to abol­ish the enforce­ment morator­i­um soon­er any­way.

What hap­pens from 1 Janu­ary 2025?
We observe a large increase in the num­ber of inde­pend­ent con­tract­ors, but the estim­ate is that many will even­tu­ally no longer be inde­pend­ent if tax legis­la­tion start to be fol­lowed again. Solely because there are no verifications/enforcement by the Tax Author­ity until 1 Janu­ary 2025, the inde­pend­ent con­tract­ors them­selves do not invoke employ­ment law (unless there is a reas­on, such as a claim for sick pay or the pro­tect­ive effect of dis­missal law), and the pen­sion funds do not always invest­ig­ate this point, is their situ­ation tol­er­ated. It is always poin­ted out to the cli­ents who must real­ize that there is no employ­ment rela­tion­ship, but they have no choice due to the mar­ket at the moment. If they fol­low the form­al law and always hire employ­ees as employ­ees, they will not have enough work­ers to do the work. It should be noted that the enforce­ment morator­i­um only applies for tax pur­poses. Cli­ents now run a great risk from oth­er leg­al areas (such as employ­ment law and pen­sions).

Employ­ment Law risks after 1 Janu­ary 2025
From the moment the Tax Author­ity enforces and qual­i­fies con­tracts for ser­vices as employ­ment con­tracts, it is expec­ted that many more “pseudo-inde­pend­ent con­tract­ors” will take the pos­i­tion that they are actu­ally employ­ees. After all, once payroll tax is with­held and the inde­pend­ent con­tract­or can no longer use the self-employ­ment deduc­tion, the major advant­ages of being an inde­pend­ent con­tract­or are gone.

What are the main employ­ment and pen­sion law risks?

• The pseudo-inde­pend­ent con­tract­or can claim, for example, vaca­tion days and vaca­tion pay, sick pay (at least 104 weeks), or terms from a pos­sibly applic­able col­lect­ive labor agree­ment, such as over­time pay or irreg­u­lar­ity sur­charges.
• The pseudo-inde­pend­ent con­tract­or can claim the pro­tec­tion of dis­missal law, includ­ing the stat­utory trans­ition com­pens­a­tion. How­ever, a claim on this must be made quickly, namely with­in three months after the end of the employ­ment con­tract.
• The pseudo-inde­pend­ent con­tract­or is no longer liable for dam­ages caused unless there is intent or delib­er­ate reck­less­ness.
• The pseudo-inde­pend­ent con­tract­or is included in any trans­fer of under­tak­ing.
• Pen­sion funds can claim pen­sion con­tri­bu­tions ret­ro­act­ively. The reas­sess­ment of a pen­sion con­tri­bu­tion can involve a sig­ni­fic­ant amount since, accord­ing to many pen­sion schemes, a sur­charge for late pay­ment can also be deman­ded.

 

There­fore, it is advis­able to closely exam­ine the use of inde­pend­ent con­tract­ors with­in your organ­iz­a­tion. Some­times, due to a short­age of per­son­nel, it is not feas­ible to work with inde­pend­ent con­tract­ors des­pite the qual­i­fic­a­tion risks. Ensure then that the dis­tri­bu­tion of risks in case of reclas­si­fic­a­tion is prop­erly included in the agree­ments. We are, of course, more than will­ing to think this through with you.

Con­clu­sion
The tax sec­tion of this blog was writ­ten by Miri­am Michiels, a tax spe­cial­ist at EY Tax Advisors. The final para­graph on the employ­ment law risks was authored by Jeannet van Vleuten, an employ­ment law attor­ney at HVG Law.  In the Neth­er­lands, HVG Law LLP has a stra­tegic alli­ance with EY Tax Advisors LLP. We approach issues from a mul­tidiscip­lin­ary per­spect­ive.

Do you have ques­tions or wish to dis­cuss the poten­tial con­sequences of end­ing the enforce­ment morator­i­um for your organ­iz­a­tion? Then, the tax advisors from EY Tax Advisors and the employ­ment and pen­sion law spe­cial­ists from HVG Law are eager to assist you with a mul­tidiscip­lin­ary approach, ensur­ing that tax, employ­ment law, and pen­sion law aspects are jointly addressed.

 

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