The number of self-employed professionals (SEPs) has burgeoned in recent years, totalling over 772,000 in the first quarter of 2013. Every sector uses the services of SEPs nowadays. It is an option with certain key advantages but it also calls for alertness on the part of the client. This newsflash highlights the potential pitfalls of hiring SEPs and looks at the latest developments.
SEPs offer certain key advantages as opposed to engaging employees. Once a job has been completed or a busy period has passed, the contract for services can usually be terminated with relative ease. So, no need to pay salaries to employees who have nothing to do. Secondly, the client – unlike an employer – does not have to worry about having to pay a salary for two years in the event of illness. Another widely publicised advantage is that the client is not burdened with payroll tax, social insurance contributions or the risk of industrial accidents etc.
If the SEP hands over a copy of a Declaration of Income Tax Status (profits from business activities) or Declaration of Income Tax Status (income from activities at the company’s risk or expense), the client will in principle indeed be spared the hassle of payroll tax and social insurance. However, if the SEP does not have one or other of these declarations, the tax authorities may interpret the relationship as an implicit contract of employment and compel the client to pay social insurance contributions and payroll tax.
If an SEP works permanently for one client, there is a risk that when the client wants to legally cancel the contract for services, he will first have to apply to the Employee Insurance Agency (UWV) for permission. The term ‘employee’ in the Extraordinary Labour Relations Decree applies not only to people with a contract of employment but also to professionals who generally work for only one or two parties and are assisted by a maximum of two people.
Another risk of engaging a ‘permanent’ SEP is that he can claim that the independence is notional and that he, in effect, has a contract of employment with the ‘client’. If an SEP has, say, more than two other clients and uses his own equipment for jobs, the existence of a contract of employment will not be readily assumed. The same holds if an SEP works entirely independently – as there is no line of command. However, in such cases the Extraordinary Labour Relations Decree can still apply.
On 1 July 2012 the provisions of the Working Conditions Act were considerably widened for SEPs. Amongst other things, the regulations to limit the risks of physical strain (lifting etc.) noise and temperature were tightened. However, an SEP only has to adhere to these regulations if he does a job at the same time as other SEPs. There are health and safety regulations that SEPs must comply with at all times, particularly for working at heights and with hazardous substances. It is assumed that the SEP is personally responsible for observing the regulations (except on building sites). If the Inspectorate for Social Affairs and Employment (successor to the Labour Inspectorate) ascertains a breach in a regulation that also appertains to an SEP, it is empowered to halt the work. The SEP may also be fined. If an SEP does a job in the same way as a routine ‘employee’ (for instance, an HR worker who is hired externally but is on the company payroll and reports to the HR manager), he counts as a normal employee under the Working Conditions Act, so the client/employer is responsible for the implementation of the statutory regulations.
If an SEP does a job that is normally done or could be done by the company employees, on account of them having the right qualities and skills, the client may be held accountable under Section 7:658, subsection 4 of the Dutch Civil Code for any damage sustained by the SEP in the course of his work. This has serious implications as a client/employer in such a situation will be held accountable unless he can show that he has fulfilled his duty of care or that the SEP has acted recklessly or with malicious intent, as a result of which the damage was caused. For a long time it was not entirely clear if this part of the law extended to SEPs. Last year, however, the Supreme Court ruled that SEPs can fall under Section 7:658, subsection 4 of the Dutch Civil Code under certain conditions, namely if:
the work carried out by the SEP, given the way in which the client practises his profession or runs his business, actually belongs to the professional and business operations of the client and;
the SEP is (partly) dependent for his safety on the person for whom he working, whereby attention may be paid to amongst others:
the actual relationship between those concerned;
the nature of the work;
the degree to which the ‘employer’, with or without the assistance of others, exerts an influence on the working conditions of the person who is doing the work and hence on the safety risks
After this ruling, a number of cases were brought before lower courts, which had to determine whether an SEP could hold a client accountable under Section 7:658 subsection 4 of the Dutch Civil Code. The decisions show that clients can easily be held legally accountable for damage sustained by SEPs in the course of their work, if the work falls or could fall under the regular activities of the company. Even if an SEP possesses knowledge and skills that are not available in the company, the client may still be held accountable. Here is an example:
The client in this case is the owner of a small haulage company with ten trucks. Everyday maintenance is carried out by him and his employees, but a specialised SEP is engaged for the more complex repairs. He brings his own equipment. Over the years the client has learned a lot about trucks, so he discusses a plan of action with the SEP and sometimes lends a helping hand. But, without the SEP, the job could not be done. If the SEP has an accident in such a situation there is a chance – in view of the court decisions – that a claim for damages against the client would be successful.
Presumably, the HR worker mentioned earlier could also hold the client liable for any damage sustained in the course of his work. After all, he is doing the same job as the other HR personnel in the company and therefore meets the first of the Supreme Court’s criteria. When it comes to safety (the second criterion) he is – partly – dependent on the client. He reports to the HR manager and is part of the team.
It appears that the court is quick to assume that an SEP is dependent on his client for his safety. The single fact that a sub-contractor (an SEP) was working on the building site of the main contractor was enough to make the court conclude that the main contractor could in principle be held accountable for damage sustained by the SEP on the job.
Although the accountability extends quite far, it is limited. For instance, an SEP who is engaged to paint the offices of an accountant’s firm will not be able to hold the firm liable under Section 7:658, subsection 4 of the Dutch Civil Code for occupational damage. This is because painting buildings does not normally fall under the actual activities of an accountant’s firm and hence fails to meet the first criterion of the Supreme Court.
If your company plans to hire an SEP, it is important to check out first whether you could be held accountable under Section 7:658 subsection 4 of the Dutch Civil Code for any damage that the SEP may sustain on the job. If this is the case, you should contact your insurer and find out whether you are covered for damage suffered by SEPs. You should also check out whether your insurance for employees who are injured in a car or other type of accident during a business trip also extends to SEPs. A recent court decision indicates that in certain situations clients are obliged to take out such insurance for SEPs if, for example, they are required to visit customers in a company car.
Hiring SEPs has some sizeable advantages, but it is not without risks. So you need to stay alert.