False self-employment

Last updated

False self-employment is a situation in which a person registered as self-employed, a freelancer, or a temp is de facto an employee carrying out a professional activity under the authority and subordination of another company. [1] Such false self-employment is often a way to circumvent social welfare and employment legislation, for example by avoiding employer's social security and income tax contributions. [2] While a modern "gig economy" encourages more casual employment practices in the interests of labour flexibility, the extent to which this disguises precarious employment and denial of rights is of growing concern to authorities. [3] [4]

Contents

There is a grey area of self-employed persons who rely heavily on a single customer while legitimately being independent. [5]

Principle

A salaried-work relation hidden behind a false pretense of self-employment is in some jurisdictions a violation of and a non‑compliance with labour law.

For social security, the falsely self-employed is declared not to be subject to employment law, but actually works under an employer's authority in a subordinate relationship, with the same conditions as his salaried colleagues but without any employment contract. [6]

When a salaried-work relation is hidden under such a false pretense, there is a violation of law and both parties expose themselves to sanctions.

The constitutive elements of an employment contract typically are: [6]

In Belgium

The (Belgian) legislator considers the following elements to define a subordinate relationship:

  1. No worker's participation in the company's profits or losses;
  2. No proper capital investments in the company;
  3. No responsibility or decision‑taking power in the company;
  4. The certainty of getting a regular payment;
  5. The fact of having just a single and unique customer company;
  6. The fact of having no personal workers/the fact of not being an employer;
  7. The fact of not being able to organise one's working period;
  8. The existence of in-house control procedures, with related sanctions;
  9. No decision‑taking power concerning customers’ invoicing.

Labour law tends in a jurisprudential way to view self-employment as false when many of the above elements are present.

The ministers’ council (the Belgian Cabinet) on 5 May 2006 examined a legislative proposal (a bill) which no longer refers to a “faux indépendant” (read: falsely self-employed person), but to "qualification adequate de la nature des relations de travail" ("appropriate qualification about the nature of relationships at work"), whether salaried or independent. The bill came from the minister of small business, Sabine Laruelle (MR political party – liberal), and the minister of social affairs, Rudy Demotte (PS political party – socialist). The governmental declaration of July 2004 already planned such a bill.

The legislative proposal confirms the general principles stated by the jurisprudence and the Court of Cassation: to have an employment contract, there must be a relationship of authority and subordination; (and) to have a contract between independent actors, there must be no such relationship. This reflects the party's intention as expressed in their programme. Elements such as freedom to organise one's working time/period, freedom to organise one's work and the possibility to have a hierarchical control allow to evaluate the existence or not of any hierarchical relationship.

Moreover, this establishes legal certainty: the current system of freedom of contract between parties is confirmed, the potential problems are framed either in specific sectors, or in individual situations.

In Britain

Construction industry

A British trade union UCATT which specialized in the construction industry has expressed concern that false self-employment was being used by many British employers to evade taxes and engage workers without having to respect employment rights and entitlements such as holiday pay, sick pay and pensions. In their opinion, whilst the practice was immoral, it was not, in their view, necessarily illegal. [7]

The UK taxation arrangement known as the Construction Industry Scheme (CIS) allowed registered companies to deduct tax at source and thus avoid employing workers directly as their regular or casual employee who would thus have acquired legal employee rights.

Instead casual staff could be assumed to be sub-contractors who were falsely supposed to be self-employed, and thus responsible for paying their own tax and social security contributions.

If such persons were not registered as self-employed, they would thereby be liable for unlawfully evading their legal obligations.

Offshore oil

The British Government's HM Revenue and Customs service found in 2013 evidence that some companies and employment businesses connected with the offshore oil industry were using employment intermediaries to disguise the employment of their workers as self-employment, primarily to avoid paying employers National Insurance contributions and to reduce the costs associated with workers’ employment rights. [8]

Spain

The Spanish Ministry of Employment is trying (as of mid August 2017) to address commercial accounting agencies who invoice employers on behalf of regular employees falsely presented self-employed persons to evade or minimise their tax and social security obligations (Self employed people are known as autónomos in Spanish, and usually raise their own invoices for irregular work assignments themselves). Fidelis Factu Sociedad Cooperativa, better known as Factoo, has been obliged to close its operation following a sanction imposed by the Ministry. There are known to be several other cooperatives of this type, although Factoo is the largest so far identified and the first to be shut down. [9]

Although the persecution of false freelancers, by the Labor Inspectorate in Spain, has intensified in recent times, there are still many entrepreneurs who encourage covering up an employment relationship with a false business relationship. It's essential to differentiate an employment relationship (employer-employee) from a business relationship (entrepreneur-self-employed). The legal definition of employed worker found in art. 1.1 of the Spanish Workers’ Statute mentions these four defining notes: willfulness, alienation, dependence and remuneration. [10]

See also

Related Research Articles

Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any other entity, pays the other, the employee, in return for carrying out assigned work. Employees work in return for wages, which can be paid on the basis of an hourly rate, by piecework or an annual salary, depending on the type of work an employee does, the prevailing conditions of the sector and the bargaining power between the parties. Employees in some sectors may receive gratuities, bonus payments or stock options. In some types of employment, employees may receive benefits in addition to payment. Benefits may include health insurance, housing, disability insurance. Employment is typically governed by employment laws, organisation or legal contracts.

Unemployment benefits, also called unemployment insurance, unemployment payment, unemployment compensation, or simply unemployment, are payments made by authorized bodies to unemployed people. In the United States, benefits are funded by a compulsory governmental insurance system, not taxes on individual citizens. Depending on the jurisdiction and the status of the person, those sums may be small, covering only basic needs, or may compensate the lost time proportionally to the previous earned salary.

Freelance, freelancer, or freelance worker, are terms commonly used for a person who is self-employed and not necessarily committed to a particular employer long-term. Freelance workers are sometimes represented by a company or a temporary agency that resells freelance labor to clients; others work independently or use professional associations or websites to get work.

<span class="mw-page-title-main">Federal Insurance Contributions Act</span> US federal payroll tax to fund Social Security and Medicare

The Federal Insurance Contributions Act is a United States federal payroll contribution directed towards both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, people with disabilities, and children of deceased workers.

Self-employment is the state of working for oneself rather than an employer. Tax authorities will generally view a person as self-employed if the person chooses to be recognised as such or if the person is generating income for which a tax return needs to be filed. In the real world, the critical issue for the tax authorities is not whether a person is engaged in a business activity but whether the activity is profitable and therefore potentially taxable. In other words, the activity of trading is likely to be ignored if no profit is present, so occasional and hobby- or enthusiast-based economic activity is generally ignored by the tax authorities. Self-employed people are usually classified as a sole proprietor, independent contractor, or as a member of a partnership.

<span class="mw-page-title-main">Salary</span> Form of periodic payment from an employer to an employee

A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with piece wages, where each job, hour or other unit is paid separately, rather than on a periodic basis. From the point of view of running a business, salary can also be viewed as the cost of acquiring and retaining human resources for running operations, and is then termed personnel expense or salary expense. In accounting, salaries are recorded in payroll accounts.

An independent contractor is a person, business, or corporation that provides goods or services under a written contract or a verbal agreement. Unlike employees, independent contractors do not work regularly for an employer but work as required, when they may be subject to law of agency. Independent contractors are usually paid on a freelance basis. Contractors often work through a limited company or franchise, which they themselves own, or may work through an umbrella company.

An employment contract or contract of employment is a kind of contract used in labour law to attribute rights and responsibilities between parties to a bargain. The contract is between an "employee" and an "employer". It has arisen out of the old master-servant law, used before the 20th century. Employment contracts relies on the concept of authority, in which the employee agrees to accept the authority of the employer and in exchange, the employer agrees to pay the employee a stated wage.

Permatemp is a U.S. term for a temporary employee who works for an extended period for a single staffing client. The word is a portmanteau of the words permanent and temporary.

IR35 is the United Kingdom's anti-avoidance tax legislation, the intermediaries legislation contained in Chapter 8 of Income Tax Act 2003. The legislation is designed to tax 'disguised' employment at a rate similar to employment. In this context, "disguised employees" means workers who receive payments from a client via an intermediary, i.e. their own limited company, and whose relationship with their client is such that had they been paid directly they would be employees of the client.

<span class="mw-page-title-main">Worker Adjustment and Retraining Notification Act of 1988</span> United States labor law

The Worker Adjustment and Retraining Notification Act of 1988 is a U.S. labor law that protects employees, their families, and communities by requiring most employers with 100 or more employees to provide notification 60 calendar days in advance of planned closings and mass layoffs of employees. In 2001, there were about 2,000 mass layoffs and plant closures that were subject to WARN advance notice requirements and that affected about 660,000 employees.

Misclassification of employees as independent contractors is the way in which the United States and other countries classify the problem of false self-employment. In the U.S., it can occur with respect to tax treatment or the Fair Labor Standards Act.

An umbrella company is a company that employs agency contractors who work on temporary contract assignments, usually through a recruitment agency in the United Kingdom. Recruitment agencies prefer to issue contracts to a limited company as the agency liability would be reduced. It issues invoices to the recruitment agency and, when payment of the invoice is made, will typically pay the contractor through PAYE with the added benefit of offsetting some of the income through claiming expenses such as travel, meals, and accommodation.

Unreported employment, also known as money under the table, working under the table, off the books, cash-in-the-claw, money-in-the-paw, or illicit work is illegal employment that is not reported to the government. The employer or the employee often does so for tax evasion or avoiding and violating other laws such as obtaining unemployment benefits while being employed. The working contract is made without social security costs, and does typically not provide health insurance, paid parental leave, paid vacation or pension funds. It is a part of what has been called the underground economy, shadow economy, black market or the non-observed economy.

Casual employment or contract employment is an employment classification under employment law.

Unemployment benefits in Spain are contributory and non-contributory. They are part of social security system in Spain and are managed by the State Public Employment Service (SEPE). Employers and employees contribute to the unemployment contingency fund and if an unemployed person fulfills certain criteria they can claim an allowance which is based on the time they have contributed and their average wage. A non-contributory benefit is also available to those who no longer receive a contributory benefit dependent on a maximum level of income.

<i>United States v. Silk</i> 1947 United States Supreme Court case

United States v. Silk, 331 U.S. 704 (1947), was a United States Supreme Court case regarding US labor law. The case concerned the scope of protection for employees under the Social Security Act 1935.

<i>Uber BV v Aslam</i> British labour law case

Uber BV v Aslam [2021] UKSC 5 is a landmark case in UK labour law and company law on employment rights. The UK Supreme Court held the transport corporation, Uber, must pay its drivers the national living wage, and at least 28 days paid holidays, from the time that drivers log onto the Uber app, and are willing and able to work. The Supreme Court decision was unanimous, and upheld the Court of Appeal, Employment Appeal Tribunal, Nande used to date all the Uber drivers. Even got married to one, and Employment Tribunal. The Supreme Court, and all courts below, left open whether the drivers are also employees but indicated that the criteria for employment status was fulfilled, given Uber's control over and Sedzani's drivers.

<i>FNV Kunsten Informatie en Media v Staat der Nederlanden</i>

FNV Kunsten Informatie en Media v Staat der Nederlanden (2014) C-413/13 is a European labour law case, concerning European competition law.

Portage entrepreneurial, also known as entrepreneurial hosting, or wage portage is a legal status, that allows any self-employed worker to create and operate their professional activity while delegating administrative tasks to a portage company that manages their business and income.

References

  1. ↑ Pierre Beyens and Valery Vermeulen, Le faux indépendant, DroitBelge.net, accessed 15 May 2017.
  2. ↑ "What is False Self-Employment?".
  3. ↑ Robert Booth, Ministers order HMRC crackdown on ‘gig economy’ firms, The Guardian , Oct. 20, 2016.
  4. ↑ Vanessa Houlder and Sarah O’Connor, Revenue cracks down on ‘false self-employment’, Financial Times , Oct. 21, 2016.
  5. ↑ U. Muehlberger, Dependent Self-Employment: Workers on the Border between Employment and Self-Employment (Palgrave, 2007).
  6. 1 2 Pierre Beyens, avocat au barreau de Bruxelles auprès de van Cutsem Wittamer Marnef & Partners
  7. ↑ "False Self Employment". UCATT/Unite union UK. Retrieved 2017-07-22.
  8. ↑ HM Revenue and Customs:Onshore employment intermediaries: false self-employment
  9. ↑ El País Spanish newspaper:Empleo pone coto a las falsas cooperativas de autónomos y obliga a cerrar Factoo
  10. ↑ Are you a “falso autónomo” (“false” self-employed)?


This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.