Memorandum Act Deregulating Review Labour relations (WDBA)

Transcription

1 Memorandum Act Deregulating Review Labour relations (WDBA) 1 Introduction If a client wants to use the services of an independent contractor, the so-called self-employed person (this could be someone who has a sole proprietorship, but can also be a one-man-bv), in the past there was a reasonably simple way to avoid the risk of possible employment and the related potential assessment for wages tax and social security contributions, namely the declaration of Independent Contractor Status (VAR) provided that the WUO- statement (profit enterprise) or the DGA-statement (sole-bv) is received. This possibility, however, lapsed commencing May 1, 2016 by the entry into force of the WDBA. VAR statements have no legal effect anymore after May 1, From May 1, 2016 a client must, if he will contract a self-employed person, self-examine again whether the labour relationship must be regarded as an employment or fictitious employment or not. If he concludes on the correct facts and circumstances, there is none, then there is in principle nothing wrong, except in retrospect (e.g. an audit by the tax authorities), is nevertheless found that there appears to be indeed a (fictitious) employment. Actually, little has changed, at least legally considered. That is what the State Secretary still insists. Everything that was allowed during the VAR period is allowed under the WDBA too. And everything that is not possible under the law DBA could not with the VAR too. The cause lies in the fact that the terms 'employment' and 'entrepreneurship' have not changed. After the expiry of the VAR, clients have to assess whether the self-employed person is or is not in employment with him and thus he is responsible for whether or not withholding and payment of payroll taxes and social security contributions. Actually we are therefore have gone back in time again, more than 15 years to the period before the VAR. At the time of the VAR, the client was protected (unless bad faith) for hiring a self-employed person, with a correct VAR and the additional tax assessments were imposed on the self-employed person if afterwards still a (fictitious) employment was found. From May 1, 2016 that has changed under the WDBA, any retroactive tax/premium levy is assessed to the principal (client) who is than regarded as an employer and the self-employed person as an employee. To the extent that the additional assessment of tax refers to payroll tax (national insurance contributions and wages tax) this is recoverable from the self-employed person, but the employee insurance premiums and the income-related contribution Health Insurance Act may not be claimed, these are employer charges. If the self-employed person stated in his income tax return his revenues and the final assessment has already been imposed, payroll tax is not due anymore. The employee insurance premiums and the income-related contribution Health Insurance Act, however, are. 1

2 The one who here has the main interest is especially the client (the principal). The contractor has a less important interest because if he turns out to be in employment, and payroll taxes are recovered from him, he can settle that in his income tax return. 2 Indemnifying (?) Assignment agreement The manner in which the client can protect himself basically against such additional assessments (according the State Secretary) will be discussed below. 2.1 Model agreement An assignment agreement (AA) is a contract whereby one party, the contractor, undertakes to the other party, the client, to perform activities other than pursuant to a contract of employment, which consist in anything other than: - the creation of a work of material nature (it is a building contract), - the storage of goods, - publishing works, - the transport or have transportation done of persons or goods. The WDBA provides an opportunity to conclude between client and contractor an assignment agreement (AA) made on the basis of model contracts approved by the tax authorities and published on their website and which do not lead to an employment agreement. It is very important in any case, that the clauses that are relevant to arrive at a judgment that there is no question of an employment and consequently to the conclusion that there is no obligation to withhold and pay payroll tax and national insurance contributions, are taken over unchanged. The relevant provisions in the model agreements are highlighted yellow by the tax authorities. In the AA must specifically be recorded that the AA is formatted according to the model agreement of the tax authorities and thereby should be mentioned the unique characteristic of the model contract. The AA must be signed before the first payment is made. For existing contracts this will of course not work. A possible solution might be found by formally terminate the current contract and completely settle. Then for the remaining work can be entered into a model agreement before the first payment under the new contract. 2.2 What is the use of that model agreement? What advantage has the client from such an agreement? There are different opinions about it. According to the State Secretary, the use of the model contract approved by the Tax Office, gives a (conditional) guarantee that the client does not have to withhold payroll tax and needs not to pay social security contributions, provided that the execution of the AA actually takes place in accordance with what was agreed in the AA (the condition). That "provided that" now is the weak point of this arrangement. If the tax authorities later find that there are anomalies in the execution of the AA (other than occasionally), the aroused trust that the parties may derive from the model agreement, is lost. The guarantee is namely not based on a statutory provision but on "aroused trust, in fact a favour from the tax authorities. 2

3 If therefore more or important points are not met in the execution of the contract to what was agreed in the AA, the aroused trust is lost (conditional guarantees) and the situation is still assessed based on facts and circumstances. So the legal position is different when the client will make use of the model contracts. The 'favour' mentioned above means that the tax authorities are taking a conscious view. When the client invokes the view of the tax authorities, the customer relies on trust aroused. And that means that the client must demonstrate that a legitimate expectation can be derived from the view of the tax authorities. Therefore rely on aroused trust here means that when the tax authorities check, the client must demonstrate that actually has been worked in accordance with the model contract. If no appeal is made to aroused trust, then the burden of proof lies with the tax authorities. That proof position means that the tax authorities must justify its view (solid) with facts. Not with presumptions or assumptions. In practice, the proof position is not always recognized. When the tax authorities consider that there is an employment relationship, often the client already raise counterarguments while actually first needs to be quietly waited. The tax authorities must substantiate its view. Until that happened sufficiently, the tax authorities have failed to fulfil its proof position. By already raising counterarguments, the tax authorities are often aided in its furnishing of proof, and that could well lead to the finding of the presence of an employment or fictitious employment. The use of an approved (model) agreement is entirely voluntary; the parties are completely free whether or not to use these model agreements. Actually, according to the State Secretary, the model agreement is meant for cases where there is 'doubt' about the existence of an employment relationship. That does raise directly the response whether the model agreement must be used, because it allows apparently notice that there are doubts. Fun for the Tax Administration if they want to check one in due course. Incidentally, it is important to remember that it is not determined by the approved AA whether the self-employed person is or is not an independent contractor, but only if the labour relationship between client and the contractor is or is not a (fictional) employment on the basis of what is agreed. It may therefore happen that a self-employed person in itself is an independent entrepreneur, but that the labour relationship with a client is still regarded as an employment. Where the VAR is abolished, because the tax authorities did not have the manpower and resources to monitor adequately, is this also the question, whether those resources and manpower are available for monitoring the WDBA. Usually this will be included in a regular audit, or focused scrutiny will take place of companies that make heavy use of freelancers. 3

4 3 Assessment Points Agreement / whether or not employment 3.1 Real employment Whether there is a real employment is judged on the basis of three factors: Presence of authority Personal carrying out of labour Wage (reward) received In particular, the relationship of authority is a key element. It should be noted that the Supreme Court has held that, where the principal has the authority to give directions and instructions (to exercise direction and control) there is already a relationship of authority. Under directions and instructions, moreover, should be understood directions and instructions regarding 'how' the work is carried out and which must also be followed by the contractor / employee. In an AA, directions and instructions regarding 'what' needs to be implemented is possible; it is in fact the result for which the contract is entered into. The cases in which the Tax Office bases its judgment derive from case law. Among others, the following factors may be relevant in assessing whether there is an employment contract. From the case law, the following two conclusions come forward: For the presence of authority is important whether the client is authorized to give directions and instructions to the contractor, whereby the contractor is obliged to follow it. In general, is to show that if the instruction right from the client and actually given orders and instructions to the contractor, pose only a further determination of the required performance, there is no question of a relationship of authority, as characteristic for the labour contract. The more of the following statements are answered in the affirmative, the greater the risk of presence of authority and thus possible employment. The contractor may not, be replaced, or only with the consent of his client. The contractor may arrange to be replaced only by a person of a fixed group of people, who are also sometimes hired by the client and as result of that are known to the client. There is a general obligation to pay wages. The client directs and supervises the work of the contractor. The client gives instructions to the contractor for example, representativeness, dealing with customers, working hours, recognisability through clothing, logos on vehicles and business cards, etc. The client deals with complaints about (the work of) the contractor. The work carried out by the contractor is an essential part of business of the client and the contractor shall undertake the activities under the same conditions as permanent workers. The contractor may not simultaneously work for different clients. The contractor gets paid during illness or holidays. The contractor needs not do its job free of charge again, or to adjust free of charge, if it does not comply with the agreement. 4

5 The client determines the level of remuneration for the work. The client is liable for the damage caused by a contractor in the performance of his duties. The contractor does not have professional liability insurance. The client provides tools, equipment and materials. The contractor was almost immediately prior to his activities as self-employed for the client, in the service of the client and has conducted as employee almost the same activities as he now performs as a self-employed. These and other factors from case law will be weighted by the tax authorities in assessing the submitted contracts. The idea is not to not fulfil one particular component, but involves the whole; certain matters will weigh more significant than others. The big stumbling block will be in our opinion, the follow up in practice of what was agreed. If the practice does not match the content of the AA, it is likely that it will not be difficult for the tax authorities to show the presence of an employment. 3.2 The fictitious employment Besides the real employment based on the Civil Code, there exists within the tax and social security legislation, the so-called fictitious employment. So that is not an actual employment, but is regarded as employment for the payroll tax and social insurance only. There are several fictitious employment relations, but in this context are, in particular, the fictional employment relations as assimilated worker and as a home worker are of importance. For other fictitious employment relations, please refer to the Manual Payroll taxes from the tax authorities. The fictitious employment relationships are particularly apparent when the relationship of authority is missing, but if personal labour is provided and wages are received. The fictitious employment does not exist in the Civil Code, but is a pure fiction in the legislation on payroll tax and social insurance Assimilated worker An assimilated worker is someone who can be equated socially to someone who works in real employment and meets the following conditions: He carries out personal work for which he receives remuneration. The gross pay per week is generally at least 40% of the minimum wage per week. For employees younger than 23 a lower minimum wage is valid. He usually works at least two days a week, regardless of the number of hours per day. The employment relationship is indefinite or at least one month. This may also involve two working relationships with the same client that follow one another within one month and together at least take a month. A month is a period of 30 days for this scheme. He is not: contractor of work or his help, an agent, subagent, director of a co-operation with employee self-government, commissioner, apprentice, trainee, co-working child, home worker or his help, a professional athlete with an A status, or temporary worker. 5

6 An assimilated worker is in fictitious employment with his client A person is not considered to be an assimilated worker if he belongs to one of the following groups: - Persons who have particular religious work, such as priests and pastors; - Authors or editors who work for a publisher, but this work is not doing their job; - Directors of associations and foundations; - Persons whose employment relationship is primarily determined by a family relationship; - independent entrepreneurs; - Persons who work in the personal or domestic circle of the client; Working at home A home worker is not an employee working at home, but a person who only works at home and not outsource the work. In addition, a home worker does not have its own company. Common examples of homework his shrimp peeling and packaging activities. As this fictitious employment for this memorandum is of lesser importance, we omitted further information. Of course you can ask us for information Staffing Fiction / interposition provision For labour relations in which a contractor, through an intermediary, is working for a third party is a general model agreement approved by the tax authorities. This model agreement is on the website of the Tax office. This model agreement is a possible elaboration for working outside the framework of an employment contract (incl. agency work employment contract) and preventing the application of the staffing fiction / interposition provision. Here, too, what has been described under Exclusion of certain fictitious employment relations In the AA a provision could be included so that the fictitious employments as assimilated worker or homeworker are excluded, so that the assessment by the Tax Office is only performed on the basis of a real employment or other fictitious employment relations. This provision need not necessarily be used in a model agreement but can be incorporated into any contract agreement. The agreement must be new, because it has to be signed before the first payment of the agreed remuneration. The text can be: "The parties agree in occurring cases not to apply the fictitious employment of homeworkers or assimilated workers, referred to in Articles 2b and 2c of the Implementing Wage Tax decree1965 and Articles 1 and 5 of the Decree indication where a work relation is seen as employment (Decree of December 24, 1986, Stb. 1986, 655), and therefore to establish this agreement and to sign it before payment is made. Also for artists the so called artists regulations can be excluded (applicable if no "withholding agent statement is present), simply by confirmation by the artist that he renounces the application of the artist regulations. In that case no payroll tax and social security premiums need being withheld and paid. 6

7 4 Implementation Phase Until May 1, 2017 there was an implementation period, which meanwhile has been extended to July 1, During this period, clients and contractors can possibly adapt their methods to work with the new agreements. Until then, clients and contractors have an obligation of effort. Up to July 1, 2018 the tax authorities will supervise, but no repressive enforcement measures are taken. Of course they will keep tackling obvious fraud. The implementation phase will be completed on July 1, The spacious implementation phase gives clients and contractors sufficient time and opportunity to adapt their practices where necessary. The efforts that parties have performed prior to this date, should have resulted in a method that complies with the rules. That means that either work outside employment is performed, or payroll taxes and social premiums are withheld and paid. In case parties do not operate according to the rules, the situation will be assessed. This means that the Tax office may lay up a correction obligation, or an additional assessment will be imposed, if there is an employment and no payroll taxes and social premiums are withheld and paid. If that employment already existed in 2016, only the period from April 1, 2016 will be involved in enforcement, if prior to April 1, 2016 the indemnifying effects of the VAR applied. The Law DBA has no retroactive effect, so enforcement measures can not see to a period during which the client still can rely on the indemnifying effects of the VAR. 5 Labour law consequences of finding real employment afterwards The risks of an observation afterwards that there is an employment contract within the meaning of Article 610 of the Civil Code, because that is the conclusion if the Tax Office establishes a real employment relationship, does not only lie in the area of payroll tax and social insurance premiums. If there is subsequently concluded that a real employment relationship exists, matters like Collective Bargaining Agreements, Branch Pension Fund or company pension scheme, dismissal protection and the like, come into play. Article 610a of the Civil Code states: "He who performed labour for a person against remuneration from that person for three consecutive months, weekly or for at least twenty hours per month, is presumed to carry out this work under employment contract." This is a rebuttable presumption. This means that when the client is sufficient to refute that there is no question of a contract of employment, the presumption does not work. The finding of the Tax Office thus can play a bad role. Then must be shown, based on the AA, in which matters are arranged, that there is no employment contract. However, it applies also in the employment law that what has been agreed, should be in accordance with the practice. Is that not the case, the intentions of the parties in the agreement are under discussion. 7

8 However, if the client has to deal with a 'weak' self-employed person, who may be thinking by laying down an employment contract to be better off, or to achieve an unemployment benefit, this can lead to very unpleasant situations. The purpose of this memorandum does not lend itself to profound treatment of all the possible consequences that might occur. It is important to know that possible problems may not remain confined to any tax problems. 6 Conclusion If you have signed an AA with an independent entrepreneur and there are objectively no terms in the contract that may indicate an employment (3.1) and client and contractor perform the contract in accordance with the provisions therein, no further activities are in principle needed. To be able to rely on the possibility of aroused trust in the AA, you should use a standard contract of the Tax Office and copy at least the unchanged yellow marked provisions. Furthermore, the AA of course must not contain other provisions that contradict the aforementioned yellow marked provisions. The agreement must be made to the model contract specifying the characteristic number of the model agreement. In all cases include in the AA the exclusion of fictitious employment as assimilated worker and / or homeworker. That limits in any case the assessment to real employment. In new contracts, at least copy the yellow marked provisions of the model agreement 'no employment authority. Your AA will than be anyway all right on these points. If you in the agreement not refer to the model agreement of the tax authorities, the aroused trust does not apply and the burden of proof lies directly already at the tax authorities. So you have a choice. Pay attention to the responsibilities relating to the execution of the assignment. The contractor should be responsible. Often this is arranged differently. The contractor must correct his mistakes and therefore also should be insured. Include that into the AA and check it too. Please note that if afterwards would be concluded to a real employment, this could also have legal consequences. 7 Government Committee The government installed a committee, that had to investigate whether the concepts authoritative relationship and personal performance need a new definition. As result of the outcome, legislation might be adjusted. The committee concluded their investigation and made a report, however, although some ideas to solve the problems with the present legislation were given, no solution regarding the two main subjects came out. We are now waiting for a new government and the possible solutions they might bring. Breda, August 2017 ESJ Accountants & Tax Consultants René de Groot Senior Consultant Payroll tax, social security and labour law 8