Germany is a country of rules and laws. When working with freelancers, there are many legal regulations that freelancers and especially contracting companies should be aware of. A particularly relevant and frequently discussed aspect is the avoidance of so-called pseudo self-employment (Scheinselbstständigkeit). Due to the confusing legal situation, however, it is not easy for the people involved to recognise when a pseudo self-employment situation exists and how the associated risks can be minimised.
Politicians have also recognised that the current legal situation is problematic for the requirements of the modern world of work and for Germany as a business location. In recent years, there have been several attempts by politicians to create more clarity and legal certainty for companies and the self-employed by simplifying the legal situation. Another reform is currently being discussed, but an end is still not in sight.
In the following article, we explain what companies should look out for when working with IT freelancers under the current legal situation. Further we go into detail what measures can be taken in order to work successfully with IT freelancers while minimizing the risk of a possible pseudo self-employment.
What is Scheinselbstständigkeit?
A pseudo self-employment is defined as a situation where the activity of the freelancer is described or classified by the contracting parties as self-employment, but for the social security and tax authorities it constitutes dependent employment, i.e. an employment relationship. Whether the contracting parties are aware of this or not is hardly important. One reason for this is that employers should not use another contractual term such as "freelancer" or "self-employed person" to evade their tax and social security obligations for persons whose job description does not actually differ from that of an employee. The consequences of pseudo self-employment thus serve to protect not least the employee, who should not be deprived of his or her protection under social security law and should be protected from tax traps. Admittedly, these motives can hardly be transferred to the situation that is so common in today's working reality, namely that highly qualified specialists quite consciously decide to become self-employed and whose worthiness of protection in view of high earning opportunities and demand is quite different. Nevertheless, economically different cases are treated in largely the same way from a legal point of view.
On the client side, there are various labour and tax law risks when a supposedly self-employed activity is classified as a pseudo self-employed. In particular, the payment of social security contributions and taxes for the period of employment can be demanded (also retroactively).
Watch out for these Criteria:
Courts and authorities generally assume a pseudo-self-employment, if during the performance of the activity an integration into the business of the client takes place and the supposedly self-employed person becomes involved like an employee in the business. This is particularly the case if the freelancer does not have the freedom of choice with regard to place, time and manner of carrying out the respective tasks, but is bound by instructions from the client.
Our experience in the tech industry has shown us that certain risk factors of pseudo-self-employment occur more frequently and must therefore be taken into account when using IT freelancers. In the following we have summarised some criteria which we consider to be particularly important and which make it easier to successfully implement the use of IT freelancers in project work while minimising the legal risk of pseudo self-employment:
1. Place of employment of the freelancer:
There is an increased risk of pseudo-self-employment due to the danger of integration into the company when freelancers provide their services on site. If possible, a remote deployment of the freelancer is recommended. Especially in the tech sector, this is often a practicable solution without major disadvantages for the parties involved. However, an on-site assignment is also harmless if there are plausible reasons for it, notably confidentiality, IT security, and possibly other project-specific features.
2. Hardware and software used:
Freelancers should use their own computers and software wherever possible. Here too, however, the use of the client's equipment and software by the freelancer is justified if operational or project-specific reasons make this necessary.
3. Freedom from instructions:
In any case, freelancers should be free of instructions. For example, avoid compulsory participation in meetings, certain prescribed working hours, specifications regarding the availability of the freelancer or the way in which time tracking is carried out. Although the client may make recommendations or express wishes to the freelancer on such points, the decision is left to the freelancer.
4. Status determination procedure (Statusfeststellungsverfahren):
Finally, the law provides for the possibility of having the freelancer's work assessed in advance by means of a so-called status determination procedure. Depending on the circumstances of the individual case, this can be a viable way of providing legal certainty to the parties involved.
FURTHER QUESTIONS AND INFORMATION
The above overview can only provide a rough outline and can of course not replace legal advice in individual cases. However, we are happy to help if you are considering using IT freelancers for your project and want to reduce legal risks. We have many years of experience in working with and finding highly qualified IT freelancers and in the legal examination of a variety of individual project situations.