Contractors vs. Hidden Employment: Knowing the Difference

Management

Hidden employment or “pseudo self-employee” is a tactic that some companies use in order to prevent paying the employer costs for employment. The company hires a contractor or freelancer to do a job, but for all intents and purposes the freelancer is actually an employee of the company. That means the company should be making employer contributions on the employee’s behalf and the employee is missing out on these contributions or worse yet, could have to make them himself.

The first seven of the following criteria are quite strong indicators that you may be working as a “pseudo self-employee” or a hidden employee, whereas the last four are rather weak.

  1. The freelancer must be entitled to freely decide whether he accepts or rejects an assignment (in the meaning of a single project) of the end client.
  2. The freelancer independently and autonomously handles and works on the assignment without any instruction from the end client.
  3. The freelancer is not bound to any instructions of the end client (regarding time, place and type of activity) and he does not give any instructions to employees of the end client. The freelancer is able to work on his own and whenever he wants.
  4. The freelancer has an own entrepreneurial external appearance by e.g. own e-mail-address, letter paper, business cards etc.
  5. The freelancer uses their own equipment (notebook, mobile phone, …) and their own working area.
  6. The freelancer’s working activity for the end client does not require his full working energies. The freelancer must be able to pursue other projects at the same time.
  7. The freelancer’s is deriving maximum 80% of his income from only one and the same client. Again, their working energy must be spread out amongst other companies, people, projects, etc.
  8. The freelancer is free to act for competitors of the end client. As the freelancer is not an employee, he is free to seek other projects as he chooses, even for the company’s direct competition.
  9. The freelancer’s working activity is not provided for other customers by employees of the end client.
  10. The remuneration is connected to the success of the project.
  11. The freelancer is obliged to work personally and is not entitled to work with sub-contractors or own employees.

Hopefully this helps to clear up the difference between freelancing and “hidden-employment”. If you have any questions, or need you need managerial, secretarial, HR, or payroll solutions, contact us at info@got.international today and we will reach out to you within 24 hours and help you out!