False self-employment is when someone is officially working as a self-employed individual (a sole trader), but should actually be classified as an employee. In this article, we’ll explore what false self-employment means, its implications for your organisation, and how to ensure a self-employed individual doesn’t inadvertently end up in a hidden employment relationship.
Understanding false self-employment, fictitious employment, or hidden employment
False self-employment, sometimes referred to as fictitious employment or hidden employment, occurs when someone is classified as self-employed on paper, yet should be treated as an employee in reality. This situation often arises when the self-employed individual relies heavily on one client for their income or has limited freedom to set their rates and working hours. There are specific criteria that help determine whether false self-employment is taking place, which we’ll discuss later in this article.
Consequences of false self-employment and fictitious or hidden employment relationships
Why is false self-employment a concern? We can look at this from both a macro and micro perspective.
- Macro Perspective: From the viewpoint of the UK government, it’s problematic when individuals work as self-employed without contributing adequately to the social security system. A large number of self-employed workers can put pressure on public services and reduce overall contributions, impacting the collective safety net for everyone.
- Micro Perspective: For individuals, false self-employment can have significant consequences. If someone is working full-time as a self-employed individual when their role should actually be classified as an employment relationship, they miss out on essential benefits such as pension contributions and safety nets for unemployment or sickness.
As an organisation, it’s your responsibility, alongside the self-employed individual, to accurately classify these employment relationships. If the Tax Authority determines that false self-employment exists, you could face correction obligations and fines. Read more about the Dutch Tax Authority's enforcement strategy in this article: End of the enforcement moratorium: Risk-based enforcement strategy.
False self-employment can arise at any level of the labour market and stems from misclassification of the working relationship between the individual and the client. To help you determine the correct employment relationship, we’ve gathered useful facts and criteria.
False self-employment and the DBA act
The intention behind the Deregulation of Employment Relationships Act (DBA) was to tackle false self-employment. However, after its introduction in 2016, it caused considerable confusion, leading the Tax Authority to implement a moratorium on enforcement.
In practice, this meant the Tax Authority couldn’t collect back taxes or premiums in cases of false self-employment unless there was evidence of malicious intent or a prior warning. Starting in 2025, this moratorium will be lifted, which will change the enforcement landscape.
What will enforcement look like after 1 January 2025?
During the moratorium, the Tax Authority only enforced actions in cases of malicious intent or prior warnings. After 1 January 2025, the 'Warning' instrument—a notice to change work conditions—will be abolished.
This means the Tax Authority will be able to impose immediate back taxes for payroll taxes starting in 2025. These correction obligations will apply only up to 1 January 2025, without retroactive enforcement.
The government has also reassured that inspections won’t be overly aggressive starting in January 2025, and the number of staff handling enforcement (80 FTE) will remain unchanged. The Tax Authority will maintain discretion to act cautiously in cases of uncertainty, with several motions passed to ensure a smooth transition and risk-based enforcement.
Importantly, self-employed individuals won’t face penalties for false self-employment; the aim is to prevent the occurrence of false self-employment, not to force them into employee status.
What changes for your organisation after 2025?
You can still work with self-employed individuals after January 2025. However, it’s wise to:
- Document how you hire self-employed individuals and clearly define the employment relationships. We’re here to help you with this through a step-by-step plan.
- Assess these employment relationships based on relevant case law (such as the Deliveroo ruling) and the DBA Act. We also provide guidance in our article on determining the correct employment relationship.
By following these steps, you can reduce uncertainty and approach any potential Tax Authority inspections with confidence.
Preventing false self-employment and hidden employment relationships
Preventing false self-employment begins with understanding what it is. Do you meet the criteria for hiring someone as self-employed? The Tax Authority considers nine key points when evaluating this, which were also referenced during the Deliveroo ruling.
These nine points include:
- The nature and duration of the work.
- How the work and working hours are determined.
- The integration of the work and the individual performing it within the organisation and its operations.
- The obligation to perform the work personally.
- How the contractual arrangement between the parties was established.
- How the remuneration is determined and paid out.
- The level of compensation.
- The commercial risk involved.
- The nature of entrepreneurship in economic activity.
If you want to learn more about these criteria and how to assess whether your employment relationship is correctly classified, check out our article: How to Determine the Appropriate Employment Relationship, or take a look at our scorecard for further insights on distinguishing between employment and self-employment.
A holistic approach to assessing false self-employment
When determining whether false self-employment exists, a holistic approach is applied. This means that all the aforementioned points are considered together to create a complete picture of the employment relationship, evaluated on a case-by-case basis to determine the correct classification.
This nuance is crucial, as one point may suggest an employee relationship while another points to a contractual relationship. Thus, all circumstances are taken into account to assess whether work is genuinely being performed outside an employment relationship.
Do you want to learn more about these criteria and how to assess whether your employment relationship has been correctly classified? Then read further in our blog: How to determine the right employment relationship, or check out our scorecard for more background information to help determine whether there is an employment relationship or not.
The impact of the Deliveroo ruling on enforcement
This case concerned the question of whether Deliveroo drivers should be considered self-employed or employees. In the ruling by the Supreme Court, the conclusion was that the drivers did not function as self-employed, but were employed as workers.
The Supreme Court's ruling refers to the previously mentioned 9 criteria that help determine the status of the employment relationship. These nine points must be considered as a whole. The Supreme Court emphasised that, based on all relevant circumstances, it must be determined whether there is an employment contract. One of the factors is how the work is integrated into the organisation of the client, but this is not the only criterion in assessing the existence of an authority relationship.
These criteria are therefore very useful for you as a client. You can use them to determine which type of employment relationship applies.
What does Temper do to prevent false self-employment?
Temper is a platform that enables self-employed individuals to find gigs easily, allowing them to supplement their income. This fundamentally changes the approach compared to traditional employment relationships.
For instance, it’s not the client who initiates contact; rather, the worker takes the initiative to apply for specific tasks. They also have the opportunity to negotiate the job’s terms, including the hourly rate.
Additionally, Temper incorporates several core principles to ensure workers using the platform can genuinely operate as self-employed individuals:
- Self-employed individuals on Temper can be replaced through the platform or independently. They can negotiate their hourly rates, and everyone working through Temper has a VAT number.
- Temper has implemented limits to prevent self-employed individuals from working too long for the same client. If they work 660 hours for a client in one year, the option to take on further tasks for that client is closed. This mitigates the risk of a situation where it may be more beneficial for both parties to enter into an employment relationship.
Our scorecard provides more insights into what Temper does to prevent false self-employment, allowing you to work confidently with self-employed individuals through the platform.
If you’d like to learn more about false self-employment or working with freelance professionals, get in touch with Temper. We’re here to help you build a reliable, flexible support structure around your core business. Book a free demo, and we’d be happy to tell you more.
