Definition of bogus self-employment
A person is deemed to be falsely self-employed if they outwardly claim the status of an independent contractor, but their actual activity more closely resembles that of an employee.
The following factors primarily indicate genuine self-employment:
- Identifiable entrepreneurial conduct
- Freedom from instructions on the part of the contractor (the self-employed person)
- Employment of one's own staff subject to social security contributions
- Sustained activity
- Free choice of work location and scheduling
- Freely negotiated fee arrangements
- Independent bookkeeping
- Freedom to accept or decline assignments
The assessment clearly depends on the overall circumstances. Below are further indicators that suggest bogus self-employment:
- The person works essentially for only one client
- The activities performed for the client are also carried out by that client's employees
- The supposedly self-employed person previously performed the same work as an employee of the client
- The person works fixed working hours
- The person works on the client's premises or at locations specified by the client
What can be done to avoid the suspicion of bogus self-employment?
Self-employed individuals should not work for a single client over extended periods of time. Likewise, they should not derive more than 5/6 of their total turnover from a single client. The self-employed person should not give the impression of being bound by the client's instructions; participating in regular internal meetings, for example, could suggest as much.
The risk of bogus self-employment
The essential difference between genuine self-employment and bogus self-employment is that, in the latter case, the person is subject to mandatory social security contributions, which must be paid accordingly.
If the pension insurance authority (Rentenversicherung) presumes a bogus self-employed working relationship, the social security obligation begins as early as the commencement of the activity.
In cases of bogus self-employment, there is not only the threat of back payments of social security contributions (contractor: up to 3 months retroactively / client: up to 30 years), but the client also faces criminal liability. It is explicitly stipulated that employers who withhold employees' social security contributions from the collection agency face fines or even imprisonment of up to five years. To mitigate the risk of misjudgement, the parties involved may submit an application (so-called status determination procedure / Statusfeststellungsverfahren) to the Deutsche Rentenversicherung within one month of commencing the activity. The authority then examines whether the work constitutes employment subject to social security contributions.
Frequently asked questions
Frequently asked questions
What does bogus self-employment (Scheinselbständigkeit) mean?
A person is considered bogusly self-employed if they outwardly act as an independent contractor, but their actual activities correspond to those of an employee. The decisive factor is an overall assessment of the working conditions, not the formal designation in the contract. If bogus self-employment exists, social security contributions are mandatory as in a regular employment relationship.
Which features indicate genuine self-employment?
Indicators of self-employment include entrepreneurial conduct, freedom from instructions, employing one's own staff subject to social security contributions, and the free choice of work location, working hours, and assignments. Maintaining one's own bookkeeping, setting fees independently, and the option to decline assignments are further indicators. Decisive is always the overall picture of the activity.
Which indicators point to bogus self-employment?
Typical indicators include working for only one client, fixed working hours, performing the work on the client's premises, and carrying out the same tasks as the client's employees. Further signs against genuine self-employment are prior employment with the same client or integration into the client's internal processes.
What consequences arise if false self-employment is established?
Social security contribution liability applies retroactively from the start of the activity. The client can be held liable for social security contributions for up to 30 years retroactively, while the contractor's liability is limited to a maximum of 3 months retroactively. In addition, the client faces fines or prison sentences of up to five years for withholding wages.
How can the risk of bogus self-employment be mitigated?
Self-employed individuals should avoid working for a single client on a permanent basis and should not derive more than 5/6 of their revenue from one customer. Being subject to instructions—for example, through participation in internal meetings—should be avoided. For legal certainty, a status determination procedure (Statusfeststellungsverfahren) can be filed with the Deutsche Rentenversicherung within one month of starting the engagement.