Hiring a self-employed professional? What kind of contract should you use?

Which contract is right for which situation?

Before choosing a model agreement, it must be clear what the final arrangement is supposed to look like. Do you simply want to bring the parties (the client and the self-employed professional) into contact with each other so they can draw up a (model) agreement themselves? Or is the intention to directly award an assignment to the self-employed professional who will carry out the work at a client’s business? We refer to the first situation as “mediation” and the second as “intermediation.” In the case of mediation, there are various options regarding payment to the self-employed professional. If payment is routed through the intermediary, this may involve certain risks. We wrote about this previously in last October’s newsletter.

If there is no need for mediation but the second situation applies, it is important to ensure that the assignment is of an intellectual and/or creative nature and does not involve the performance of physical labor. This is important because, as an organization, you remain responsible for the performance of the assignment, since you initially accepted the assignment directly from the client. When accepting work, the consequences can be significant because liability after delivery can sometimes last up to 10 years. In some serious cases, this liability can even extend to 20 years. The question then is whether your organization wishes to bear that responsibility. It is therefore advisable not to use the intermediary model but rather an approved model contract for the contracting of work, so that you can properly transfer the liabilities to the relevant self-employed professional who will be performing the work.

General Model Agreement for Intermediation

If there is no need for mediation, but the self-employed professional will still carry out an assignment for a client through the intermediary, this can be done using the Intermediary Model Agreement. Intermediation constitutes a deemed employment relationship and is governed, among other things, by Articles 2a and 2e of the 1965 Wage Tax Implementation Decree. A fictitious employment relationship means that, as a general rule, the client must withhold and remit payroll taxes; however, this is not required if the assignment is performed in the course of conducting a business or in the independent practice of a profession. An approved model agency agreement is the General Model Agency Agreement, drawn up by the Tax and Customs Administration, No. 9015550000-09-2.

Because agency work does involve the personal performance of the work, the only three important points that must be closely monitored are the following:

The contractor must perform the assignment in such a way that there is no employer authority.
The contractor must perform his work in the independent operation of a business or in the independent practice of a profession.
The number and duration of the assignment(s) must not exceed what is customary.

AD. 1: No employer authority

The Payroll Tax Manual provides a detailed description of the relevant elements in assessing a relationship of authority. These are as follows:

• Work is performed under direction and supervision. This may be the case, for example, when the client interferes with how the assignment is to be carried out, there is no clear assignment description, and/or it is not clear from the assignment description when the assignment is complete.
• The self-employed individual performs the same work under the same conditions as other staff at the same workplace. This may also be the case when the work is an essential part of the client’s business operations.
• Working hours, location, materials, resources, and tools. This is the case, for example, when the client determines which materials and tools the self-employed person uses for the work and/or provides them. Or when the self-employed person is required to perform the work at a specific location even though this is not relevant to the outcome of the assignment.
• The way in which the worker presents himself to the outside world: does he have his own business cards, email address, or advertising on his clothing, or does he represent the client to the outside world?
• Other relevant aspects, such as the client initiating an absence procedure when the self-employed person is sick, or the client requiring the self-employed person to take out various types of insurance. After all, this is contrary to the freedom of enterprise.

AD. 2: Independent operation of a business or independent practice of a profession

This is quite tricky, because how can you be sure that the self-employed person carrying out an assignment for you is a true independent entrepreneur? And by this, we mean that the self-employed person is considered an independent entrepreneur for income tax purposes. A self-employed individual must meet a great many requirements to be classified as self-employed for income tax purposes. For example, they must have enough clients to spread their business continuity risks, invest at least 1,225 hours per year in their own business, operate with the intent to make a profit, and have the intention to grow, innovate, etc. It’s also important to realize that even the Tax Authority includes a caveat in the approved model agreement. This is something you, as a client, should keep a close eye on (in one way or another).

While the model agreement does specify a number of criteria, these are insufficient for a proper assessment. Based on the model agreement, the following must be addressed in any case:

• The self-employed individual is registered with the Chamber of Commerce.
• The self-employed person must have a VAT number.
  • Agreements must be made regarding:
  • The self-employed professional’s liability toward the client;
  • There may be no non-compete and/or client retention clause that unreasonably restricts the self-employed individual from acquiring or performing assignments for other clients;
  • The risk of non-payment by the client/contracting party.

AD. 3: The number and duration of the assignment(s) must not exceed what is customary

This third section is related to what is stated under AD. 2. Article 9.2 of the model agreement states that the contractor must not work primarily for the same intermediary on the basis of (consecutive) assignments with a combined duration longer than is customary. In that case, the Tax Authority assumes that the individual is not an independent contractor because the self-employed person is dependent on that one major client. This is also a test derived from the criteria for independent entrepreneurship under income tax law. If the self-employed individual does work primarily through you and the Tax Authority therefore assumes that there is a relationship of authority, you will have a very difficult time proving that the individual is (still) an independent entrepreneur.