Working Life > Self-Employment > False Self-Employment

False or Pseudo Self-Employment

Definition, Explanation

Tips, Checklist

Definition, Explanation

False self employment is given when someone's employment contract is the one of a self-employed while actually his work is the one of a regular employment. The difference compared to an employee is mainly no compulsory social security insurance, no wage tax and no rights like dismissal protection and vacation-entitlement. The difference compared to a real self-employed is that a false self-employed lacks the typical entrepreneurs' activities of rendering services on one's own behalf and for one's own account, acquisition of clients, marketing activities, independent scheduling, independent choice of use of captail and one's own employees.

There is one other form of work that is a legal discerning from false self-employment: The employee-like self-employed or self-employed liable to pension insurance deductions. This scheme applies for entrepreneurs who have no social-insured employees and work for only one employer.

False self employment is not allowed, the onus of proof, however, is on the collecting agencies or on the revenue's business assessors. The verification of a registered self-employed not actually being quite a regular employee is done with strict focus on the individual case and can be induced by a revenue's company-assessment or by disputes between the employer and the alleged self-employed. Incidents suggestive of false self-employment are:

• The “self-employed” does not have compulsorily insurable employees. 400-Euro personnel does not count. Family members are allowed to be employed
• The business relationship is meant to last longer than a year. Main part of the work is ordered by one single client. At least 83.33 % of turnover are generated through this client. Overlooked by this regulation are new companies in their first 3 years and project-related activities with project durations of longer than a year
• The employer has regular employees who do the same or similar work. The “self-employed” is involved in the employer's organisation and uses the employer's facilities for his/her work, e.g. the “self-employed” driver with no own vehicle
• Missing typical features of entrepreneurs' activities: independent decisions concerning prices, capital, employees, facilities, the company's location, stationary, business cards
• The activity has been exerted in a regular employment before the self-employment.

Tips, Checklist

• Authorities' approvals or licences and an entry in a skilled-trade-register suggest self-employment. What is not sufficient, however, are an entry in the German regular trade register or a sole-trader registry
• It is not decisive whether the parties are in an employment contract or a service contract (“Dienstvertrag / Werkvertrag”). What counts are the actual properties of the service-rendering
• A regular (dependent) employment relationship (“abhängiges Beschäftigungsverhältnis”) is ruled out if the service-renderer is a “Gesellschaft” (company) meaning either a GmbH, KG or OHG
• When a doubtlessly false self-employement has been detected, the concerned worker is to adapt employee status, i.e. get a health insurance, pay social security contributions and tax. Eventually, insurance contributions of the last 4 years must be remargined, also the employer's shares. Here, only 3 months of the employer's shares of contributions to remargin can be written off against the employee's further payments, the rest has to be paid by the employer. Tax on on remargined contributions is paid by both employer and employee. The former “trade” has to be unregistered and legal memberships in CCI (“IHK”) and professional associations have to be cancelled
• In case of doubt, a procedure can be induced at the “Deutsche Rentenversicherung Bund”
• Self-employed should avoid being judged 'detected false self-employed', due to the described consequences
• The worker's adapting employee status starts once the “Deutsche Rentenversicherung” has decided incontestably

Last update: 03/10/2010