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Distinction between employees and freelancers

3min

⚡TL;DR

  • The title of the agreement (and other similar formal points) is irrelevant.
  • The number of customers and market appearance criteria is the key criterion.
  • The main risk is for the "employer" to have to pay social contributions retroactively on all payments made to the "freelancer".
  • Book a free call with us.

It is important to know who is an employee and who is a freelancer to avoid so-called "false self-employment" or "pseudo-independence".

Material criteria

It does not matter what the parties call the contract – just because somebody is labeled a freelancer does not mean they are a freelancer (this applies in Switzerland but also in most other countries). The actual details of the engagement count.

Having a Freelancer Agreement will therefore only take you so far, and you must check the following criteria:

  • Number of customers and market appearance: If the freelancer only works for your company and does not have a website on which their services are promoted to other customers, chances are they are actually an employee. This is the most important criterion in practice. A freelancer is already considered economically dependent if they derive at least 50% of their revenue from a single company.
  • Free organization of work: The freelancer determines when, how, and from where any given task is completed. If the freelancer is, however, embedded in the company's organizational structure, it is an indicator of an employment relationship.
  • Own tools: The freelancer provides the equipment required for the tasks and does not rely on the equipment and tools of the company.

There are major financial risks if someone is engaged and paid as a freelancer but is later found to be, in fact, an employee:

  • If the "false freelancer" has a workplace accident, the company's accident insurance may not pay for the damages and the company may end up paying for all of the damages.
  • All social security benefits have to be paid retroactively, even for years past, if a case of false self-employment comes to light. In case of bankruptcy, the board members are personally liable for the payment of the social security benefits.
  • In case of a dispute with the "freelancer", the freelancer could claim the extended notice periods to apply (and threaten to inform the authorities).

If in doubt, we recommend either hiring the person as an employee or using third-party service providers to comply with local social contributions rules and mitigate risks.

Book a free call here to discuss your case and see how to mitigate risks and take the right decision.













Updated 13 Dec 2024
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