How is bogus self-employment defined?
The term "bogus self-employment" is used when a contractual relationship with a supposedly self-employed contractor actually turns out to be a self-employed contractor. dependent employment turns out to be dependent employment. This is always the case if the specific nature of the actual collaboration fulfils the characteristics of dependent employment when viewed as a whole.
The decisive criterion for differentiating between self-employment and bogus self-employment is the Actual implementation of the cooperation. In order to assess whether self-employment or bogus self-employment exists, the activity must be evaluated in its entirety.
Criteria: Self-employed vs. bogus self-employed
| ✅ Criteria for self-employment | ⚠️ Characteristics of bogus self-employment |
|---|---|
| The Contractor is not bound by instructions to the Client | Complete integration into the client's business organisation |
| The client does not specify fixed working hours | Permanent activity for one client only |
| The contractor is not or hardly integrated into the client's business organisation | Obligation to follow instructions from the client |
| The contractor also works for other clients | Specification of a concrete working time by the client |
| The contractor acts externally as an independent contractor | The Contractor shall wear the Client's work clothing |
| The Contractor shall bear its own entrepreneurial risk | The Contractor shall not appear to the outside world as an independent company |
| The Contractor shall not bear any entrepreneurial risk of its own |
Both lists of criteria should not be regarded as exhaustive - other characteristics may be added. An activity is to be classified as self-employed or bogus self-employed if this is evident from a Overall assessment of the criteria results.
Examination by means of status determination procedure possible
In order to check whether an employment is self-employment or dependent employment, it is possible to draw up a so-called Status determination procedure with the German Federal Pension Insurance Scheme. The social insurance status is clarified in this procedure. If the client or contractor does not agree with the decision made in the status determination procedure, it is possible to lodge an objection against it.
What are the consequences of bogus self-employment?
If it subsequently transpires that the contractor is not a „genuine“ self-employed person, but a bogus self-employed person, then the supposedly self-employed contractor must be recognised as a dependent employee of the client and will be subject to social security contributions. The client is therefore threatened with high back payments in social security. Deliberate non-payment of social security contributions is even illegal under § 266a StGB punishable.
Separate from the classification under social security law, it must be assessed whether a bogus self-employed person can also claim employee rights such as paid holiday, continued payment of wages in the event of illness or protection against dismissal. In case of doubt, the courts must decide on this.
Checklist: How can you avoid bogus self-employment right from the start?
If you use subcontractors or freelancers for certain activities, you should pay attention to this from the outset and organise the collaboration in such a way that it is a „genuine“ self-employment.
Clients should NOT dictate to the contractor:
- Do not set fixed working hours
- Do not assign a permanent workstation in the company
- Do not pay a fixed monthly salary - but remunerate according to his service or work performance
Clients should also NOT oblige contractors to do so:
- That he must follow all instructions of the client
- That he may only work for one client
- That he must carry out his work in the client's company clothing
In general, clients should ensure that the contractor is not integrated into the company organisation like an employee and that he does not act externally like an employee of the client.
Conclusion
If the collaboration with a subcontractor turns out to be a pseudo self-employment, the client cannot invoke the fact that the subcontractor contract stipulates that the work was carried out independently. The decisive factor is whether the actual collaboration as a whole is to be assessed as dependent employment.
Bogus self-employed persons are to be classified as dependent employees for whom the client must pay social security contributions. Under certain circumstances, the bogus self-employed person can even claim further employee rights.
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