Working with self-employed persons: things to consider for cooperation agreements with self-employed persons

For most companies it is a daily part of life to work together with independent service providers, and it is a highly flexible and easy form of cooperation that offers many opportunities to both parties. What this relationship looks like depends on the industry and the form of the cooperation – for example, subcontracting or a partnership on an equal footing. The cooperation agreement with a self-employed person is a very important and also a very useful instrument. It not only clarifies the expectations and agreements, it also incorporates the required safety net. There are a number of things to consider and pitfalls to avoid whenever it comes to a relationship with a self-employed person, and we shall take a look at the most important of these below.

Bogus self-employment
Bogus self-employment is at issue when individuals claim to fall under the social insurance regime while in reality they are performing their professional activities under the authority of their contract partner/client. The border between a relationship with a self-employed person and the status of being subordinate to an employer can be extremely fuzzy, but the consequences in the event of being reclassified by a body such as the National Social Security Office (Rijksdienst voor Sociale Zekerheid or RSZ) can be very great indeed. This makes it essential to pay attention to how the partnership is to be structured and the cooperation agreement composed when such a relationship commences.

The starting point is that the parties are in principle free to choose the nature of their cooperation, which means that the collective intention of the parties and the way in which that is expressed in the agreement are crucial. Nevertheless, in the event of a conflict between the classification the parties awarded to the agreement and how these parties actually work together, the latter shall take precedence. So the agreement could be reclassified if its de facto performance does not correspond to the classification the parties gave their agreement.

The Labour Relations Act of 27 December 2006 provides four general criteria for determining the labour relationship:

  • The intentions of the parties, as expressed in the agreement;
  • Freedom in respect of working hours;
  • Freedom in respect of the organization of work;
  • The ability to exercise hierarchical supervision.

Because the intentions of the parties take precedence within the context of these general criteria, the text of the cooperation agreement is an essential component.

A list was also created for certain industries (construction, security, transport, cleaning, agriculture and landscaping) of nine specific criteria that shall result in the assumption of an employment contract being in place. These specific criteria pertain primarily to the economic independence/dependence of the parties in respect of each other. If a self-employed relationship is reclassified to become an employment contract, there will be serious consequences for the client. The client, who is suddenly an employer, shall be responsible for paying social security contributions – both the employer’s and the employee’s contributions – while there will also be fixed penalty increases of 10% and interest (7% per annum) payable on the social security contributions in arrears, for which the RSZ can claim up to three years back.

The RSZ aside, the employee can also make a range of claims against his or her employer/client, including severance pay, backdated holiday pay, public holiday pay, end-of-year bonuses, minimum wages, etc. Then there could also be administrative or criminal penalties imposed under the Social Criminal Code.

Prohibition on secondment
Secondment is where an employee is temporarily transferred by his or her employer to a third party (a client/user), who uses that employee’s services and has a degree of the authority of an employer over the employee. The transfer of employer’s control over an employee is prohibited. As long as the employer’s control is not transferred, an employee is not considered to be seconded. However, in practice the distinction between whether or not employer’s control has been transferred is not always clear. Certain actions on the part of the third party (the client) are not considered to be the exercising of employer’s control and so are completely permissible. In that sense, all instructions that concern well-being at work are permitted. A third party (the client/user) that uses an independent service provider may always issue instructions to the staff of that independent service provider that deal with the welfare requirements applicable in the company (such as the safety instructions).Technical and operational instructions can also be issued by the third party (the client/user) if they comply with a number of cumulatively strict conditions:

  • There must be a written agreement between the third party (the client/user) and the service provider (the effective employer of the employees concerned);
  • The agreement includes an explicitly detailed overview of the instructions to be issued;
  • These instructions may not undermine the employer’s control nor constitute effective intrusion thereupon, which means that the right to issue instructions cannot exceed that which is necessary for the work or assignment to be properly performed within the context of the contract for services.

It is consequently essential that, prior to entering into a relationship with an independent service provider, you ascertain whether there is a risk of secondment and that in any event a detailed agreement is drafted that sets down all the possible technical and operational instructions that can be issued within the scope of the performance of the cooperation agreement. The principal exceptions to this general prohibition on secondment include temporary agency workers and partnerships between companies that belong to the same economic and financial entity, subject to certain conditions being met. If the authorities determine that prohibited secondment has taken place, the relationship between the employee from the independent service provider and the third party (the client/user) is deemed to be an employment relationship. This automatically gives rise to an employment contract for an indefinite period, over and above the existing employment contract between the employee concerned and the independent service provider (his or her original employer).

This means that both the third party (the client/user) and the independent service provider are jointly and severally liable for paying social security, wages and all remuneration and benefits arising from the employment relationship, including any severance pay. There could also be administrative or criminal penalties imposed under the Social Criminal Code. If a cooperation agreement is concluded with an independent service provider who also employs staff, then it is wise to heed a number of tips:

  • Draft a detailed agreement in which the content of the guidelines and instructions is set down in detail, who can issue these instructions (for example, which positions) and the form in which they shall be issued;
  • Ensure that employer’s control is not undermined. There must be a clear distinction between instructions dealing with issues such as the choice of work materials and the technical performance of the work and matters such as imposing penalties, evaluating an employee, etc;
  • Ensure that the staff of the independent service provider are not included in your internal organisational chart, that they are not listed in the internal telephone directory, and that they do not submit applications for leave in the same manner as your own employees;
  • Provide clear guidelines to your senior staff, so that what happens in practice on the work floor/yard corresponds to what is established in theory and what is stated in the drafted cooperation agreement. 

Welfare legislation
In many cooperation agreements with a self-employed person the legislation concerning welfare at work is often not taken into account. Under this legislation an employer who uses independent service providers (contractors or subcontractors) must ensure that there are health and safety requirements in place for the staff of the independent service provider (a contractor or subcontractor) and that the staff comply with them. The employer/client must in any event exclude independent service providers when he is aware that they are not complying with the requirements in respect of the welfare of their staff while performing their work. The following must be provided for in the cooperation agreement:

  • The independent service provider undertakes to comply with his or her obligations in respect of the welfare of the employees while performing their work that are specific to the company where the staff are working, and to ensure that the subcontractors likewise comply with them;
  • That if the independent service provider does not comply with them or does not do so to a sufficient degree, the employer can take the necessary measures, where applicable if the agreement determines such, at the expense of the independent service provider;
  • That the independent service provider that uses subcontractors for performing the work at the employer’s company undertakes to include the above clauses in agreements with those subcontractors. 

Conclusion
If you enter into a relationship with a self-employed person on the basis of subcontracting or an equal partnership, it is always advisable to thoroughly analyse the relationship before it commences and during its existence, and to set down its principles and details in a cooperation agreement. Aside from the general points for attention set out in this article, there are naturally many other issues that are frequently industry-related, such as the joint and several liability for outstanding social security, tax and wage sums.

But, besides protecting the parties and covering the risks, the cooperation agreement also allows for the anticipation of future disputes by, for example, allowing for the inclusion of measures for prohibiting competition, soliciting clients, protecting IP, determining how the agreed-to remuneration shall be evaluated, how the agreement will be terminated and many other matters.

A brief summary
What should be expected in relation to (national) VAT?
Despite the fact that many of us are still in summer (holiday) mode, this article is going to focus on the VAT changes that we could expect in the not-too-distant future. It will provide a brief summary. For a more in-depth examination, you can always contact our VAT team.  Vouchers (1 January 2019)  In June 2016, Europe set out the VAT process for vouchers (Directive (EU)2016/1065 o
What are the consequences?
Vlabel overruled by the Council of State in the case of split acquisition and registration of bare ownership and usufruct
After years of dispute between taxpayers and the Flemish Tax Office (Vlabel), the Council of State has quashed Vlabel's position on split acquisition and split registration. Here below we explain where the problem lies and what the consequences of the decision of the Council of State are in practice. The problematic situations Two kinds of situations were targeted by the position of Vlabel. Th
Depends on the nature and frequency of the violation
Fine levels set for non-compliance with transfer pricing documentation obligation
From tax year 2017 and, more specifically, the implementation of the mandatory transfer pricing documentation obligation, there was an immediate indication that, from a second violation of non-compliance with the transfer pricing obligations, a fine of between 1,250 EUR and 25,000 EUR (Article 445, §3 Income Tax Code 1992) could be imposed. The scales of the administrative fines and their appl
The FAQ contains no fewer than thirty-one questions
FAQ published regarding the Innovation Income Deduction (IID)
On 26 July 2018, the FPS Finance used Fisconet - you can registrate for free to consult the list of FAQ - to publish the long-awaited list of Frequently Asked Questions (FAQ) regarding the Innovation Income Deduction. Since the law of 9 February 2017, introducing the Innovation Income Deduction, there now follows the first additional comments concerning the legal provisions of Art. 20
Property planning finds itself in turbulent waters
Valuation of a usufruct: in complete (r)evolution?
Much has been said and written in the past few years about the valuation of a usufruct and where the fiscal shoe pinches. An overview of valuation problems, current trends and a look at future property planning is provided below. Valuation of a usufruct Valuation of a usufruct: a changing world Usufruct is one of the oldest property rights known and was already applied in Roman times. Usufr
This difference in treatment needs to be corrected
Benefit in kind on immovable property: tax authority abides by the court ruling (for now)
The Federal Public Service Finance published Circular 2018/C/57 on 15 May 2018 on the flat-rate valuation of the benefit in kind for providing an immovable property or a part of an immovable property free of charge to employees or managers. The flat-rate estimate of these benefits is laid down by the Royal Decree implementing the Income Tax Code 1992 (RD/BITC 92). The Courts of Appeal of Ghent and
The 'use and enjoyment" rules explained
Freight transport and closely associated services: new rules clarified in a circular
On 31 October 2017, (previous) Royal Decree No 57, which deals with the freight transport services Department and related services, was replaced by a new RD which came into force on 23 November 2017. It clarifies the former RD in part while introducing a new rule. In order to clarify and discuss the (new) rules, the tax authorities published an administrative circular in this regard on 31 May 2018
Guidelines
Substantial changes in the obligations for partnerships
The Company Law Reform, published on 27 April 2018, is making a number of changes in the Companies Code and the Code of Economic Law. These new regulations will enter into force on 1 November 2018. A few rules will also change for partnerships. Although some clarifications will still be published, we would already like to provide the following guidelines. Changes in the Companies Code A first
Quickly detect system risks
Without a Legal Entity Identifier your company will not be trading on the stock market in 2018
  As from 3 January 2018, every legal entity that buys or sells financial instruments must have a Legal Entity Identifier or LEI. Legal Entity Identifier A LEI is a 20-digit alpha-numeric code enabling quick identification of legal entities that are active on the (international or local) financial markets. The LEI enables regulators to quickly detect system risks. Registrati
A summary of the main points
Immovable property leases to include VAT
  Although currently there is just a draft bill on this issue, which obviously can be subject to change in the meantime, we would like to summarize the main points of the upcoming revolution in the VAT landscape: immovable property leases may become subject to VAT. History Until recently, immovable property leases have – in principle – been exempt from VAT (section 44, paragr

Subscribe to our newsletter