Independent contractors are a hot topic in Europe, especially in times like these. Independent contractors bring more flexibility to the company but also certain risks, as there are subject to less control on the side of your company. Also, contractors may turn out to be more costly than expected. The important details are in the conditions you offer, these will make the legal and financial difference. In this blog, we will clearly distinguish independent contractors from employees so you will not be held liable for misclassification. After reading this blog, you will be aware of the most important differences between independent contractors and employees.
Whether a person is classified as an independent contractor (IC) or an employee mostly depends on the degree of control (or subordination) they have to you, as an employer. Employees have a much higher degree of subordination in comparison to ICs. In order to make sure independent contractors are not classified as employee you need to make sure that:
- You, the employer, do not offer the same conditions and benefits as to regular employees
- ICs are not paid fixed amounts at regular intervals but have a compensation structure where they get paid for actual performance and against invoices, adding VAT;
- Independent contractors need to pay their own VAT and Social security;
- The contract does not state any holiday entitlement;
- Independent contractors provide their own insurance cover;
- You, the employer, are not in total control
- Independent contractors are not contractually bound to any time, place and content of work but free to determine when, where and how they provide agreed services;
- Independent contractors are free to provide services or work for other clients (therefore one should be careful with non-compete clauses in the contractual agreement);
- Independent contractors are not forced to perform in person, but are free to subcontract or engage the help of others;
- You, as an employer, do not offer or facilitate equipment
- Independent contractors have their own office, email, phone that is not linked or facilitated by you. The same goes for lease cars, laptops etc;
- Independent contractors are responsible for their own training, though you can provide task-specific guidance;
Said briefly, if you as an employer are willing to hire an employee, then you have a higher degree of control over “what, how, where, and when” but also obligations to pay vacation benefits, sick pay, overtime compensation etc. Hiring an independent contractor, on the other hand, frees you from such and the abovementioned responsibilities.
Companies engage in such relationships for the purpose of flexibility, lower costs, reduction of the administrative burden and of course, saving one of the most precious resources – time (e.g., from recruitment/onboarding processes). It might seem too good to be true, but there is a certain risk to hiring independent contractors. The main reason for the risk is that workers who are misclassified as independent contractors work without the legal protections typically provided to employees. In the case of misclassification, this will incur a lot of costs – you will have to pay back taxes, insurance, penalties, etc.
Lastly, it is important to keep in mind, that although these principles serve as a comprehensive framework of differences, every European country comes with its own laws and regulations. This means that there might be additional rules in different countries. In cases of doubt it is better to be safe than sorry and seek advice.
EuroDev, established in 1996 with offices in The Netherlands and France, has a single, defined purpose to help mid-sized North American companies expand their business in Europe. We have created a proven, successful business development model and since our founding, have partnered with over 300 companies to help them define and meet their European business goals. Services provided include Sales Outsourcing, HR Outsourcing and Digital Marketing.