Legislation & politics

On June 15, 2020, the Minister of Social Affairs and Employment and the State Secretary of Finance - Taxation and Fiscal Service -, also on behalf of the State Secretary of Economic Affairs and Climate, informed the House of Representatives about the current state of affairs and follow-up steps regarding the measures envisaged in the coalition agreement in the field of "self-employment.

The minimum rate and self-employment statement are not further elaborated upon

In the progress letter, the relevant ministers announce that the cabinet has decided not to proceed with the draft legal texts for the minimum rate and the self-employed declaration. The elaboration of these draft legal texts appears to be a complex task. The various (implementation) tests, discussions with the field and responses to the Internet consultation have revealed a considerable number of bottlenecks. In addition, the Committee on Regulation of Work is also critical of the proposals. The chosen measures involve a large administrative burden, create a lot of ambiguity, lack support and are difficult to implement and enforce for the implementing and controlling authorities.

The cabinet further announces that it will enter into discussions with social partners and other parties to lay down agreements for the self-employed. In addition, the Cabinet wants to strengthen the labor market position of platform employees. Therefore, it is being examined whether the regulations for triangular relationships, such as intermediaries and employment agencies, can also be declared applicable to platforms. Finally, the Cabinet is working on a broader labor market agenda. This stems from the advice of the Committee on Employment Regulation.

Web module starts as a pilot

The web module is not yet ready, but the Cabinet aims to start the web module as a pilot this fall. With the web module, the Cabinet is developing a tool to give clients clarity on the fiscal, labor law and social insurance qualification of the employment relationship. The web module will provide three possible outcomes (client declaration, indication of employment, no judgment). These outcomes do not yet have legal status. In this pilot phase, clients cannot derive any certainty from the outcome. The web module only functions as an information tool to obtain clarity about the employment relationship.

After the pilot phase, a decision will be made about the further consequence of the web module. The Cabinet does aim to attach legal consequences to the client declaration when the web module is eventually introduced, so that a client can derive certainty from it. After the summer recess, the Cabinet will inform the House of Representatives about the further timetable and the start of the pilot.

Supervision of labor relations

The corona crisis has implications for the deployment of inspections, supervision by the Tax and Customs Administration and the method of inspection by the Inspectorate SZW. In any case, the enforcement moratorium has been extended until January 1, 2021. During this moratorium, the Tax and Customs Administration enforces if a client turns out to be malicious or if clients do not adjust their working methods within a reasonable period (usually up to 3 months) following instructions from the Tax and Customs Administration.

Furthermore, after the summer recess, the Palland motion calling for a six-monthly report on the implementation of the supervision of labor relations will be implemented. In the fall, the Cabinet will make a decision on further extensions of the moratorium.

Following two progress letters in 2018, Minister Koolmees again informed the House of Representatives June 24, 2019 about the progress around the replacement of the DBA Act. We summarize the most important developments for you.

Bottom of the market
For the bottom of the market, there will be a minimum rate of €16 for self-employed workers. This is an alternative to the mandatory employment contract for self-employed workers at the bottom of the labor market, which was found to be in conflict with European legislation. With this, the government achieves the same goal: preventing self-employed workers from being hired at too low a rate.

Upper end of the market
For the upper end of the market, there will be a self-employed person's declaration (until now called the opt-out), which will not only provide certainty in advance about payroll taxes and employee insurance, but also as far as possible about labor law consequences (e.g., continued payment of wages during illness), pension obligations, and collective bargaining provisions. This is a further implementation of the agreement in the coalition agreement on the opt-out.

The following conditions apply to use of the self-employment statement:
1. The assignment contract must state that the parties intend not to enter into an employment contract;
2. The contractor must be registered with the Chamber of Commerce;
3. The client and the contractor both sign the declaration of self-employment;
4. The labor remuneration is at least €75 per hour;
5. The agreement is entered into for a maximum of one year.

*** Assignment period of up to one year ***
The Cabinet considers it desirable to include the criterion of a maximum of one year, a period previously cited in the coalition agreement (2017), in order to prevent the self-employment declaration from being used by self-employed persons who perform work for a longer period of time.

Should the work last longer than a year, the declaration of self-employment will no longer apply to the period after that year. This does not mean that clients cannot hire self-employed workers for longer than one year, but in practice it will mean that clients seeking certainty will have to use the web module to request an opinion on a working relationship.

Web module and client declaration
The government is working on a web module, which, on the basis of the answers to a number of questions, can establish in advance that there is no employment relationship. In that case, the web module provides a so-called employer's declaration. This declaration gives the client advance certainty that no payroll tax needs to be withheld and remitted and no employee insurance premiums and income-related healthcare insurance contributions need to be paid. With the term "certainty in advance" comes a comment, which is described in the letter as follows: "The principal's declaration is valid insofar as the web module has been filled out truthfully and is used accordingly in practice." Enforcement on the latter will come when the legislation is finally in place.

*** Weighting of factors ***
The web module will be designed on the basis of legislation, practical cases and case law in the context of the qualification of the employment relationship. In order to keep the administrative burden low, the possibility of reducing the questionnaire as much as possible is being examined.

The University of Amsterdam has developed a legal database that provides insight into case law in the fields of labor law, taxation and social security from approximately the last ten years with respect to the classification of an employment relationship. The analysis of this database is used to arrive at a weighting of the individual questions: which element weighs(s) heavily in the qualification of the employment relationship.

Meanwhile, an (extensive) questionnaire has been distributed to 50,000 clients with a request to complete the questionnaire. On the basis of data analysis, it is being considered whether an algorithm can be developed that, through smart routing with as few questions as possible, arrives at a correct outcome.

The web module will be tested during the summer. After the summer, the House of Representatives will be informed about the results of this test phase.

*** Criterion 'regular business activity' to be dropped ***
Contrary to the coalition agreement, the cabinet proposes to drop the criterion 'regular business activity'. There is much resistance to this criterion among self-employed workers and clients. In particular, the fact that it is a new criterion that has not yet been fleshed out by case law, and that its meaning will continue to change over the years, raises the concern that it will generate a lot of discussion. This would thereby lead to more uncertainty and less clarity, which is undesirable for the Cabinet.

Another delay, enforcement moratorium extended
The Cabinet is currently working on legislation. The aim is to put this legislation out for Internet consultation in the third quarter of 2019. The legislation is scheduled to come into force in 2021, which was previously scheduled for January 1, 2020. In line with this, the enforcement moratorium has also been extended until at least January 1, 2021.

*** Enforcement on malicious intent difficult ***
During the enforcement moratorium, the Inland Revenue enforces malicious intent. In practice, however, it turns out to be very difficult to meet the heavy burden of proof for malice. Therefore, the possibilities for enforcement during the moratorium will be tightened: as of January 1, 2020, the Tax and Customs Administration will also be able to enforce when principals do not (or do not sufficiently) follow instructions from the Tax and Customs Administration - which it gives when it takes the position that the qualification of the employment relationship for payroll taxes is not in accordance with current legislation - within a reasonable period of time.

More information
Want to know everything about (the replacement of) the DBA Act? On this website you will always find the latest news. Also download the free white paper, where we have put together all the important information for you.

We are also here to advise and assist you. Want to speak with a HeadFirst advisor? Send an email to info@headfirst.nl or call 023-5685630.

After the start of the company visits in 2018, the Tax and Customs Administration has now visited 104 companies from different industries and checked for compliance with the DBA Act. On March 5, 2019, State Secretary of Finance Menno Snel shared his findings with the House of Representatives through a letter.

This shows that 45 companies have "sufficient knowledge and experience with the current zzp legislation (is) and the law is being applied correctly. In total, 59 organizations appear to be 'acting incorrectly to a greater or lesser extent' according to the Tax Office. A follow-up investigation is underway at 12 of these, because the inspectors suspect them of knowingly hiring self-employed workers through a sham construction. The big question now is: in which of these companies can the tax authorities prove that they are malicious?

Guidelines Handbook Payroll Taxes are confusing
The reason that 6 in 10 companies' actions regarding external hiring are questioned, according to the Tax Office, has to do with the following:

* There are indications of the presence of a relationship of authority, while according to the agreement used there would be no relationship of authority.
* Zzp'ers perform the same work and in the same way as own employees.
* There are core activities, the work involves an essential part of the business, which may be an indication of employment.
* No substitution of the self-employed person is possible or desirable, and there also appears to be authority.
* The self-employed person has no ability to independently schedule his work.
* The duration of the employment relationship is so long that the freelancer's work seems to be embedded in the organization.
* There seems to be fictitious employment.
* Work is not done in accordance with the model agreement.

The study thus puts into action the fact that the directive on assessing the employer-employee relationship is maintained as "valid policy. Indeed, all the elements mentioned above are part of it. The guideline was incorporated into the Tax Office's 'Payroll Tax Handbook' in December 2018. Hannah Dias, manager tax advice at BDO: "Uncertainty about the qualification of an employment relationship, which has not been completely removed even with the guideline assessing the relationship of authority, causes companies to be reluctant to hire self-employed workers. With all its consequences for zzp'ers, clients and thus the Dutch economy."

Multi-interpretable indicators is now market problem
Snel's report on the company visits comes on top of the directive assessing the employer-employee relationship. In an earlier post on employer-employee relations, Dias already stressed that the various factors named in the directive must always be considered in relation to each other and therefore leave room for interpretation. "It is not always clear what weight and relevance is attributed to each element and how these elements should be assessed in their interrelationship. In addition, some elements of the guideline are so ambiguous that it is difficult for practitioners to understand them and apply them correctly in their own specific situation. The actual situation is important here. Is it sufficiently clear what the assignment entails and under what circumstances it will be performed? And what value is placed on these various facts and circumstances?"

Malicious: yes or no?
The Tax and Customs Administration uses the results of the company visits as input for the supervisory and enforcement strategy to be developed. The aforementioned 59 organizations that are (potentially) acting improperly will be involved in this. "For them, partly on the basis of the Directive, the Tax and Customs Administration can take the position that there is a malicious situation. Once one of them is actually labeled as malicious, it is not the end of the story. In fact, a business can object to any additional tax assessment imposed, first to the Tax Office and, at a subsequent stage, to the courts. Both bodies will reassess the situation based on all the relevant facts and circumstances presented."

The long-running story called 'Wet DBA', got another new chapter in December 2018: the assessment of a relationship of authority. After the Cabinet sent the guideline to the House of Representatives in late November 2018, this memorandum was incorporated into the Tax and Customs Administration's 'Payroll Tax Handbook' on December 12, 2018. This gave it the status of "applicable policy. There is currently unease in the flexible labor market about how this proposal became policy without the intervention of the House of Representatives.

Hannah Dias, manager of tax advice at BDO, is surprised at these noises. "The policy is based in part on various rulings by judges who have addressed the issue of whether or not an employment relationship exists. It is a summary of already existing legislation and case law. In that respect, it is therefore not surprising that the House of Representatives is not familiar with it." She considers it a greater risk that the prevailing policy may cause a Principal to be classified as malicious more quickly. "This can be detrimental to organizations, as malicious parties may also be subject to retrospective taxation for the past. Since the publication, Principals can hide more difficult behind 'I didn't know,' because everyone can read in black and white what the Inland Revenue considers a relationship of authority."

Noise at 40 indicators
The cabinet promised to come up with a clarification of the definition by January 1, 2019. It succeeded in doing so through the previously described "directive on assessing the employer-employee relationship," but this has not provided the clarity the market craves. "For example, it is frustrating for organizations that the various factors indicating whether or not there is a relationship of authority must always be considered in relation to each other. That leaves room for interpretation," Dias said. She gives the following examples in this regard:

• Assessment using more than forty indicators is complex. Moreover, it is not immediately clear what weight and relevance is assigned to each element and how these elements should be assessed in relation to each other.
• Some elements of the directive are so ambiguous that only judges and other labor law specialists can understand and apply them correctly. Their role is important here. Do they ask questions properly? What (new) facts are ascertained? And what value is placed on facts? Because these are customized cases, a uniform outcome is not guaranteed.

Organizations create policies
Dias emphasizes that the best way for organizations to deal with this is to (re)establish a hiring policy. Some organizations take this further than others, based on different interpretations of signals reflected in public policy. "It is about organizations showing - in good faith - that the hiring process is well thought out and trying to implement laws and regulations in this process as well as possible. You do this on the one hand by identifying risks and securing them, on the other hand by minimizing the extent of risks as much as possible and, for substantiation, recording everything in a file." According to Dias, a review of paper and practice is the starting point here. "Stay in control, through a good policy on the one hand and a corresponding implementation in practice on the other," Dias said.

Working DBA-proof
Dias understands that this is not always easy and therefore recommends seeking help from a consultant. "Organizations are increasingly knocking on the door for an analysis and advice on the hiring policy. I guide, together with HeadFirst, trajectories to ask, for example, questions such as 'For which functions do I hire external workers?', 'When can an external worker perform an assignment as a zzp'er?' and 'Is it a matter of temporary replacement or is it a defined project with an agreed result?' central." She continues: "HeadFirst, together with the Client, has a signaling function to assess and ensure that an assignment - before and during execution - is suitable for an Independent Professional. In cases of doubt, HeadFirst keeps a close eye on the situation and we think along in detail about a better interpretation. It is important that clients are open about all relevant facts and circumstances. Of course Independent Professionals are also tested to make sure that they are characterized as real entrepreneurs."

In July 2018, the Cabinet announced the company visits of at least 100 Principals. In the second progress letter in November, they informed that they have made the selection of Principals and have already conducted the majority of the company visits. Further details of enforcement will not be known until later. Until there is a full-fledged successful replacement for the DBA Act, we anticipate that large risk-averse Principals will be looking for certainty.

Traffic light model
HeadFirst offers solutions to this: by using its own agreement, approved by the Belastingdienst, combined with a set of measures and controls at ourselves and Clients. Part of this is the DBA Scorecard. A tooling that determines whether an independent professional can be hired for an assignment or whether there is a relationship of authority, which makes this not wise under the current DBA Act. This is tested on the basis of 20 questions in which the traffic light model is central:

• Green > hiring is possible because there is clearly no relationship of authority.
• Orange > hiring is possible, but there are indications of a relationship of authority. Monitoring of the actual situation is thus necessary.
• Red > hiring not possible, as there is clearly a relationship of authority. HeadFirst can offer alternatives in this case, such as a payroll construction or adjust the circumstances of the role - where possible.

Optimal DBA compliance
Mediq, one of the largest providers of healthcare solutions in the world, was the first client to embrace the DBA Scorecard, thus relieving them of the risk-free hiring of external professionals. After Mediq engaged HeadFirst to guide it in the process to optimal Wet DBA compliance, the traffic light model was also applied to them. During the HeadFirst Insights Event "Risk Joy" on October 30, 2018, this client case was explained based on results it has given them:

• Complete control over the hiring of Independent Professionals.
• Awareness among Principals (HR and hiring managers): what roles can be performed by an Independent.
• Awareness among self-employed: focus on being an entrepreneur, avoid the appearance of a relationship of authority with the Principal.
• The hiring of Independent Professionals conforms to the current frameworks of the legislation and the organization thus demonstrates that it is not a malicious Principal.

"HeadFirst has found a good form of risk hedging with us in partnership. We are very satisfied with that."
Govert Laninga, Manager HR Services Mediq

Want to know more about our DBA Scorecard? Request a consultation at info@headfirst.nl.

In early 2018, Minister Koolmees extended the suspension of enforcement on the DBA Act until 2020. That postponement still does not appear to be sufficient. He announced this on Monday, November 26, through a second progress letter to the House of Representatives. Koolmees suspects a delay of one more year, pushing back the revised DBA Act to January 2021.

'Bottom of the market' solutions at odds with EU law
Koolmees held talks with the European Commission earlier this year, from which he concluded that the measures to protect low rate workers may be at odds with EU law. In the letter, he wrote, "in particular, the conversion of the contract of assignment of the self-employed covered by the Low Rate Employment Contract (ALT) into an employment contract creates tension, as this is likely to infringe on the freedom of establishment (Art. 49) and the freedom to provide services (Art. 56) of self-employed workers in the EU Treaty on the Functioning of the European Union (TFEU)." Therefore, in addition to further elaborating on the measures, the Cabinet is also focusing on exploring "alternative routes.

The measures for "the bottom of the labor market" will be further elaborated and turned into legislation in the coming period. "The aim is to put these out for Internet consultation in the first half of 2019." In the spring, the Cabinet will inform the House of Representatives about this.

Opt-out for 'top of the market'
The measure for "the top of the labor market," the so-called opt-out, is included in the same Internet consultation. "In the letter of June 22 last, it was indicated that the Cabinet will examine the way in which the group of self-employed entrepreneurs will be delineated for whom the opt-out applies and that the further elaboration will also look at the consequences for employee insurance rights." No new information is added in the second progress letter.

'Authority' criterion on track
Koolmees did take steps in other areas, including the 'authority' criterion. As previously agreed in the coalition agreement, the criteria for a relationship of authority will be clarified. To this end, a number of scientists have been asked to write a position paper, which again shows that clarifying authority is no easy task. "However, by working with indications for authority, contraindications for authority and examples, it is possible to clarify the authority criterion. This clarification of the authority criterion will be included in the Tax and Customs Administration's Payroll Tax Handbook." This should give clients guidance on how to self-assess whether an employment relationship exists.

Research into operation of web module continues
According to the progress letter, the elaboration of the web module is also on schedule. It is expected to be ready by the end of 2019. However, the letter also reveals that the Cabinet is still investigating whether the proposed web module 1) is feasible and enforceable, 2) offers certainty to entrepreneurs and their principals, and 3) does not involve an unnecessary administrative burden. Koolmees describes the current state of affairs as follows: "A questionnaire has been developed that asks as many relevant questions as possible for the assessment of the employment relationship. [...] The coming months will be used to elaborate this extensive questionnaire into a manageable decision tree, in order to see whether a well-considered judgment can be reached with this even within the aforementioned balance." Based on this, the actual arrival of the web module still seems all but uncertain.

Tax authorities energetic with company visits
On July 1, 2018, the Tax and Customs Administration published the Labor Relations Supervision Plan, which announced the company visits of at least 100 principals. The Cabinet informs that the selection of principals has already been made and the majority of the company visits have been carried out. However, Koolmees is not releasing much about this yet. "No conclusions can yet be drawn from the first feedback on the visits." More will also not be known about the further details of enforcement until later. "The moment the elaboration of the measures is more advanced and there is insight into whether and how an optimum between the preconditions has been found with the web module, you will be informed about the phasing out of the enforcement moratorium."

Friday, June 22, Minister Koolmees of Social Affairs and Employment informed the House of Representatives through a letter, titled "detailing measures for self-employment", about the progress of the replacement of the DBA Act. HeadFirst outlines the main points for you.

No easy task
In recent months, the cabinet has been busy working out the measures to replace the DBA Act, which you can read more about in our white paper. "The cabinet has made steps forward in this, but also still has work to do," Minister Koolmees reported in his letter. "Making new legislation around zzp is no easy task. That was clear when the DBA Act was introduced, when the coalition agreement was drawn up and it is also apparent now. But new laws and regulations are needed unabated."

Follow-up Actions
The Cabinet is taking several follow-up actions in the coming months:

The measures for "the top and bottom of the labor market" are being further developed. "However, several bottlenecks have been identified in this process which are being addressed. In the fall, the Cabinet will come up with a further proposal."

An external study is currently being conducted on rates, rate structure and characteristics of self-employed workers and their assignments. "The results of this research will be used to arrive at a demarcation of the groups covered by the low-rate employment contract and the opt-out. Effects of such demarcation on the labor market will also be identified."

- The Cabinet will enter into talks with the European Commission on the protection of low-rate workers. "Knowing that this issue plays out in more countries".
- The Cabinet is examining in what way demarcation of the group of contractors "at the top of the market" - to whom the opt-out will apply - is necessary. "After all, if it is already established for the client and contractor that the contractor performs the work as a self-employed person, then an opt-out is not necessary."
- The Cabinet will examine whether the proposed web module is 1) feasible and enforceable, 2) provides certainty to entrepreneurs and their principals, and 3) does not impose an unnecessary administrative burden.
- On Sept. 3, 2018, the Cabinet will organize a follow-up to the kick-off meeting with field parties on Jan. 24, 2018, in which it will again discuss how to develop the measures in the best possible way.
- "The emergence of new forms of working relationships between client/employer and contractor/employee raises fundamental questions about the labor market, labor law and social security. In order to be prepared for the future, an independent commission will be set up to investigate these issues, including the possibility of introducing an enterprise contract and revising the definition of the temporary employment contract."

Important dates
Some dates that were already known remain:

- Enforcement on the DBA Act will remain suspended until at least January 1, 2020, with the exception of malicious parties.
- From July 1, 2018, enforcement will no longer be limited to the most serious cases of malice, but will be broadened to all malicious persons. More on this below.
- By January 1, 2019 at the latest, the Cabinet will have clarified the criterion of "authority.

Enforcement: 100 principals to be visited
On July 1, 2018, the Tax and Customs Administration will publish a plan that fleshes out the supervision of labor relations from this date. The details are already known in outline. For example, the Tax and Customs Administration will plan company visits with principals, during which it will discuss their working methods with contractors. "The Tax Authority will select at least 100 principals to visit. This selection includes both principals who have submitted a model agreement, which may or may not have been approved, and principals who have not yet been in the picture of the Tax Authority in this context. From each category, a number of clients are selected that the Tax Office will visit. The selection is made in such a way that various industries and sectors are visited. (...) The focus is on those principals who have not yet been in the picture (ed., this seems to mean 'principals who have not submitted a model agreement to the Tax Office for approval') or who are not working with an approved (model) agreement."

"Depending on what the Inland Revenue determines in its discussions with - and visits to - clients, the supervision plan will be adjusted in the interim. This may mean, for example, that other or different types of clients are selected. Supervision takes place where there are the greatest risks of false self-employment. (...) If, during its supervision, the Tax and Customs Administration suspects (fictitious) employment and malicious intent, it will launch a further investigation. (...) The plan is to have the visits completed by the end of 2018."

Are you curious about Minister Koolmees' complete letter? Download it here.

The suspension of enforcement on the Deregulation Assessment of Labor Relations Act (DBA) has been extended until January 1, 2020. This writes Minister Koolmees of Social Affairs and Employment and State Secretary Snel of Finance in a letter to the Lower House. Enforcement on "malicious parties," principals who knowingly violate rules, will remain in place and will even be expanded. The letter also makes clear that there is no prospect of an interim solution for specific groups of self-employed, such as the opt-out scheme for Independent Professionals with rates above €75 per hour.

Enforcement on malicious principals broadened
As of July 1, 2018, enforcement will no longer be limited to the most serious cases of maliciousness, but may also be applied to other malicious principals. These are principals "who intentionally allow a situation of evident false self-employment to arise or continue". Specifically, this means that the Internal Revenue Service can enforce if it can prove all three of the following criteria:

1. There is a (fictitious) employment relationship.
2. There is evident false self-employment.
3. There is deliberate false self-employment.

In such cases, an unfair advantage is often gained and/or the playing field is unfairly affected.

Planning: more information before summer recess
Whether there is fictitious employment depends heavily on whether there is a relationship of authority. In its letter, the Cabinet has indicated that it will come up with clarification of the definition 'employer-employee relationship' before January 1, 2019, as this is the core of much ambiguity surrounding the DBA Act. This has been urged by MPs Van Weyenberg (D66) and Wiersma (VVD), the latter of whom was recently a guest on our radio program HoofdZaken.

Before the summer recess, the Cabinet will send an "outline letter" to the House of Representatives, explaining in more detail how the various measures will be worked out. The aim is then to come up with a bill still in 2018, so that its parliamentary consideration can be started in the first half of 2019. The aim is to have the specific measures, intended for 'the bottom and the top of the labor market', as well as the client declaration (web module) enter into force on January 1, 2020.

No faster solution for top end
There was talk of faster introduction of measures for the top and bottom of the market, but these are not coming. "We are working on one package of measures that we are going to introduce at the same time. We are not going to introduce measures like the minimum rate or the opt-out for the top before then," Social Affairs and Employment Minister Koolmees told ZiPconomy. State Secretary of Finance Menno Snel added: "I don't have the impression that the biggest problems are now at the top end of the market. That group doesn't have much to worry about now either, so we don't really see the need to accelerate there separately either."

As for the situation until 2020, Minister Koolmees stated, "For the market, the message is clear: working with self-employed people is possible! Provided you are not malicious."