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April 1999

Not your business: freelancers beware-new laws are against you

A clarification of new German employment laws.

Are you an employee (Arbeitnehmer) or are you self-employed (selbstständig)? This seems like an easy question. But it’s more difficult to answer than you think. There is a large gray area between the black-and-white categories, which the government wants to narrow. Regular employees have their taxes and social-insurance contributions deducted from their salaries by their employer (Arbeitgeber). They also have various employment rights and obligations relating to sick pay, holiday pay, redundancy, working hours and duties, etc. The self-employed, on the other hand, are responsible for their own taxes and insurances, and organize their work as they please. The gray area concerns people who are treated by firms as being self-employed, but who in effect function as employees in that they are told when to work, and what to do (i.e. they are “weisungsgebunden”). These are the so-called Scheinselbstständige (deceptively self-employed). Firms often favor this arrangement because it is cheaper and allows them to avoid paying their part of the expensive social-insurance contributions (health, pension, unemployment, nursing care and accident insurance). Some of the Scheinselbstständige prefer this practice, as they get more cash in hand. This arrangement, however, has always been legally dubious. What counts in law is not whether you actually have a contract as an employee, but how your work is organized. If you go to work each day for a single “employer,” you would normally be regarded as an employee – with all the legal rights accompanying that status – even if your contract says you are self-employed. A change in the law as of January 1, 1999 aims to tighten this area by delineating strict criteria for the self-employed. If two or more of the following conditions are met, the government will presume that you are not truly self-employed: • You do not employ anyone (other than relatives); • You work regularly and primarily for just one “employer;” • You are obliged to follow the instructions of this “employer” and are integrated into the structure of the firm; • You are not seeking work for your own business. Where two or more of the above apply, the obligation is on you and your employer to prove that you nevertheless really are self-employed (for example, by showing that you are working only temporarily for this one employer). Otherwise, you and your employer will have to pay social-insurance contributions. (For firms, this can be costly as they are liable for four years’ back payments.) Anyone concerned about their work status should contact the company works council (Betriebsrat), a trade union or a lawyer before taking any action, to ensure that you do not endanger your position. Even if you are accepted as being self-employed, you may still be classified as “similar to an employee” (Arbeitnehmerähnliche Selbstständige) if you work mainly for one employer and do not employ anyone yourself. In this case, you will be obligated to pay 19.5 percent of your net earnings to the state pension-insurance scheme (Rentenversicherung). You can, however, apply by June 30, 1999 to be released from this obligation if you were already 50 years old as of January 1, 1999, or if before December 10, 1998 you had a life insurance policy (Lebensversicherung) equivalent to the state pension scheme.

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