DBA Act enforcement, now what?

Law DBA

The government wants to do everything possible to prevent false self-employment. Bogus self-employment is a situation in which an assignment is performed as an entrepreneur, but is actually a payroll situation. The client is then the employer and the contractor is the employee, with all the fiscal consequences such as VAT position, payroll taxes and self-employed deduction that this entails.

The law DBA (and soon the VBAR, law Assessment of Employment Relationships.) makes the worker and client/employer jointly responsible for agreements on the working relationship.

In fact, there is no wage-earning situation if two of the following conditions are met:

• 1. At least one of the following applies
• • The worker decides how the work is done. There is no relationship of authority between worker and client.
  • The working person can also have someone else do the work.
  • The working person does not receive wages. Wages are, for example, when the working person gets vacation pay. Or if sick pay is continued.
• 2.There is no fictitious employment (no employment contract, but wages, such as cooperating partner, pseudo employee, etc)

Model Agreements

In some situations it is very clear that there is no payroll situation. Sometimes this is less clear. For those less clear situations, the IRS has model agreements. A model agreement is a document approved by the Dutch tax services. It contains agreements that clarify the working relationship between a freelancer and client. If the freelancer works according to a model agreement, there is no employment situation. The worker is then a freelancer performing an assignment. But…note, reality dictates, literally. Even if there is a model agreement stating that the freelancer is self-employed, the actual situation is always leading. For example, if the agreement states that there is no relationship of authority, but in practice the freelancer works under the client’s management and supervision or works together with salaried employees on the same tasks, then there is indeed a relationship of authority. In that case, the worker is actually employed.

Even if the freelancer works through his own private limited company (BV), it must be clear that there is no question of a salaried situation. If the freelancer works in practice as if he were employed by the client, then there is actually salaried employment.

Using a model agreement is not mandatory. Is it wise to use a model agreement? Then first read: Model agreement or not? Follow the step-by-step plan

Model agreements are valid for five years. Check carefully which model agreement is applied and renew if necessary. The approved and most recent model agreements can be found here.

Update 06-09-2024

The Dutch Tax services has decided not to approve any new model agreements and not to extend existing model agreements. Mainly because of the poor operation of these agreements and the often wrongly assumed certainty in advance because practice proved otherwise.

Situation between 2016 and now

Immediately after the introduction of the DBA law in May 2016, a lot of confusion arose. The tax authorities had large backlogs in approving the massively requested model agreements. The market reacted quite violently and the tax authorities decided to impose an enforcement moratorium. This meant no enforcement for the time being, except in cases of malice and exploitation.

The result? Between 2016 and now, almost everyone continued to work the same way, and the number of self-employed workers continued to grow structurally. Especially in sectors such as healthcare, education, security and childcare, however, strong doubts arose as to whether this was the desired development.

Various case law has since developed, including the Supreme Court’s Deliveroo ruling, which once again caused a great deal of controversy. Since 2023, the tax authorities have started to launch enforcement, for which a team of 80 FTE has been deployed to shape and implement this process.

Enforcement of DBA law starting Jan. 01, 2025

The Dutch Tax services recently announced their intention to lift the moratorium and thus start enforcing it. With surcharges and fines in cases where corrections have to be made to the VAT position (OB, turnover tax) and social security contributions (LH, wage tax). In those situations where enforcement shows that there is a payroll situation, this will have tax consequences for both client, intermediary and contractor.

There is pressure from politicians and unions to actually enforce the existing law. This partly stems from concerns about false self-employment, where groups of workers are exploited while they would be entitled to social benefits such as job protection and pension accrual. In addition, trade unions and political parties seek to move temporary contracts, interim work, agency work and self-employed workers more toward permanent contracts, as they believe this would lead to a more stable labor market and a healthier economic climate. Furthermore, trade unions, implementing agencies (such as the UWV and tax authorities) and some political parties point to unfair competition from self-employed workers. Some even see this as an erosion of the social system. However, this is a complex debate, as interest groups within the flex work sector (such as ABU and VZN) claim that freelancer actually contribute more to benefits through income tax than the average employee.

Regardless, the tax authorities are going to enforce the DBA law as of Jan. 1, 2025. Further delay or relaxation of this enforcement does not seem to be on the cards.

Update 06-09-2024:

On September 6, 2024, in response to the roundtable discussion on September 5 and in anticipation of the committee debate on September 12, 2024, the Cabinet announced that it views 2025 as a transitional year. Enforcement will take place immediately from January 01, 2025 and, where applicable, surcharges will also be imposed (no further back than 01-01-2025) but no fines will yet be imposed in 2025. Second, they indicate that they will first enforce with clients.

What will this enforcement look like?

The The Dutch tax services has laid out where and how they are going to handle this in a roadmap and three memos. It can be read here.

In summary, most ambiguity lies with the criteria “relationship of authority” and “embedding in the organization” (a newly proposed criterion in the VBAR). The line between giving directions and instructions (which is allowed) and actual management & supervision, remains vague. According to the tax authorities, as discussed during a roundtable discussion with the Lower House on the DBA Act, it is clear that freelancing is essential in professions such as healthcare, security and education is not possible or desirable under the entrepreneurial criteria of the DBA Act. Moreover, there is still a lot of false self-employment and exploitation in executive positions in the market. It is likely that this will be the primary focus of enforcement.

Impact on the (IT hiring) market

For clients seeking temporary staff for IT projects, it is also currently often a gray area as to whether there is a relationship of authority. Some freelancer work side by side with the client’s salaried colleagues, performing the same work but often at different rates of pay. Because the tax consequences of a relationship of authority are still unclear, many end clients and principals choose the safe route. They apply the strictest interpretation of the criteria and decide not to allow any more freelancer in IT projects. This has already led to a noticeable decrease in the demand for temporary IT personnel.

Can I still work in IT as a freelancer?

That is certainly possible. In theory. You are an entrepreneur, subject to VAT, registered with the Chamber of Commerce, carrying out several assignments (simultaneously or consecutively), bringing in specialist knowledge as an external. You work independently on projects with a focus on achieving goals and delivering agreed results. In practice, however, the direction lies with the clients. If they decide to stop using freelancers for projects and assignments, that is a fact you have to deal with. The question is whether the market will change because of a shortage of qualified personnel, or whether self-employed workers will drop out en masse because there are simply no more assignments available. Who has the longest breath will become clear in the coming months.

Can I still hire a freelancer in an IT project or assignment?

This is certainly possible. If you need specific knowledge that is not present in your organization, if the work itself is not defined to the letter but the goals and delivery criteria are, and if the worker himself provides input as to how he will approach the IT problem or project, it is DBA-compliant. When in doubt, the advice is to turn a job profile into an assignment description, with periodic goals as picket lines against which you can test the work delivered. Especially in those situations where the organization needs specialized knowledge, a freelancer can work independently to contribute his or her expertise and find, build, design or implement solutions to arrive at a delivered end product. The part-time employment of freelancers also makes it easier for them to carry out multiple assignments at the same time with different clients, further enhancing their independence.

Emotion vs. market demand

Now we hear many freelancers in IT say, “This suits me, the freedom, the changing projects, I am an entrepreneur.” Yes, that may be true. But what if, under pressure of legislation and enforcement, combined with the uncertain interpretation of the law, clients choose to have interim work performed by the flex-market solutions guaranteed to be DBA-compliant, such as temping, payroll, secondment? If so, that’s a reality you have to deal with as an independent IT professional. The question then becomes: am I going to wait and see for the time being and draw on my reserves, or am I going to take my chances and find a solution in the form of salaried employment?

Solutions

Basically, we as OptimaData do not need to find solutions to still be able to continue to hire and deploy zzp’ers in IT projects and interim assignments. According to our review, the freelancers we employ meet all the criteria. In short, we are not afraid of enforcement. At the same time, however, we do notice that more and more clients are choosing not to allow freelancers for certain assignments, and we will have to act on that.

Services pallet

In those situations where the end customer explicitly does not want to hire a freelancer, there are a number of solutions possible with OptimaData where you as a freelancer can still perform an assignment and be DBA-compliant at the same time.

• Secondment
  • An employment contract at OptimaData Interim with complete benefits package
• Freelancer-Secondment
  • Opting-IN (fictitious employment, DGA pay, own account and risk)
  • Tax mix (combination of OB, LH and use of entrepreneur deduction)
• DUBV
  • Billable hours BV (with Uniforce)

Feel free to ask about the possibilities and details. We are happy to think with you and can advise you objectively.

Future

We believe that the current turmoil and focus is too much on the enforcement of the DBA law (and soon the new VBAR law). However, that is not what the issue is essentially about. The underlying question is how we view labor relations in the Netherlands. Obviously, situations where people are being exploited or abused must be looked at carefully. At the same time, there is a clear trend where people want more freedom: deciding for themselves where, how and when they work. The question then is: when is an employment contract more appropriate and when do you work on your own account and at your own risk? Compulsory disability insurance (AOV) and the balance between freedom and protection are also important issues. In addition, the skew between net income from wages and entrepreneurship plays a major role. Where is the line between personal responsibility, provisions, security and freedom? That is what the discussion should be about. Clearly, this movement is now underway. The stone has been thrown into the water, and the ripples it causes will remain visible for some time to come.

Interesting tools and links

Below are some tools that can be helpful in considering the employment relationship:

Entrepreneur Check

Web module

VBAR law

freelancer dossier Zipconomy

International perspective on Freelancing