New Law Clarifies Distinction between Sole Traders and Employees

A new version has been published of the proposal for the Assessment of Employment Relationships and Legal Presumption Clarification Act. This act should make it easier to assess whether a person can be hired as a sole trader, and is part of a broader package of government measures aimed at the prevention of false self-employment. Last year, the government already published a draft version of this act for internet consultation. This draft version was met with considerable criticism. The government has made several adjustments, and the adjusted version has now been presented to the Council of State for advice. Below we will discuss the most important elements of the bill.

The bill introduces a legal presumption based on hourly rate. If a person works for an hourly rate of € 33 or less, an employment agreement is presumed to exist. In that case, it is up to the employer to prove that there is no employment agreement. The said rate will be adjusted periodically.

In order for an employment agreement to exist, there has to be a relationship of authority between the employer and the employee. Authority is the criterion that distinguishes an employee from a sole trader. The bill provides for a clarification of this criterion. Authority exists if the work is performed under the work-related or organisational control of the employer (the main element ‘W’ for work) and the employee is not working for his own account and risk (the main element ‘Z’ for zelfstandige, self-employed)), or is working for his own account and risk to a lesser degree than under the control of the employer. If the two elements balance each other out, a third criterion will be decisive: the entrepreneurship of the worker concerned (the main element ‘OP’ for ondernemerschap (entrepreneurship)). According to the explanatory memorandum, the last-mentioned situation will only exist ‘in a relatively limited number of cases’. The review framework is clarified in the diagram below.

In a decision still to be taken, the Minister of Social Affairs and Employment will include more detailed indications for these main elements. The explanatory memorandum to the bill already mentions these indications.

The following five indications suggest that a person is working under work-related or organisational control:

1. The employer has the power to give orders and instructions on how the worker should perform the work, and the worker has to follow these.
2. The employer is able to monitor the worker’s work, and has the power to intervene in this work on that basis.
3. The work is performed within the organisational structure of the employer’s organisation.
4. The work is of a structural nature within the organisation.
5. The work is performed side by side with employees who perform similar tasks.

In addition, the following five indications are mentioned that suggest that a person is working for his own account and risk (within the working relationship):

1. The worker bears the financial risks and enjoys the results of the work.
2. In performing the work, the worker is personally responsible for tools, appliances and materials.
3. The worker has specific education, work experience, knowledge or skills that are not structurally present within the employer’s organisation.
4. The worker presents himself as an independent person to the outside world during the work.
5. The assignment is short in duration and/or for a limited number of hours per week.

Only when the elements of ‘control by the employer’ and ‘working for own account and risk’ are present in equal measure, indications that suggest entrepreneurship of the worker beyond the working relationship (for similar tasks) will be involved in the qualification:

• The worker has several clients per year;
• The worker spends time and/or money on building a reputation and finding new customers or clients;
• The worker has corporate investments of some size;
• The worker's accounts show that he acts as a sole trader.

It appears from the Coalition Agreement that the present cabinet intends to proceed with the debating of the bill. After the Council of State has presented its advice, the bill can go to the Lower House of Parliament. If both the Senate and the Lower House agree to the new law, these rules will enter into effect on 1 January 2026 at the earliest.

It is important to mention here that the Tax Administration is currently not actively enforcing the law on false self-employment, but that this enforcement suspension will expire on 1 January 2025. As the enforcement suspension is going to end, organisations should not sit back and wait for the new law, but take a critical look at their current contracts already this year.

The introduction of a legal presumption of an employment contract on the basis of the hourly rate may have far-reaching consequences in sectors where the remunerations of sole traders are relatively low. On the other hand, the consequences of the intended clarification of the statutory criterion of authority are expected to be smaller. The purpose of the bill is to summarize and to structure existing rules and case law (such as the Deliveroo judgment) in order to create a workable review framework. In other words: the law has to reflect the current practice of assessing whether an employment agreement exists. However, there are differences cowmpared to this current practice. In their future reviews, the courts will have to base themselves on indications set by the legislator in advance. They can only consider other indications in exceptional cases. This will restrict the freedom of the courts. In addition, the aspect of ‘the person’s entrepreneurship’ will only come up for consideration if the two main elements are in balance. An employment agreement may therefore be deemed to exist sooner than in the present situation.

Would you like to know whether a worker should be designated as an employee or a sole trader? Or what you can do to limit the associated risks? Please feel free to contact us.