On 16 December 2022, the Minister of Social Affairs and Employment sent the Lower House of Parliament a long letter, in which measures were announced for working as a sole trader or with sole traders. The deployment of sole traders has grown rapidly over the past years. Besides positive effects, this growth also has disadvantages. For example, the rising number of sole trader contracts puts solidarity within the social and tax system under pressure. In addition, ever more workers have started as sole traders who should, according to regulations, in fact be working under an employment agreement (this is known as “pseudo self-employment”). The government wants to counteract these disadvantages and has announced measures in a three-pronged approach:
- A more level playing field will be created between sole traders and employees;
- The statutory rules for the qualification of the employment agreement will be clarified;
- The law will be enforced in the fight against pseudo self-employment.
These measures are part of a broader package of measures announced, inspired by the recommendations of the Regulation of Work Committee, also known as the Borstlap Committee. Below, we will explain the measures announced in more detail.
A more level playing field
The government wants to take several tax measures in order to diminish the difference between sole traders and employees. For example, the sole trader’s deduction will be lowered step by step from €6,310 in 2022 to €900 in 2027. Besides, the tax-deferred retirement reserve – an arrangement allowing sole traders to put money away for their old age in a tax-friendly way – will be abolished. Simultaneously with the tax measures, the introduction of a mandatory disability insurance for sole traders will be examined. In addition, under certain circumstances sole traders will be given the option to engage in collective negotiations without being subject to the European cartel ban. Finally, sole traders will get a seat in the Dutch Social and Economic Council (“SER”).
Clarity as to whether an employment agreement exists
Secondly, the government wants to make it clear when an employment agreement exists. It wants to achieve this in three ways:
- The rules for the qualification of the employment agreement will be clarified in law;
- Authority is the most distinctive criterion for the qualification of an employment agreement. Originally, this criterion placed the emphasis on giving instructions and supervising performance. The government now wants to attach more weight to two criteria: whether the work is organizationally embedded in the enterprise of the employer, and whether the worker is a sole trader. Therefore, these two criteria will expressly be included in the law.
- A new legal presumption will be introduced;
- If a sole trader earns an hourly rate that lies below a certain amount of money, it will be assumed that this sole trader is working as an employee. The employer will then be required to prove that the elements for the existence of an employment agreement have not been met. The threshold amount is still to be determined. Previously, the SER mentioned an hourly rate of 30-35 Euros.
- The web module for the assessment of employment relations will be elaborated. This web module gives an indication of the existence of an employment agreement or a sole trader's contract.
Law enforcement of pseudo self-employment
As a last measure, the Dutch Tax Administration will take a more active approach in the fight against pseudo self-employment. At present an enforcement suspension is in place: the Tax Administration basically does not impose any correction obligations or retrospective wage tax assessments, possibly combined with a fine, on perpetrators. The government aims to lift this enforcement suspension as of 01 January 2025. In addition, the government seeks to create new forms of enforcement. While at present the focus is on model agreements and company visits, the Tax Administration will shift responsibility for enforcement even more to employers and employees. The guiding principle of this shift is that employers and employees – possibly after receiving information from Tax Administration specialists – will become responsible for giving a correct qualification of their employment relationship.
New legislation on the way
In summary, the government has come up with a broad range of initiatives to deal with the position of the sole trader. These measures will result in greatly reduced freedom to engage someone under a sole trader contract, and in more active enforcement by the Tax Administration in cases of pseudo self-employment. These measures are to be implemented in laws to come. The government is expected to publish more information, as well as the first bills, in the first quarter of 2023. We will naturally keep you posted of the latest developments.
