The advent of this law has had significant implications for freelancers and their clients. It is critical that freelancers and companies understand the rules of the DBA Act to avoid fines and other legal problems. What is the DBA law and why is it important? You can read that below!
The DBA law states that there can be no question of disguised employment. This means that freelancers who are hired as self-employed workers must actually work as self-employed workers and may not have an employee relationship with their client.
An employment relationship means that an employee works under the management and supervision of the employer and that there is a relationship of authority. The DBA law states that freelancers, who are self-employed, must have sufficient freedom in the performance of their work and may not be under the direct supervision of the client.
The DBA law was introduced to combat false self-employment. Sham self-employment means that someone is formally hired as a self-employed person, but in practice is actually an employee. This is sometimes done to circumvent employer obligations, such as paying payroll taxes, social security contributions and offering dismissal protection. By treating freelancers as self-employed, clients avoid these obligations, leading to less protection for the freelancer and unfair competition in the labor market.
The law thus aims to ensure social protection
Freelancers who are actually in an employee relationship should have the same rights as other employees, such as a fixed salary and access to social benefits. The law is also there to prevent unfair competition. Companies that unfairly use freelancers to save costs create an uneven playing field. The DBA law should reduce this unfair competition.
The law provides a framework for clients and freelancers to work together with certainty without the tax authorities later still considering the relationship as employment.
Starting in 2025, the legislation surrounding the Deregulation of Assessment of Employment Relationships Act (DBA) will change significantly, with significant implications for clients and freelancers. While the exact criteria of the Tax Office may still be unclear, there are a number of established points that zzpp'ers and clients need to understand well to avoid false self-employment.
The law places the responsibility for false self-employment primarily on the principals. If the Internal Revenue Service judges that there is disguised employment, they will first turn to the client. This means that principals have an increased duty of care to ensure that self-employed persons are actually working as self-employed persons and not as employees. Nevertheless, the self-employed person also remains responsible for preventing false self-employment.
If the Tax Office determines that there is false self-employment, this can lead to financial consequences for the client. The Tax Office can impose additional levies for social premiums, such as vacation pay and insurance. This means that clients may have to pay unexpected costs to the freelancer afterwards. This underlines the importance for clients to make clear agreements in advance about the self-employed status of the zzpp'er. In that sense, the DBA law is a little bit similar to the Waadi.
The year 2025 is seen as a transition year in which the Tax Authorities will not yet issue any penalty fines. Instead, clients will be warned in case of violations. This transitional year offers clients the opportunity to take steps to comply with the regulations without risking immediate financial penalties. As long as clients can demonstrate that they are making improvements, no fines will be imposed.
Until recently, zzp'ers and clients could use model agreements, approved by the Tax Administration. These provided a legal basis for avoiding false self-employment, but often turned out not to match actual practice. For this reason, the model agreements will disappear, and the emphasis will be more on the actual practice. This means that both zzp'ers and clients themselves must carefully monitor the nature of their cooperation and the zzp'ers' independence.
Instead of the former VAR declaration, clients and freelancers now work with model agreements. These agreements must be approved by the Tax Office and indicate that the relationship meets the requirements of the DBA Act. In such a model agreement it is clearly established that the freelancer works independently and that there is no relationship of authority.
An important characteristic of false self-employment is the presence of a relationship of authority. This means that the client gives detailed instructions on how to perform the work. For freelancers, it is important to show that they are in control of how they perform their work and that the client does not intervene directly.
In addition, a freelancer should theoretically be able to hire someone else to do the job. This distinguishes a freelancer from an employee, who is required to perform the work himself. If the client requires that only the freelancer perform the work himself, this may indicate employment.
An employee relationship generally involves a fixed income. A freelancer, on the other hand, generally has a variable income and is paid per project or assignment. When setting up arrangements, it may be wise to split payment into parts per project or per hour, depending on the nature of the work.
Freelancers often work for multiple clients, which is a sign of independence. If you work as a freelancer for one client over an extended period of time and follow their instructions, there is a risk that the relationship could be considered employment.
The DBA law prevents freelancers from having the same rights as employees. This means, for example, that freelancers are not entitled to sick pay, vacation days or dismissal protection. Make sure you know what rights do and do not apply, so you will not have any surprises.
What is the DBA law and why is it important? The law is there to protect freelancers while providing clarity to clients. False self-employment can lead to fines and refunds of tax benefits, so it is vital that you have a good understanding of what the law entails.