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Litigations: Slovakian IT freelancer sues the US company over misclassifying him as an independent IT contractor

One American company was working on a fulltime basis with an IT freelancer in Slovakia for approximately three years. The American HR director decided to contact Acumen International to employ this freelancer. The HR director feared that would risk an employee / independent IT contractor misclassification case sometime in the future. We provided an offer… Read more Litigations: Slovakian IT freelancer sues the US company over misclassifying him as an independent IT contractor

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One American company was working on a fulltime basis with an IT freelancer in Slovakia for approximately three years. The American HR director decided to contact Acumen International to employ this freelancer. The HR director feared that would risk an employee / independent IT contractor misclassification case sometime in the future.

We provided an offer to employ the Slovakian freelancer. However, the US finance department did not approve our proposal since it was higher than what they were currently paying the freelancer. An employee misclassification case did not seem imminent, so they decided not to act.

Half a year later the same company contacted us to employ the Slovakian freelancer. Our offer got approved but the freelancer refused to sign our employment agreement. In this half year, the relationship between the freelancer and the US company went sour. The freelancer decided to go to the labor authorities instead.

The US company had to register their own legal entity in Slovakia due to employee misclassification. We never heard the ultimate verdict but from communication with the HR director we understood that they risked paying the due social security taxes, vacation, severance payment and additional fines. The total claimed amount was approximately 70.000 EUR.

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The dangers of working with independent sales reps in Belgium

Just because one employment model works great in one country does not mean that it will work in the next. The idea of having an independent sales rep is often an unknown concept in most countries. Especially the countries with strong pro-employee labor laws. Let’s take the example of Belgium. Imagine that you plan to… Read more The dangers of working with independent sales reps in Belgium

Just because one employment model works great in one country does not mean that it will work in the next. The idea of having an independent sales rep is often an unknown concept in most countries. Especially the countries with strong pro-employee labor laws.

Let’s take the example of Belgium. Imagine that you plan to hire someone and you thing it will be easier to have the candidate working as a self-employed sales agent. Working with a sales agent seems a lot less complicated compared to employment, where you must figure out all the peculiarities of Belgium labor laws. But here’s the catch: you are likely to run into the trap of employee misclassification (‘schijnzelfstandige’).

This might work both ways. Either the employee goes directly to the labor authorities to report employee misclassification or the labor authorities investigate the relation themselves. If the labor authorities determine that it is a case of employee misclassification then the employer must pay social security taxes (+/- 35%) and employee contributions (13,07%).

In addition, one should pay interest on the total amount (7%) and on top of that there is a fine of 10%. We are not talking about the contributions of one month. The claims of the labor authorities can extend to three years (seven years in case of fraud). Additionally, there will be the additional costs of criminal prosecution and administrative fines.

There is a strong incentive for the ‘employee’ to report employee misclassification, especially when the relation with the ‘employer’ goes sour. An ‘ex-employee’ can claim benefits such as severance payments, holidays accrual and a 13th month over the duration of the contract. The ‘employee’ can also claim a refund of all the contributions made during the period of ‘self-employment’.

There are four tips to prevent employee misclassification in Belgium

The consequences of an employee misclassification ruling in Belgium are severe. However, there are certain ways to prevent this.

# Specify the nature of the work

Most Belgium industries start with the notion that parties are free to describe their own work relation. If one agrees to be self-employed then this will be the basic principle, unless it is proven that there is a case of employee misclassification. So always state in the title of the contract that it entails cooperation on a self-employed basis.

# Don’t specify the labor conditions

Specifying the assignments given to the self-employed contractor is a no go. Do not give the impression that this is an employer-employee relation. Try to avoid making agreements on the number of hours worked and the amount of vacation that is allowed in a year. The less you work with a fixed compensation, the better.

# Exclusivity

Do not mention in your contract that the contractor is not allowed to work for competitors. It is possible to have a non-compete clause but this will raise alarm bells at labor authorities. If you do decide to have a non-compete clause make sure it is limited in time, territory and activity.

# Use an Employer of Record Organization in Belgium

The above-mentioned measures can make it less likely to be charged with employee misclassification. However, if you want to cover the risk completely, then it is possible to use the services of an Employer of Record Organization in Belgium. Acumen International offers fully compliant global employment solutions in more than 190+ countries. Our Global Employer of Record solutions have helped manufacturing companies start selling their products in the global marketplace without having to worry about compliance issues, in particular permanent employee / sales rep misclassification. Manufacturers are now free to focus on the ways to increase sales and get higher revenues.