Risks and Opportunities of working with Freelancers under the DBA Law

Working with freelancers offers organizations flexibility and access to specialized expertise. However, within the framework of the Dutch Deregulation of Labour Relations Act (DBA), this also brings both opportunities and risks. This law aims to prevent false self-employment and places the responsibility for correctly assessing employment relationships on both clients and contractors. How can you mitigate risks and seize opportunities? This blog explains everything you need to know.

Risks of Engaging Freelancers

1. Reclassification as Employment Contract
   If it is later determined that an employment contract exists, freelancers can claim backdated wages and employment benefits. Additionally, collective labor agreement (CLA) parties or pension funds may demand participation in their schemes, resulting in unexpected financial obligations.
2. Active Enforcement by the Tax Authority Starting 2025
   While the Dutch Tax Authority has been lenient during the enforcement moratorium, this will change as of January 1, 2025. From that point, enforcement will resume with retroactive effect to early 2025. Failing to comply with instructions could result in back taxes, penalties, and reputational damage.
3. Complexity of Assessment
   The DBA requires a holistic assessment of employment relationships, taking into account all relevant facts and circumstances. This makes it challenging to determine with certainty whether a freelancer truly operates independently.

Opportunities of Working with Freelancers

1. Flexibility and Specialized Expertise
   Freelancers bring specific expertise and skills without requiring long-term contracts. This allows you to quickly respond to changing needs within your organization.
2. Cost Savings
   While freelancers’ hourly rates are typically higher than employees’, you save on employer costs such as social security contributions and pension payments.
3. Innovation and Scalability
   Employing freelancers enables you to quickly scale up for new projects, fostering innovation and growth within your organization.
4. Use of Model Agreements
   By using model agreements approved by the Dutch Tax Authority, you can clarify the nature of the working relationship and reduce risks. However, it is essential that the terms of the agreement are also adhered to in practice.

Assessing Employment Relationships under the DBA Law

The assessment of an employment relationship is based on the criteria of the DBA and the Deliveroo court ruling. Key aspects include:

• Authority: Does the client control how and when the work is carried out?
• Personal Execution: Must the freelancer personally perform the work, or can they delegate freely?
• Integration into the Organization: Does the freelancer use company resources or is integrated into the client’s processes?
• Commercial Risk: Does the freelancer bear risks such as liability or loss of income?

For more details on these aspects, read our blog: What Does the DBA Law Mean for Entrepreneurs in the Netherlands?.

The Enforcement Moratorium and What You Need to Know

During the current enforcement moratorium, the Dutch Tax Authority only issues instructions when there is doubt about an employment relationship. Generally, you are given three months to:

1. Adjust the agreements with the freelancer to eliminate any indication of an employment contract, or
2. Process the freelancer’s activities as employment in your payroll tax filings.

As of January 1, 2025, the moratorium ends, and the Tax Authority will actively enforce compliance. Ensure that your employment relationships are in order to avoid back taxes and penalties.

What Can You Do Now?

Proactive action is essential to mitigate risks and seize opportunities. Here’s what you can do:

1. Inventory: Map out agreements with freelancers.
2. Analyze: Assess whether an employment contract exists based on the criteria of the DBA.
3. Adjust: Use model agreements and ensure that arrangements indicate self-employment.
4. Consider: If agreements cannot be adjusted, consider hiring the freelancer as an employee.

How Practical | Excellence in Finance Can Help

At Practical | Excellence in Finance, we understand the challenges and opportunities of working with freelancers. Our experts can assist you with:

• Assessing and optimizing employment relationships.
• Ensuring compliance with the DBA law and other relevant regulations.
• Implementing model agreements.

With our expertise, you can minimize risks and fully capitalize on the benefits of working with freelancers.

Contact us today for a free consultation!