Self-employed workers: industrial relations and working conditions
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2 – Definition of self-employed worker
The identification of a clear-cut and commonly accepted definition of ‘self-employed worker’ across all of the countries covered by this comparative analytical report certainly is a challenging task. Several difficulties in finding such a standard definition derive from the specific features of national contexts and legal frameworks. However, the main problems associated with a standard definition are linked to the significant changes that employment relationships have undergone in recent years, as a consequence of different factors affecting, to different degrees and in various ways, all of the countries under review here.
In particular, such changes are linked to the ‘process of rapid economic integration among countries driven by the liberalization of trade, investment and capital flows’ (International Labour Organization (ILO), 1999, point 2), as well as by the globalisation of production networks, technological change and transformations in the organisation and functioning of companies. The latter is often combined with restructuring in highly competitive international markets. Moreover, changes in workforce composition, with the increasing participation of women, migrants, young and older people, had an impact on the distribution of the types of employment relationships. This is also because self-employment may in some cases represent a viable alternative to unemployment, especially for disadvantaged groups of jobseekers. In addition, the transformation of the distribution of employment across the various sectors of the economy could have an impact on self-employment, due to the specificities of each sector in terms of the prevalent contractual relationships, as well as of the skills distribution. Other key factors include changes in labour market regulation, mainly linked to the introduction and development of forms of flexible and atypical work. In fact, in recent years, many enterprises have organised their activities so as ‘to utilize labour in increasingly diversified and selective ways, including various kind of contracts, the decentralisation of activities to subcontractors or self-employed workers, or the use of temporary employment agencies’ (ILO, 2003, p. 12).
However, it should be clear that these problems and difficulties essentially refer to the empirical and socioeconomic delimitation or definition of self-employment – that is, to the actual identification of the workers who can (or should) be regarded as self-employed compared with those who are subordinate employees. In the great majority of cases, the legal definition of both employment relationships remained unchanged.
The definition of ‘self-employed worker’ that is most common across the countries covered in this study refers to the traditional classification of employment relationships based on legal subordination and the dependent/independent worker dichotomy. This corresponds to the classifications used by the Organisation for Economic Co-operation and Development (OECD) and the ILO. However, this approach requires an important qualification for the purposes of this analysis. In practice, the focus of such classification is the subordinate employment relationship, while self-employment is defined almost in a residual way, comprising all contractual relationships that do not fall within the boundaries of ‘paid employment’. For instance, the ILO Resolution concerning the International Classification of Status in Employment (33Kb PDF), adopted by the 15th International Conference of Labour Statisticians in January 1993, includes under the heading of ‘self-employment jobs’ both ‘employers’ and ‘own-account workers’. As explained previously, this study mainly focuses on own-account workers, that is ‘those workers who, working on their own account or with one or more partners, hold the type of job defined as a “self-employment job”, and have not engaged on a continuous basis any “employees” to work for them during the reference period’.
Even with this specification, such a traditional, residual way of defining self-employed workers presents some difficulties to take into account the dynamic aspects of transforming contractual relationships. It is also difficult to clearly classify some of the formal employment contracts that have emerged recently in some national contexts in response to the abovementioned changes in the economic and organisational environments. In particular, a dichotomous structure often does not seem to be the most appropriate solution to cope with new types of employment that often fall into the widening ‘grey area’ between dependent employment relationships and self-employment.
For this reason, debates and attempts aiming to find a more effective legal definition of ‘self-employed worker’ have been reported in the case of almost all of the countries covered by this study. This is a very difficult and challenging task, since it has far-reaching implications. These implications involve crucial aspects such as terms and regulations for taxes and social security contributions, unemployment entitlements, disability and sickness benefits, the eligibility to rights and protections under labour legislation and, finally, the responsibility for the work performed.
The key issues of the institutional framework for self-employment and the set of connected obligations, rights and protections – compared with paid employment – are complicated by the existence of relevant distinctions and fragmentation within different forms of self-employment. In general, in several countries, important differences are present in the regulation of the ‘traditional’ forms of self-employment compared with the ‘new’ autonomous occupations, which have emerged as significant forms of employment mainly following the industrial reorganisation processes of the 1970s and 1980s. In some cases, the traditional forms of self-employment – for example, traders, craftspeople, ‘liberal’ professionals and farmers – are heavily regulated and include formal requirements to operate in professions and the existence on mandatory professional registers. Meanwhile, the new forms of self-employment are more an expression of the recent deregulation of labour markets and therefore reflect a quite distinct, if not opposite, attitude. For instance, in Austria, in addition to the ‘traditional’ and long-established forms of self-employment, which are defined by the income tax law, the legislator has introduced in recent years two additional statutory employment relationships by specific labour law amendments. The first new form of employment is the so-called ‘free service contract’, which is a hybrid legal construction mid-way between standard employment relationships and self-employment. The second form of employment is the so-called ‘new self-employment’, which covers holders of a ‘contract of work’ without a trade licence and freelance workers in some liberal professions – for example, psychologists, psychotherapists and translators.
Besides these differences in terms of type of profession, in all of the countries covered by the study, distinct definitions of self-employed worker exist according to various regulatory domains: self-employed worker is defined in various ways in employment law, tax law, trade law or social security law. As a further complication, in some cases, the legal definitions of self-employed workers are different from those used by national statistical institutes, such that the collection of data on socioeconomic indicators related to the different employment contracts may prove particularly difficult.
In this framework, empirical research and academic literature have contributed to the debate on changing employment relationships and the emergence of new forms of self-employment by trying to provide criteria to distinguish between different situations by looking at a set of dimensions, which have also been used at national level to reform and adjust existing legislation. The main dimensions are:
- investment of own capital;
- autonomy in the labour market;
- responsibility for and control of own work;
- presence of employees.
Following these elements, the broad category of self-employment has been classified in different forms that include a wide variety of occupations, both traditional and innovative. Despite all the national contexts and differences, it is possible to identify five basic categories of self-employment, which are most often used in the relevant literature:
- entrepreneurs, who run their business with the help of employees;
- traditional ‘free professionals’, who, in order to work in their occupation, must meet specific requirements, abide by regulations and duty-bound codes and often pass examinations to be listed in public registers. They can hire workers, but, with some exceptions, they generally carry out their activities alone or in association with other professionals and with the help of a limited number of employees, if any;
- craftworkers, traders and farmers, who represent the traditional forms of self-employment. These self-employed workers often work with their family members and possibly a small number of employees;
- self-employed workers in skilled but unregulated occupations, sometimes referred to as ‘new professionals’;
- self-employed workers in unskilled occupations, who run their business without the help of employees, but can sometimes be assisted by family members.
In practice, the objective of delimiting operationally self-employment for the purpose of this study – and to identify the distinctive features of self-employed workers as own-account workers – has to face the double challenge of distinguishing between employees on one side and employers on the other. A crucial aspect is the assessment of how and to what degree the recent economic and social changes have affected the two overlapping areas. Discrimination between these three positions in employment follows different dimensions: while the distinction with employees can generally be referred to as ‘subordination’, the difference with employers has more to do with ‘self-sufficiency’ in carrying out the business, which reflects the possibility or capacity of own-account workers to perform their activity with few organisational resources. Therefore, the latter depends on the kind of economic activity in question and also the personal professional skills of own-account workers. Recent transformations of organisation and work have occurred following the segmentation of the production process, the outsourcing of certain activities, including some labour-intensive and sometimes skill-intensive jobs, the introduction of leaner organisational models with higher worker autonomy, as well as the general increase in education and skill levels. These transformations have also led to an increase, at the same time, in the opportunities for own-account work in the private sector – apart from personal services – and the overlap between employees and self-employed workers. This has potentially introduced a clearer distinction between the needs and the interests of self-employed workers compared with employers and a closer resemblance to those of employees (Figure 3). Compared with the past, more sophisticated tools may be required to distinguish between own-account workers and employees, alongside novel forms of representation, which could be developed not only in the traditional fields of business associations, but possibly in that of trade unions too.
Figure 3: Overlap between employees, self-employed workers and employers
Overlap between employees, self-employed workers and employers
National definitions of self-employment: trying to cope with complexity
- each national setting, the coexistence of multiple definitions is usually mitigated by the prevalence of a specific domain over the others. For instance, in Sweden, the legal basis for distinguishing self-employed and employed workers is to be found in the Swedish tax laws, while, in Spain, the definition of self-employed worker established by the Spanish social security law prevails over the other definitions. In Belgium, the legal definitions of self-employed worker are based on social and fiscal criteria. According to the social criterion, a self-employed person is someone who exercises a professional activity without employee or civil servant status, whereas the fiscal criterion refers to the way taxes are paid out of professional income. In this case, the social definition has a clear dominance, since the fiscal criterion only holds ground as a presumption that can be challenged.
In other countries, different statutory definitions coexist without the prevalence of any single one. In Lithuania, no general statutory description of self-employed worker exists, but classifications linked to two specific domains operate side-by-side: the definition used by the state social insurance system and the partly different definition introduced by the law on personal income tax. In Portugal, the most broadly applicable definitions of self-employment are taken from the income tax code, on the one hand, and the business code, on the other. In this case, the income tax code identifies ‘business-related and professional income’ as that ‘earned individually through any activity of service supply, including those of scientific, artistic or technical character, independently of its nature, and even if connected with commercial, manufacturing and agricultural activities’. The business code envisages both ‘individual private limited company’ and ‘sole partnership company’, which include both employers with several employees and self-employed workers without employees.
In this quite complex framework, an interesting trend that has emerged in recent years is the interventions aimed at modifying the legal definition of employee, in order to achieve a sufficiently precise and practically useful definition to reduce the possibilities of disguising dependent employment relationships as self-employment. Instances of these attempts, which confirm the traditional approach of considering self-employment as a residual category, can be found in Germany as well as in other countries. In particular, in the late 1990s, a German reform measure specifically focusing on self-employment tried to draw in an effective way the boundaries of dependent employment. The 1999 Act on the Promotion of Self-Employment (Gesetz zur Förderung der Selbständigkeit) established that a person is deemed to be an employee – only for the purpose of social security schemes – if the person meets at least three of the following criteria:
- the worker does not employ other employees who are subject to social security obligations;
- the worker usually works for only one contractor;
- the same job is also performed by regular employees;
- prior to this job, the worker concerned carried out the same work as an employee;
- the worker has not initiated any entrepreneurial activities (unternehmerisches Handeln).
It is interesting to note that, instead of relying on a well demarcated and self-sufficient definition, the German legislator has chosen an open, variable and case-by-case approach to the demarcation of dependent employment, thereby recognising the shifting boundaries of employment and the dynamic aspect of employment contracts. The aim is clearly to include more situations than would be possible under a traditional definition, with a view to extending social security protections to atypical contractual arrangements.
In a sense, this new attitude in Germany is close to the traditional situation in Ireland and the UK, where there is no (closed) statutory definition of dependent employment, nor of self-employment. In the UK, case law is the most important way to assess the nature of employment, when disputes arise. Labour courts are required to use four tests in assessing the nature of employment relationships:
- control – determining who holds control over task, mode, means and timing;
- integration – determining how integral the work is to the business;
- economic reality – determining where the financial risk lies?
- mutuality of obligation – determining what evidence exists of formal subordination to contract terms.
These tests are designed to evaluate the individual’s level of dependence on the employer, although the degree to which certain factors are taken into account is open to the discretion of the courts. The difficulties of the tests to produce a definitive outcome in relation to ‘employee’ or ‘self-employed worker’ have arisen in recent years owing to the diversification of employment relationships and the increase in ‘non-standard’ employment contracts. The ‘mutuality of obligation’ test is the most problematic of the four tests and its widespread use has led to a situation where the distinctions between temporary, casual and fixed-term workers are often confused with self-employed status. In addition, a lack of consistency is apparent between tax, social security and employment law: this means that legal judgements on the qualification of the employment relationships, which follow the abovementioned tests, do not always coincide with tax and social security regulations (Burchell, Deakin and Honey, 1999).
As a still different approach to the delimitation of independent work, Ireland has tried to overcome the difficulties linked to the distinction between employees and self-employed workers by establishing a ‘code of practice on employment status’. The code has been laid down by a special tripartite Employment Status Group (IE0003149F). According to the code of practice, people would normally be classified as self-employed workers if they fulfil the following conditions:
- own their own business;
- are exposed to financial risk, by having to bear the cost of faulty or substandard work carried out under the business contract;
- have control over the job they do, how they do it, when and where they do it and whether they do it themselves;
- are free to hire other people, on terms of their own choice, to do the work that they have agreed to undertake;
- can provide the same services to more than one person or business at the same time;
- provide the required materials to complete the job;
- provide equipment and machinery necessary for the job, other than the small tools of the trade;
- have a fixed place of business where, for example, materials and equipment can be stored;
- agree a price for the job;
- provide their own insurance cover, such as public liability;
- control their own working hours in fulfilling the job obligations.
Compared with the other cases, these guidelines refer directly to self-employment, rather than focusing on paid employment. They are similar to the guidelines produced by Ireland’s Revenue Commissioners and the Irish courts in order to determine whether a person is deemed to be self-employed or an employee.
An important issue in the definition of self-employment, as already highlighted by the German and Irish criteria, refers to the possibility to employ other workers. As already illustrated by the abovementioned ILO classification, this is particularly relevant in order to discriminate between ‘workers’ and ‘employers’, which represents the other possible source of ambiguity.
In some countries – such as Bulgaria, Cyprus, the Czech Republic, Finland, Hungary, Italy, the Netherlands, Latvia, Lithuania, Portugal and Romania – the presence of a certain number of employees is one of the main factors that distinguish employers from self-employed workers. In particular, the presence of employees is mainly relevant in the statistical domain. For instance, in a number of central and eastern European countries, the current statistical definition practically reproduces the ILO classification. In Bulgaria, the National Statistical Institute (Национален Статистически Институт, NSI) defines as employers those individuals who manage their own enterprises, lease properties or perform other independent activities with at least one hired worker. On the other hand, self-employed workers are defined as persons who, alone or in partnership with other persons, perform business activities, practice their profession independently, lease properties or perform other independent activities without hiring other workers. In the Czech Republic, in general, an entrepreneur is a person conducting economic activities independently, on their own account and at their own risk for the purposes of generating revenue and profit. Within this group, people who hire employees are defined as entrepreneurs, while people working alone in their own enterprise are classified as ‘own-account workers’ or self-employed workers. The Statistics Lithuania (Statistikos departamentas, LS) defines employers as owners of all types of enterprises working with one or several partners in their own enterprises. Employers have to ensure that their employees’ pay levels and working conditions meet those set by labour laws, collective agreements and other regulations. Self-employed workers are people who work in their own enterprises with one or more partners and do not have permanent employees.
The presence of employees, however, is not particularly important in other domains and has often a quite different impact on tax regimes of self-employed workers than on the social security obligations. In particular, in most of the countries covered by this study, the presence of employees in an enterprise has some implications on the tax regimes applied to self-employed workers, while it is not a relevant factor in determining the social security regime, for instance, in Belgium, Estonia, Greece, Malta, Slovakia, Spain, Sweden and the UK. In France and Norway, the self-employment category includes entrepreneurs regardless of the presence of employees. In France, in particular, the self-employment category includes self-employed workers without employees, employers, agricultural workers, as well as people working in the family business. The latter refers to those who, without being employees, help a self-employed member of their family. In Norway, self-employment is often defined as work done by a person who runs a company on their own behalf or expense and at their own risk.
|Country||Legal definition||Main domains in which self-employment has been defined|
|AT||Yes||Income tax act; Labour law; General social insurance act|
|BE||Yes||Social security law; Fiscal law|
|BG||Yes||Employment promotion act; National statistical system|
|CY||Yes||Social insurance law|
|CZ||Yes||Social security insurance law; National statistical system|
|DE||Yes||Act to promote self-employment; Federal Labour Court|
|DK||Yes||Employment act; National statistical system|
|EL||Yes||Social security law; Case law|
|ES||Yes||Social security law; Self-employed Workers’ Statute|
|FI||Yes||Civil law; Self-employed persons pensions act|
|FR||Yes||Social security regime for self-employed workers; National statistical system|
|IE||No||Code of practice on employment status produced by a tripartite Employment Status Group|
|IT||Yes||Civil code; Tax law; Social security system; National statistical system|
|LT||Yes||Law of state social insurance; Law on personal income tax; National statistical system|
|LU||Yes||Social insurance code|
|LV||Yes||Civil law; National statistical system; Labour law|
|MT||Yes||Social security act|
|PL||Yes||Act of freedom of business activity; Act on personal income tax; Social insurance system|
|PT||Yes||Civil law; Business law; Income tax code; Social security law|
|RO||Yes||National statistical system; Labour code|
|SI||Yes||Civil law; Law on commercial companies; Law on pension and disability insurance; several sectoral laws concerning ‘liberal’ professions|
|SK||Yes||Social insurance act; Trade licensing act; Commercial code|
|UK||No||Nature of employment assessed on a case-by-case basis if disputes arise|
Source: National reports completed by the EIRO network of correspondents on the basis of a questionnaire
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