Security for the self-employed and their employers

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In 2005, self-employed individuals and their employers will be awarded greater security based on the Declaration of Independent Contractor Status (Verklaring Arbeidsrelatie, VAR) In this, the tax authorities and the body implementing employee insurance schemes (Uitvoeringsinstituut Werknemersverzekeringen, UWV) indicate if they recognise the working relationships of the self-employed as independent labour or as labour in respect of employment, or that they simply do not know. The distinction between the self-employed and employees is always a difficult one. The security for self-employed individuals and their employers is that there will no longer be penalties if the self-employed are deemed to be employees in retrospect.

The Act extending the effects of the Declaration of Independent Contractor Status (Verklaring Arbeidsrelatie, VAR) that came into force on 1 January 2005 supplements the VAR implemented previously on 1 January 2002 (see NL0405102F). The VAR is a declaration issued by the tax authorities on request, providing clarity on both the legal status of the employed and any obligation to insure under the employee insurance schemes. The Dutch Federation of Trade Unions (Federatie Nederlandse Vakbeweging, FNV) and the Platform for Independent Contractors (Platform Zelfstandig Ondernemers, PZO), which is allied to the VNO-NCW employers’ association, have, along with other special interest groups, repeatedly informed the legislator of the fact that the VAR provides insufficient security for the self-employed and their employers. Self-employed individuals and their employers would like to have security in advance about the manner in which their employment relationship will be assessed by the tax authorities and employee insurance schemes (Uitvoeringsinstituut Werknemersverzekeringen, UWV). Additionally, the self-employed and their employers would like to have a definitive answer to whether they are obliged to pay premiums for employee insurance schemes. In principle, the self-employed would have been awarded such security in advance were it not for the fact that the UWV can assess employment relationships in retrospect and conclude that the self-employed individual in question was in fact an employee. In such cases, retrospective collection takes place for income tax and employee insurance scheme premiums are recovered from the self-employed, unless the employer of the individual in question could reasonably have assumed that labour was employment as opposed to independent labour. An employer could reasonably be expected to know that a self-employed individual is an employee if that individual previously worked for them as an employee or if he/she carried out the same work as an employee for the same employer. Under such circumstances, retrospective collection takes place for income tax and the employee insurance scheme premiums are recovered from the employer, who is then deemed to have acted as an employer.

Act extending the effects of the VAR provides greater security

In practice, while UWV has never imposed retrospective collection on the self-employed, it has always done so on the employers of the self-employed. Such a policy pursued by the UWV has made employers hesitant about engaging the services of the self-employed, thus failing in one of the most important objectives of the VAR, to provide self-employed individuals with more security in advance so that they are in a better position to bring in more work. In order to solve these problems, the act extending the effects of the VAR was introduced on 1 January 2005. The most important part of this act is that retrospective collection does not take place affecting either the self-employed or employer if, in retrospect, the self-employed individual was in fact an employee, unless this relates to a possible case of fraud. In addition, the self-employed individual’s VAR could be reconsidered. Additionally, if deemed an employee, the self-employed individual may no longer seek recourse to employee insurance schemes under the Unemployment Insurance Act (WW), Sickness Benefits Act (ZW) or Disability Insurance Act (WAO), because the 'employee' has not paid any premiums for these employee insurance schemes. Before the introduction of the act extending the effects of the VAR, the status of employee was sufficient to gain access to the WW, ZW and WAO and the payment or non-payment of employee insurance scheme premiums did not play a role. Whether premiums have been paid is now an important precondition if recourse is sought to employee insurance schemes. PZO and FNV both have great expectations of the act extending the effects of the VAR and expect it to provide security in advance for employment relationships, so that employers no longer need to be hesitant because of possible collection in retrospect and will therefore award more assignments to the self-employed.

Since income tax and employee insurance scheme premiums can no longer be collected in retrospect, the tax authorities have to monitor the employment relationships of the self-employed more strictly. To this end, the term of validity of the VAR has been reduced from two years to one. Secondly, the self-employed individual’s VAR is checked after the year has passed on the basis of the income tax return submitted by the person in question. If the tax return deviates from the VAR, the VAR will be revised. Thirdly, the application form for the VAR has become more comprehensive. From now on, the tax authorities explicitly ask if the self-employed individual concerned has in the past worked as an employee for his/her employer, or if he/she has carried out the same activities as those of the self-employed individual for an employer as those carried out by employees and whether the employer is a secondment or temporary employment agency. The tax authorities also pay closer attention to aspects of entrepreneurship when assessing the employment relationships of the self-employed. For example, from now on the tax authorities will determine whether the self-employed individual possesses any permits and address the manner in which the self-employed individual carries liability for the work conducted. Despite these stricter checks, it will remain difficult to distinguish between employees and the self-employed on the basis of the VAR alone though it will prevent some self-employed individuals from being considered employees in retrospect. This problem relates to the manner in which the VAR is assessed. The problem is that it is issued in advance, and pertains to all aspects of employment relations anticipated within a year and not on the basis of each separate employment relationship.

Intermediating the self-employed

These stricter checks by the tax authorities will inevitably result in the rejection of some arrangements between employers and the self-employed. In April 2004, the home care organisations Icare, Sensire, Thuiszorg Groningen and Meavite, who provide at least a fifth of all simple household care in the Netherlands, merged to form a private company with limited liability, chose to stop acting in the capacity of an employer but as a home-care intermediary. Through the conversion of a group of employers into an intermediary agency, operations could be conducted using the self-employed. Activities carried out within the scope of employment relationships between intermediary agencies and workers are not considered to have been conducted under the terms of formal employment, but instead under terms of fictitious employment and if the person concerned possesses a VAR attesting to being self-employed, the employment relationship is considered to be founded on self-employment. The consequence of this transition is that employment contracts of the 2,300 employees working for these home care institutions were converted into assignment agreements. This transition from employee to self-employed individual takes place, for example, if the care provider wishes to change his/her employment contract, wishing to work a greater or lesser number of hours, or if the employment contract ends by law. Possible new employees are then only engaged on the basis of assignment agreements. Effective 1 January 2005 and on pain of dismissal, the remaining employees converted to being self-employed. Arrangements such as this are being boosted in the health care sector in response to the stimulation of market forces by government. Home care must become cheaper in order to outstrip the competition. By converting the employees into self-employed individuals, wage costs can be reduced for employers and the individuals concerned generate a higher net income. But, despite the latter, a great number of employees are not pleased with this set-up because they stand to lose many of their rights, including those related to pensions, training and education. The tax authorities have also rejected this set-up. After all, a set-up under which a group of employers transform into an intermediary agency could be considered as a fictitious structure working with fictitious self-employed individuals instead of the genuinely self-employed.


Self-employed individuals have been awarded security now that employers need not be hesitant about possible collection of income tax and employee insurance scheme premiums retrospectively. It remains to be seen, however, if this security for employers amounts to additional risks for the self-employed, as they will no longer have access to employee insurance schemes. If they are deemed to be employees in retrospect, self-employed individuals will have no access to employee insurance schemes, because it will be clear from the VAR issued in advance that they are self-employed and therefore have not paid any premiums to the employee insurance schemes. (Monique Aerts, HIS)

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