For freelancers in Germany, it is important to avoid false self-employment (Scheinselbstständigkeit) in order not to have to fear legal and financial consequences for themselves or their clients. We explain to you what false self-employment is, what signs you can watch out for, and how you can prevent it.
False self-employment: definition and consequences
The term false or pseudo self-employment in Germany describes a freelancer who is self-employed but works (almost) exclusively for one client and is treated like an employee. The problem with this situation is that the freelancer does not meet the criteria of self-employment (entrepreneurial risk, flexibility, etc.), but also doesn’t benefit from the advantages of a permanent position, for example, protection against dismissal, paid vacation or continued payment in case of illness. The client also doesn’t pay any social security contributions for them, for example for pension and health insurance.
This constellation does not comply with the principles of the welfare state and is therefore prosecuted in the same way as moonlighting. Checks can be carried out, for example, by the German pension insurance, by the tax office or by a health insurance company. If false self-employment is detected, the client must pay social security contributions in arrears, for up to several years. Both sides must also pay back wage tax, and there is a complicated reversal of the sales tax paid. If intentional behavior is assumed, it may even be a criminal offense and the client must expect a fine or imprisonment.
As a freelancer, the consequences of pseudo self-employment are less severe, but also unpleasant and complicated. In such a case, you can become an employee and, under certain circumstances, have the possibility to sue for this status. The question is, of course, whether you want to do this. After all, you probably made a conscious decision to work as a freelancer and don't want to be employed at all. So even for you as a freelancer, it makes sense to avoid false self-employment.
How can I recognize Scheinselbstständigkeit?
The assessment is always made on a case-by-case basis, so there is no generally applicable list of criteria for pseudo self-employment. The risk is high if you are dependent on one client, work under instructions, are involved in internal processes and don’t act as an entrepreneur.
The following signs indicate false self-employment. However, it depends on the overall picture. You don’t necessarily have to be afraid if some points apply to you.
- You work permanently on the client's premises and may also have your own key.
- You use the company's equipment and not your own.
- Your working hours are set by the client.
- You have to sign off when you are sick and coordinate your vacation with the team.
- You receive instructions that go beyond the usual coordination.
- Your tasks do not differ from those of the salaried employees.
- You are part of a permanent team that otherwise consists only of salaried employees.
- Your assignment is so extensive that you have no time for other assignments.
- You permanently generate more than five sixths of your turnover through this client.
- You are not allowed to accept any other clients, or you have to have them approved by the client first.
- Your assignment is open-ended and not project-related.
- You have a company e-mail address or business cards, but your external status is not visible there.
- You are present at internal meetings or events that have nothing to do with your tasks.
- You are not paid on a time and effort basis, but receive a fixed monthly salary.
- You don’t act as an entrepreneur, don’t have your own website, and don’t bear any entrepreneurial risk.
The assessment always depends on the actual situation. So it doesn't help if you sign a contract that excludes these points. As soon as it looks different in everyday life, there is a risk that you are pseudo self-employed. Nevertheless, a contract is useful because it provides a framework, and you can refer to it in case of doubt.
By the way: The false self-employment test by CodeControl and Hogan Lovells allows a simple and quick assessment of the risk of pseudo-self-employment. You can fill it out yourself or send it to your client. You can also find more information on the topic of pseudo self-employment on the website.
How can freelancers avoid pseudo self-employment?
Conversely, you should avoid the above-mentioned things if possible if you want to prevent false self-employment. Make sure that you can do your work independently and that you are involved in the processes of your clients as little as possible.
If you make sure that the following aspects are given, your risk for pseudo self-employment is very low:
- Several clients: Make sure that you don’t generate your turnover permanently through only one client. It's okay to work on various short projects in a row, working for one client at a time. But if you work with one client on a long-term basis, you should not generate more than five-sixths of your revenue through that client.
- Your own premises and resources: Carry out your tasks regularly in your own office at home, your external office or in a neutral location such as a coworking space. From time to time, you can also work at your client's office, but this should not become a habit. You should also use your own equipment.
- No integration into internal processes: Organize yourself independently and don't get involved in too small-scale coordination processes. Plan your vacation independently and do not regularly attend meetings that have nothing to do with your work. Don't get an internal e-mail address and arrange your working hours according to your needs instead of the client's requirements.
- Act as an entrepreneur: Show that you take an entrepreneurial risk and want to attract more customers. This includes, for example, having your own website or a well-maintained social media profile, as well as your own marketing activities.