Operating independent contractor models across different countries in a way which avoids employment status and tax problems
Published on 22nd Apr 2022
We provide specialist advice on what's required, in different countries, for an arrangement to be legitimately self-employed, providing answers from local Osborne Clarke lawyers to the following key questions:
- What contract mechanisms will help ensure genuine self-employment and avoidance of staffing regulation?
- How will payment arrangements need to change to achieve this?
- What are the red flag issues in particular countries?
The growth of self-employment and independent contracting
Self-employment, independent contracting and use of digital platforms are growing. Many people want to work on this basis for lifestyle reasons, and much specialist or occasional work is only available on this basis. And of course many organisations like to engage personnel on this basis in order to reduce the cost and administrative burden of having "employees".
And so in the EU there are currently thought to be around 28 million people working through digital labour platforms. This has been predicted to grow to 43 million by 2025. This does not include the increasing number of consultants and independent contractors engaged via staffing companies or directly. Many of these contractors and gig workers operate on a self-employed basis. In the UK 15% of the workforce was self-employed by the end of 2019.
The challenge in the UK and across Europe
Regulatory authorities and governments have noticed this trend, with widely reported cases and legislative proposals seeking to rein back the use of self-employment model. In the EU there is a draft directive seeking to introduce a legal presumption that gig platform workers are employed and in the UK the IR35 tax regime has been upgraded to wipe out "false self-employment". Alongside this, worker misclassification cases in the US, UK and across the EU have determined that a wide variety of workers have some sort of employment status for tax and/or employment rights purposes.
As a result many self-employment and independent contractor arrangements will potentially cease to be viable, with increased tax and bureaucracy for those involved, and liabilities passing up the supply chain to intermediaries and end clients.
Will there be legitimate ways round the directive and other attacks of self-employment models?
What changes will platforms, staffing companies, consultancies and other intermediaries need to make to deal with these developments?
The European Commission has denied that it is trying to end the gig economy model with its proposed directive.
"Platforms may react to this by adjusting their relations with their contractors if they prefer to keep self-employment status — but it means less systemic control over those independent contractors…Or if they think that their specific circumstances merit it they may still challenge this presumption but at least it sets clear criteria which would be uniform criteria across the EU."
Statement of work arrangements
In other words, we will probably see a growth in output-based statement of work arrangements which have increased in the UK and elsewhere. But this will not be a simple tick-box exercise: moving to output-based statement of work arrangements (and away from timesheet-based systems) will be a major transformation for many organisations.
It is a good thing that, to facilitate this, there has been an increase in the functionality of software designed to help organisations monitor the output of service providers. Any steps to move to output-based supply will probably need widespread adoption of that technology.
What does it cost?
We carry out an initial high level review of your current self-employment arrangements for [£4000] or [$3500]/[3500 Euros].
Following that we agree with you a price for advising what your key risks are and what your best overall options are for minimising tax and employment risk. Clients generally pay [£8,000] [$3,500]/[3,500] Euros for this stage and then another [$3000-4,000]/[3000-4,000 Euros] for getting local advice from experts in each country relating to local variations of this advice.
From there we support you with implementation of new business models and contracts reflecting the options you select. This will cost from £4,000-20,000 depending on the options you select, but we will agree fixed fees with you before starting that part of the work.
