Working with independent contractors rather than traditional employees is a decision that always brings with it a certain degree of risk. But this is especially true if an organization is in the process of expanding into new international markets. Each country defines independent contractors and employees differently—and misclassification of an employee as an independent contractor can lead to major fines, litigation, and even unplanned early exits from that market.
The Netherlands is no different; it’s the world’s top market for tech firms taking operations overseas, and companies need to be aware of the distinctions between an independent contractor and an employee before establishing a presence in the country.
Independent Contractors in the Netherlands
There are two critical things to understand about independent contractor risks while operating a business (within any sector) in the Netherlands. The first is that companies are currently shielded from penalties and liabilities that stem from employee misclassification, making this one of the few areas of the world to offer such leniency.
The second is that on January 1, 2020, these protections will be eliminated. A forthcoming law called the Deregulation on the Assessment of Employment Relationships, or “DBA Act,” will open companies up to myriad different complications, including lawsuits from contractors who challenge their current employment status. The Act passed in 2016, but implementation has been pushed back multiple times, and now sits at the upcoming new year. Depending on how a lawsuit plays out, employers may be required to pay back-taxes, social security and insurance contribution arrears, and become subject to a number of other penalties.
Adding to the risk, Dutch tax authorities will begin proactively seeking out companies that have an actual employment relationship with their independent contractors. The most egregious offenders should be concerned about this. Authorities will target those who knowingly act outside the law–deliberately misclassifying employees as contractors, and allowing that relationship to continue. This is particularly the case for those who take advantage of the lower end of the labor market; individuals who are especially vulnerable without insurance and other employee benefits.
Dutch independent contractor law is also unique in that independent contractors have some explicit worker rights, like healthy and safe working conditions. This opens companies up to health and safety laws. Employers with independent contractors on site can expect visits from inspectors to investigate the working conditions. This can result in steep fines—and even negative media attention that leads to reputational damage.
Ensure Proper Worker Classification with the Guidance of an Experienced Expansion Partner
The distinctions between employees and independent contractors (and the stiff penalties associated with misclassification) should serve as reminder of why working with an expansion partner like Velocity Global can help you navigate the complexities of building a global team.
Velocity Global’s Employer of Record solution is an agile alternative to working with independent contractors; it enables companies to hire virtually anywhere, without the need to first establish a legal entity—and eliminating the headaches and risks of working with independent contractors.