SHAM FREELANCE IN GERMANY

Business case

A company works with a freelancer for cost beneficial reasons and to take advantage of greater flexibility in regard to the German employment law.

The company is the freelancer's only client and contractual conditionshow that the freelancer is subject to hourly pay. The contract also requires the freelancer to deliver the service personally. While working for the company the freelancer also uses the equipment & materials of the employing company.

Business challenge

Looking at the given situation the German authorities considered the freelancer as a regular employee of the company.

For this reason the employing company requested a change in the status of the freelancer, from freelance to regular employee. This change in status involves several risks for the employing company in respect of German employment law:

Questions to be considered:

• Liability for the employer's and the  employee's parts of the social security contributions,
• First-line liability for the employee's income tax,
• Reversal of VAT payment and pre-tax deductions