On 1 May 2016 the Act on Deregulation Assessment Labor Relationships (in Dutch the ‘Wet deregulering beoordeling arbeidsrelaties’, the ´DBA Act´) came into force. This also meant the end of the good-old VAR. The purpose of the DBA Act is to minimize the chances of pseudo independent contractor ship and as such to provide a better protection to the self-employed. The DBA Act would also increase the legal security, as the differences between employees and independent contractors are now much more defined.
Clients and self-employers have to make use of so-called ‘model contracts’ prior to engagement. Once the model contract is approved by the tax authorities, both parties are assured that there is no requirement to withhold taxes by the client. However, up to now it seems rather unclear under what conditions the tax authorities will approve a specific model contract. If tax authorities judge that the relation is one of employment rather than independent contracting, both client and contractor will be held liable to withhold payroll taxes and social security contributions.
DBA Act leads to insecurity
Four months have gone by since the introduction of the DBA Act and up until now the messages in the media are unpromising. Many self-employers are reluctant to take on new engagements and some of them are even considering to cease their activities because of the insecurity the DBA Act has provided them with. The same applies to clients: they are also reluctant to hire a self-employer because of the risk of corrective tax assessments.
The view on the manner in which the tax authorities are handling this, is not so positive either: according to the media there is substantial delay in the procedure to approve the model contracts: it takes the tax authorities eleven weeks instead of the promised six weeks to assess whether a model contract meets the fiscal requirements. In addition, it seems that the tax authorities are fairly critical in their judgements: by 1 August 2016 just about 370 model contracts had been approved and over a 1,000 model contracts had been declined. Self-employers and clients do not know on which grounds the tax authorities decline the model contracts, since it often lacks a proper motivation. Some model contracts have been drafted by the tax authorities and are published. These models can be customized by the client and self-employer. However, once again it is not clear which provisions can be added without the authorities qualifying the relationship as one of employment.
Requirement under the DBA Act are more strict than under the VAR
The temp agency Randstad performed in-depth research on the topic and concluded that under the DBA Act a labour relationship is more often qualified as an employment relationship than it did under the VAR. One of the main reasons for this is the fact that in the model contract a detailed description of the work activities is required: this was not yet the case under the VAR and as such leads to a more strict qualification. Additionally, the contracts of self-employers with one primary client will in most cases be qualified as having an employment relationship.
The state secretary of finance admits that there are some issues with the implementation of the DBA Act. It takes time for the tax authorities to judge the individual model contracts. However, so says the state secretary, the most self-employed do not even need a model contract to carry out activities. Question is though whether client and contractor are willing to take any risks there, whether from a fiscal or a ‘normal’ legal perspective.
However, messages in the media are not all negative. In the health care and construction industries, in which the use of the self-employed is wide-spread, the model contracts developed by the tax authorities seem to work fine and to fit into their practice. Both industries therefore do not have any problems with the implementation of the DBA Act.
In conclusion it is hard to tell if the DBA Act will (eventually) help in minimizing the fictitious employment relationships. For now it is too early to draw any conclusions. The tax authorities are familiar with the critics about their delay and actions. However, no one knows if this will lead to an adjustment of the DBA Act. For now, the only conclusion that can be drawn is that the implementation period until 1 May 2017 will give all involved parties some – duly needed – respite.