The updated report by Innangard, the International Labour Law Alliance of which MME is the Swiss member firm, addresses the issues, implications, recent developments and regulations surrounding the classification of a worker. The report, which refers to Australia, China, and various European countries, deals with the following topics in each country:

  • Determination of classification
  • Employment protection
  • Tax consequences
  • Further consequences
  • Interesting developments or cases
  • Top tips for employers

For detailed information you find the report here. (PDF, 618 Kb)

In summary, the following can be said about the individual countries:

Australia: In Australia, a person performing paid work will be either an employee or an independent contractor. An employee is someone who serves their employer within the employer’s business, whereas an independent contractor carries on a business of their own.

Misclassification of an employee as an independent contractor may amount to “sham contracting”, which is prohibited under Australian employment law, and can lead to a fine up to AUD $54,000.

China: In principle, employees/workers under employment law are those who have established an employment relationship with an employer in China and thus qualify as an “employee” according to employment law of the PRC.

The misclassification leads to administrative and criminal sanctions. If employers violate the legal standards, they are subject to administrative sanctions, including but not limited to compensation for workers, fines, restrictions on access, etc. If employers exhibit an illegal behaviour of the main work safety, the personnel and social security administration will publish the relevant information and the misconduct of the employer.

England: A distinction is made between employee and worker. For much of UK employment law, an employee is defined as “an individual who has entered into or works under...a contract of employment" (section 230 of the Employment Rights Act 1996 (ERA 1996)). A worker is a category of individual between an employee and someone who is genuinely self-employed. The following factors are helpful to distinguish workers from independent contractors: the exclusivity of the arrangement; its typical duration; the method of payment; which party supplied the equipment used; and the level of risk undertaken by the worker.

France: A person performing services for and under the direction of another person in return for which remuneration is paid is considered an employee. The employer has management powers over the employee concerning job description, performance, time and place of work. With the self-employed workers there is no subordination relationship, nor economic dependency. They have great autonomy over their work and their deliverables.

Germany: An employee is a person performing services for and under the direction of another person in return for which remuneration is paid. The employer’s directions may concern the content, performance, time and place of work (subordination relationship). Currently, there is another reform on its way that will further restrict the use of temporary agency workers and increase the sanctions in cases of bogus self-employment and illegal temporary agency work.

Ireland: There is no general definition of an employee but there are certain definitions specific to relevant pieces of legislation, e.g. “a person who has entered into or works under a contract of employment”. Similarly, there is no set definition of “independent contractor”. The Courts’ current view is that no fundamental test had been established, and that each case must be considered in light of its particular facts.

Italy: An employee is a person who works within a hierarchical structure, under the employer’s organisational and disciplinary powers and strictly follows the employer’s orders. A worker is a person who carries out his / her activity without any kind of subordination by autonomously establishing the timing, the place and the methods of work. There are different types of autonomous workers.

The Italian Parliament is currently discussing a bill about “smart working and work life balance” with particular attention to: working hours, remote surveillance by employers, compliance with health and safety legislation and the “right of disconnection”.

Netherlands: There are three requirements to qualify an agreement as an employment agreement : there has to be a relationship of authority whereby the employer can give instructions to the employee; the employee is obliged to personally carry out the employment agreed upon; and the employee receives salary. If the relationship of authority is missing, the worker will be classified as a contractor. For contractors a contract for professional services is used.

Portugal: An employment relationship generally exists when the employer is entitled to control not only the result of the services rendered, but also the means by which that result is achieved. The employee renders his services for and under the direction of the employer. An independent contractor relationship is generally created when an individual (self-employed) is given a task to do but is free to use her/his own judgment when performing that task, works without supervision, typically using her/his own tools and materials on the job and is being paid by commission or lump sum based on the job or project rather than by the hour.

A false self-employment constitutes a very serious administrative misdemeanour, punishable by way of fine ranging from EUR 2,040 to 61,200 (GBP 1,793.75 to 47,031.63) per self-employed contractor.

Spain: The Workers Statute, defines “employee” as a person who voluntarily renders his/her services within the scope of the organization and management of another person, physical or legal (employer) and receives compensation (salary) in exchange. Self-employed contractors are those who habitually, personally and directly render their services on their own account, this is, outside the scope of organization and management of another. When the employee’s misclassification is recognized by the relevant authority, the Company may be subject to administrative responsibility and a fine up to EUR 6'250 per person.

Switzerland: Under Swiss law, persons who carry out paid work for someone else are either classified as employees or self-employed persons. The most relevant criteria to distinguish between the two is whether the person carrying out the services is in a subordinate position, integrated into the working environment of an employer or not.

In case of a misclassification, a court or the relevant authority will usually not impose any fines on the employer unless it either wilfully violated the Swiss provisions on work time regulations and/or health protection or if the employer has not deducted taxes at source. However, a court or the relevant authority will oblige the employer to retroactively provide the employee with all its employment protection entitlements including social security contributions.