Personnel: contractor or employee?

What is the difference between a contract for services and an employment contract? Are you sure that a contractor does not qualify as an employee? And why is this difference of importance?

Important difference

The difference between an employment contract and a contract for services is important for the following questions:

• Are the rules for employment law applicable? In case of an employment contract they are applicable and in the case of a contract for services they are not applicable. Thus, for example, an employer must continue to pay the wages of an employee who is unable to work, but the commissioning party has no obligations towards a sick contractor; and
• Do tax on wages and social security contributions have to be deducted from the remuneration paid for the work performed? This question is of importance as the employer does have to pay tax and contributions on wages but not on the remuneration paid to a contractor. In the case of an employment contract, the employer may have to pay additional tax on wages and social security contributions over the remuneration he has paid.

Qualification of the contract

Just by putting the heading ‘contract for services’ on top of the contract, you have not excluded that you can be qualified as an employer. According to a recent decision of the Supreme Court of the Netherlands the qualification of a contract does not have to be based on the intentions of the parties when the contract was concluded, but on the content of the arrangements made – what rights and obligations were agreed – and the way in which they implemented this contract: its actual performance.

How can you make a difference?

What is important in the actual performance? What do you have to pay attention to, and when will the contract be qualified as an employment contract?

If three conditions are met, the contract will be regarded as an employment contract. These conditions are as follows:

• There must be work that is carried out personally (the employee may not simply put somebody else in his place);
• This work is carried out for remuneration;
• There must be a relationship of authority between the employer and employee. A relationship of authority is deemed to exist if, among other things, an employee is required to comply with the instructions of his employer and to act in accordance with certain regulations.

Therefore, make sure that the nature of the contract is clear not only at the time of the conclusion of the contract but also throughout its term. This way you avoid misunderstandings with your contracting party.

More information

Would you like to learn more about employment relationships or do you need help qualifying them? Please contact Russell Advocaten. We are also happy to help you with all other questions regarding employment law.