Modern work: technology, change, brand, risk

Entrepreneurs of the self

Self-employment and deemed employment

“Uberisation is too Throughout the countries of the

narrow a term if taken western economic world we observe
as a catch-all word a similar development: a trend towards
for the phenomenon atypical employment relationships,
of debatable self-
with a working environment in which
“self-employment” is increasingly seen.
employment.”
Reasons are diverse: there is a strong
desire for freedom and autonomy
for employers and workers. Another
special treat (or fundamental
component of the profit model) for
employers is the absence of labour
and social security regulations when
engaging self-employed contractors
instead of regular employees:
“Uberisation”.
Employment or not? – two is not enough
Is the whole labour market of the western economic world facing a
turning point? It becomes increasingly evident that conventional labour
law can no longer cope with the value considerations of a modern
labour market. Flexibility and efficiency are the magic words, which
applies to both sides, employers and employees.
Outside the EU, legal systems tend only to provide black or white
solutions with regard to the nature of an employment relationship, which
means one can either be an employee or a self-employed contractor.
This sharp distinction does not suit for a vast number of modern
employment relationships.
In the EU, many countries have an intermediate “worker” status but
even then, many people no longer want to be pressed in a tight corset
of mandatory working and resting time regulations, but rather want
to work whenever it suits them. They do not shrink back from magic
roundabouts, and they may want other benefits, such as lower tax
and social contribution rates. They do not object to receiving (perhaps
unforeseen) social protections which accompany that status. This text
explores the inconsistent relationship between tax status and other
rights, and the possibility of unintended consequences.

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 Modern work: technology, change, brand, risk

Uberisation and Austrian reaction

The business model of Uber causes strong reactions. Social legacies often determine
the legal and “shadow legal” response to business models. In France, for instance,
Uber’s market entry set off an avalanche of violence culminating in a strike
paralysing the French capital, during which the managers of Uber France were
arrested and questioned by the police for two days.
In fact, Uber, a role model of freelancer systems in many other countries, is eking
out a niche existence in Austria as a consequence of the specific legal environment.
Surprisingly, to the majority of Austrians, it is in business but appears as a “poor
imitation” compared to foreign sister companies. In the Austrian version, there
is hardly anything left from the initial idea to act as a superordinate intermediary
agency between self-employed drivers and end customers.
The taxi lobby, which bemoaned a circumvention of the hard to obtain taxi licences,
is strong in Austria. Therefore, after a short but punchy fight, Uber settled on a
compromise and now engages only licensed car rental companies as contract
partners instead of self-employed drivers. Up to now, this trade-off is accepted by
Austrian authorities due to the assumption that only regular employees of car rental
or taxi companies falling under the “Collective Bargaining Agreement for Passenger
Transportation with Automobiles” are engaged as drivers.
The current system is miles away from the initial idea of an independent
intermediation agency working with self-employed drivers only. All in all, the Uber
concept is not to be seen as a success story in Austria so far.
But “Uberisation” is an unfair term if taken as a catch-all word for the phenomenon
of debatable self-employment. Much more is at stake for consultancy business (of all
sorts) and marketing businesses such as franchises and sales agents.

Austria – a daunting example

As an example, Austrian labour law is highly regulated – overregulated, in the
view of many experts. Myriads of laws, regulations and collective bargaining
agreements make it a “provision jungle” so that Austrian employment law is a
slippery ground for entrepreneurs and employers.
Due to a rich trade union history in the wake of the Second World War,
Austrian labour law regulations are very socially oriented and employee friendly.
Collective bargaining agreements cover almost every industry sector and not
only single employer undertakings. They usually provide detailed regulations
e.g. with regard to minimum wages (and regular wage increases), working
conditions and general conditions for the termination of the employment
relationship.
Modern work: technology, change, brand, risk

Various forms of engagement

Generally, three forms of engagement are known: the regular employee, who is fully
integrated into an employer’s business and subject to the employer’s control and
binding guidelines; the self-employed contractor, who performs a certain definable
and distinguishable piece of work using his own tools on basis of a service contract
independently and the freelancer as some kind of hybrid between the other two
categories.
In most countries, two of the mentioned three employment categories are
customary; however, freelancers are usually deemed as self-employed. In Austria,
for example – very much to the typical Austrian approach to find a pragmatic
workaround for every problem – a freelancer is handled like a regular employee in
terms of social security only. With regard to all other aspects (such as labour law
protection or tax) a freelancer is deemed as self-employed, with fewer protections.

Choosing the correct type

The choice of the correct engagement form can be tricky. Different interests
influence the decision process. The concrete contractual framework has an initial
impact on the labour and social law treatment of the relationship, but does not
determine it.
In short:
XX aregular employee enjoys full protection of labour law regulations. The employer
is obliged to pay social insurance contributions according to the Austrian General
Social Insurance Act (ASVG) and ancillary wage costs. The employer is obliged to
deduct wage tax and pay it to the tax authority;
XX aself-employed contractor does not enjoy the protection of labour law
regulations. She is fully responsible with regard to her social security contributions
according to the Austrian National Industrial Insurance Act (GSVG); and
XX afreelancer’s hybrid status becomes evident with this regard: she does not enjoy
protection of labour law regulations and is responsible for paying income tax
herself (like a self-employed contractor). In terms of social security contributions,
the freelancer is also chameleon: if she holds a (suitable) trade licence, she is
insured according to the GSVG as self-employed, if not, she is insured according
to the ASVG like a regular employee.

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 Modern work: technology, change, brand, risk

Self-employed in CEE countries (% of total employment)

30

25

20

Poland
15 Czech Republic
Slovakia

Slovenia
10
Hungary

0
1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: Lipták ‘Is atypical typical? – atypical employment in Central Eastern European countries’ on the basis of
Employment in Europe 2010 data, and updated by Taylor Wessing to July 2015

The fiscal crisis and reinterpretation of status

Self-employment and other atypical work arrangements have remained robustly
common in CEE countries with 3 of 5 countries remaining above European average
figures. However, the trend is downwards (unlike in the UK). But in Austria, across
the board, courts and authorities tend to reinterpret contractual agreements
between supposed self-employed parties as regular employment relationships in
the course of respective public levies audits. In Austria, the auditing social insurance
companies have an interest in such reinterpretations because this means revenue for
them.
It even appears there is competition between the big social insurance systems (both
state owned).
In the case of such reinterpretation, the redesignated employer has to pay additional
payments for social security contributions and ancillary wage costs for up to five
years back, which is a real concern. Back payments for tax are a matter of the
concrete individual case.
A reinterpretation in a civil/labour law respect raises other questions. A redesignated
employee could claim minimum wages according to the applicable collective
bargaining agreement, special payments such as customary 13th and 14th
instalments (mandatory holidays and Christmas allowances according to the CBAs),
paid vacation leave, sick pay, severance payments, etc. Such massive payment
obligations are capable of sending a company into insolvency.
Modern work: technology, change, brand, risk
Across Europe, pressure
on public sector finances
can result in increasing
assessment and collection
burdens on business,
imposed through the use of
deemed employment status.
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The crux of the matter
Not even the best contractual framework is able to protect against such
consequences. Surveying authorities never tire of emphasizing that the examination
subject is not the contractual paperwork but rather how it is applied in real life.
At times one could have a hunch that this principle is applied capriciously by the
authorities. In some cases it is just not possible to use one’s own equipment/
operating material. Sometimes, a large assignment makes it unrealistic to have
several other principals or customers which leads to the assumption of the sole
reliance to one principal, and employment status.
A number of different cut-down employment versions are established in different
European countries to stimulate the economy, for example:
XX in Germany (mini-jobs);
XX Slovakia (quasi-employment relationships for part-time employees); and
XX Poland (so-called “trash contracts” according to civil law regulations instead of
labour law regulations).
The success prospects of these are highly local and specific to individual countries.
Mini-jobs or zero hour employment relationships, or work on demand constructs
will most probably not work in Austria. Such contracts would be deemed as regular
employment relationships by the local authorities as well as courts.
Two 2015 incidents in Austria show the problems that even public institutions have.
One case concerned a Salzburg regional hospital, where a team of doctors had
been engaged (as a consequence of a political decision) on a service-contract basis.
The situation resulted in the reinterpretation of the contractual relationships of the
doctors as well as a number of other affected service contracts of the province of
Salzburg. Additional sums of €1.3m of social security contributions and €2.7m of tax
were payable by the province of Salzburg as the owner of the hospital according to
media reports. Another case concerned the General Accident Insurance Institution,
which is an integrated part of the social security system. A doctor was engaged for
the purpose of conducting mandatory occupational medical support for specific
districts. The case also ended the reinterpretation of the contractual relationship by
the Austrian Administrative High Court.
There is a strong public sector interest in self-employment status: it is not just
a question of private business seeking to reduce labour cost. This is seen also
in the UK, whose IR35 rules prevent disguised employment through the use of
personal service companies by directors. These rules are thought to generate
some GBP550million p.a. from over 200,000 business directors. However, the
UK tax authorities also calculate some GBP430million will be lost in 2015 through
enforcement difficulties. So they are consulting about passing the assessment
and collection burden on to end users, in a similar way to a collection system for
mainstream employment.
Across Europe, pressure on public sector finances can result in increasing
assessment and collection burdens on business, imposed through the use of deemed
employment status.
 Modern work: technology, change, brand, risk

Certainty and its absence

A downside of many regimes is the lack of a real and binding preliminary review of a
specific contractual relationship upon request. In contrast to Germany, where such
an institution exists, Austrian law only knows a preliminary opinion with regard to
social insurance, which means a company can ask the social insurance company
if it is not sure whether a specific contract is to be deemed as service contract or
regular employment contract. But the opinion does not have any binding force and a
subsequent authority audit may come to a different result. In Austria, this unpleasant
situation is reinforced by the fact that there are nine different social insurance
companies (one for every provincial state), which theoretically can hold diverging
views with regard to the same factual situation and often do.
There is little consistency between the choice of status made between workers and
those who engage them, and the approach of the tax authorities. It can be possible
to preserve tax efficiency, through the use of limited companies and partnerships
(sometimes in combination) which create separate legal personalities and help
reduce taxation and social security costs of the individual’s remuneration.
Even if these lower tax structures are upheld, the question of professional rights
does not necessarily follow this tax status. They may still have quasi-employment
rights. For example, UK law firm partners can have “worker” status, with the
social rights referred to elsewhere in this report (see “Standing in the way of
control”). Under UK case law as at autumn 2015, those protections can also include
whistleblowing rights, and rights to claim age and sex discrimination – even where
the individual operates through a company with separate legal personality. That is to
say that a company or a partnership can claim discrimination too if “the corporation
in question reflects the characteristics of one individual (or possibly a group)”.
In modern work structures, the hunger of the authorities for tax and worker
protections means there is a strong appetite to eat away at the boundaries of legal
personality. Businesses need to be farsighted in designing and operating structures
that can withstand scrutiny from those they work with, as much as the revenue-
gathering authorities.

Wolfgang Kapek/Manuel Muellner

Vienna