Well, technically you are correct… IR35 doesn’t affect contractors working physically in another country. However, the UK is catching up with the EU and the majority of countries already have disguised employment law to tackle the misclassification of temporary and contingent workers.
In a lot of instances, these laws put direct risk, fines and penalties on some (if not all) of the supply chain. Typical examples of this are the DBA Act within the Netherlands (see our recent blog for specifics) and Germany with Scheinselbstständigkeit.
The easiest way to avoid any problems with the local authorities is to understand the requirements and pitfalls of any misclassification of a temporary worker’s employment status. Without having a decent grasp of local laws, you simply will be unable to grow within that territory and offer a compliant means of temporary labour to your clients.
There are a few general points that lead to the contingent worker needing to be treated as an employee for tax purposes (albeit a temporary engagement).
If the worker:
- Is under the control of another person who directs as to how, when and where the work is to be carried out.
- Is unable to subcontract the work being provided.
- Is not providing tools or equipment for the job.
- Does not assume any responsivity for investment and management in the business.
- Is completing a same or similar role to a permanent employee.
- Does not supply materials for the role.
- Is not exposed to personal / financial risk in carrying out the work.
- Is invited to client social events such as Christmas parties.
- Is working set hours.
- Is working for one client or business.
For those businesses and clients looking to investigate the idea of engaging either a Self-employed/Sole trader or local independent business registered within the country of work, there are a few general rules that can determine if an assignment would fall foul of the local laws. We would also highly recommend obtaining legal advice from an in-country specialist to understand the nuances of the local labour/employment laws.
If the worker:
- Has control over what is done, how it is done, when and where it is done and whether he or she does it personally.
- Is free to hire other people, on his or her terms, to do the work which has been agreed to be undertaken.
- Provides tools or equipment for the job.
- Has the opportunity to profit from sound management in the scheduling and performance of the task.
- Provides his or her own insurance cover e.g. professional indemnity cover, etc.
- Cost and agrees pricing for the project or job.
- Provider materials for the job.
- Is exposed to financial risk by having to bear the cost of faulty or substandard work carried out.
- Controls the hours of work in fulfilling the job obligations.
- Provides the same service to more than one client or business at the same time.
Disguised employment has always been convoluted and unclear, so it is vital that you are clear on how you are engaging the temporary contractor, how they are operating and what risks this may pose to the entire supply chain.