Within Sweden, misclassifying contractors can have several negative consequences for the supply chain and more specifically the entity paying the self-employed/AB/Independent worker. Therefore, you must be comfortable with the classification of a contractor taking a role in Sweden.

There is no statutory definition within Sweden to define if a contractor is working as an employee or an independent individual, making it harder to determine and know if youare engaging/paying them correctly and have eliminated risk. Sometimes, “erring on the side of caution” is the best route.

The verdict of misclassification and if the independent contractor should have been paid in line with employment taxes and rights is determined on a case-by-case basis by the Swedish Authorities. There are  several factors that typically determine whether a worker would be deemed an employed type worker:

• Working onsite for the client.
• Having a long-term relationship with the same client in the same position.
• Utilising any of the client’s equipment or tooling.
• Being paid a fixed monthly/annual salary.
• Being restricted to providing service to other clients during the length of a contract or project.
• Being directed regarding start/end times of work and supervision of how to complete the contract or project.

Not all of the above does in fact need to be present to lead to an “employed type” worker.

It’s important to understand how to engage the individuals working for your client to ensure no risk to you. Misclassifying the contractor as independent when in fact, working as an employed type worker (albeit  temporarily) can lead to various issues such as:

• Due, backdated, payments of Employers Social Security – The gross funds paid to the “independent worker”, or company, from a recruitment agency or client could be retroactively deemed to have been employed income and salary. On this prior income paid, Skatteverket could charge the employer’s social security not paid to the entity that paid the independent worker or company. This can be backdated by several years.

• Fines – Skatteverket can impose additional fines on the entity that paid the misclassified worker for not making the correct tax and social security withholdings.

• Candidate claims – a contractor engaged wrongly as an “independent worker” can claim against the entity engaging them of entitlements they would have otherwise had as an employed type worker. These include:

• Unlawful Termination – if not in line with correct notice periods akin to an employed engagement.
  • Retroactive payments of employee benefits such as Pension.
  • Holiday pay.
  • Overtime.
  • Minimum wage in line with a collective agreement.

• Reputational Damage – Businesses that are found to be misclassifying workers may suffer reputational damage. This can affect relationships with clients, customers, and potential employees.

• Unions – There are many trade unions that actively monitor their members and relevant working sites, to ensure that individuals working there are receiving the expected remuneration and benefits. As self-employed individuals do not receive such things as holiday pay, sick pay or notice, in many instances the Unions wouldn’t deem this as a fitting engagement where applicable.

• Collective Bargaining Agreements – Some sites/clients will have collective agreements in place for individuals working for them or on a specific site. The workers’ remuneration package must fall in line with the elements in the collective agreement to ensure compliance on-site and to safeguard temporary contractors from exploitation.

It’s essential for businesses to understand the criteria for classifying workers correctly and to regularly review their workforce to ensure compliance with labour laws. Consulting with tax, legal and HR professionals can help businesses navigate the complexities of worker classification and avoid the dangers associated with misclassification.