Everything you need to know about false self-employment

Got a tax question? Our AI Tax Advisor will answer for free by email.

Bitte gib eine gültige E-Mail-Adresse ein

Ask your question

One of the biggest dangers for freelancers in Germany is possibly being guilty of false self-employment. This classification can not only end your freelance career, it can also have serious financial and legal consequences. 

But no reason to panic. Once you know the criteria of false self-employment, it is quite easy to assess your own situation and eliminate that risk. On this page, you’ll find all the information you need to understand false self-employment, as well as a free test to check whether or not you need to take action.

Take the test right now.

Table of content

• What is false self-employment?
• Who is affected by false self-employment?
• Who is checking for false self-employment?
  
• What are the criteria for false self-employment?
  
• What are the consequences of false self-employment?
  
• How can I reduce the risk of false self-employment?
  
• Test your status: Are you really self-employed
  

What is false self-employment?

The term false self-employment, or Scheinselbstständigkeit in German, relates to the unique case of a person who is officially registered as a freelancer, but, based on their duties and working conditions, is legally considered an employee.

The labor laws in Germany require businesses to officially register their employees, and they are also obligated to pay insurance for each of their staff members. If companies fail to do so, e.g. to save money for the insurance, they are guilty of fraud, and might face serious consequences for their actions.

Who is affected by false self-employment?

It’s not only the businesses who can come under fire for false self-employment. Freelancers themselves are considered to be just as equally guilty of fraud as their unofficial employers, and therefore also face potential fines and legal consequences.

It is a serious issue for freelancers in Germany, so you should understand the risks and criteria when registering your self-employed business. 

💡Nice to know: Even if you are operating as a small business owner, or Kleinunternehmer in German, you can still be guilty of false self-employment. Learn more about Kleinunternehmer in this article.

Who is checking for false self-employment?

There are a few different entities who can open an investigation into a potential case of false self-employment. These include:

• The German pension fund 
• The tax office
• A health insurance 
• The German labor court

It is also possible to ask for a status check yourself, and even your clients can inquire for an investigation into your collaboration. This might be the case whenever a client wants to prematurely terminate a contract, while freelancers might opt for investigation to benefit from the German protection from unlawful dismissal.

What are the criteria for false self-employment?

It is pretty difficult to prove false-employment, and it usually is a long process, requiring the revision of many different documents and contracts. Since it is considered to be a legal grey area, it is actually quite rarely proven beyond a reasonable doubt. 

The following criteria have to be met in order to prove false-employment:

• A freelancer is continuously spending more than 83% of their time working for a single client 
• and the income from that particular client is making up 5/6 of the freelancer’s revenue

Additionally, the official bodies will check if the freelancer is receiving direct instructions from that client and if they are part of the organisational structure of that company. 

Direct instructions are around:

• Working hours
• Place of work
• Duration of work
• Work execution

And you are considered to be part of the organisational structure of a company if you… 

• ...have your own place of work within the company
• ...are being paid for overtime as well as sick days and leave 
• …you are entitled to social benefits

What are the consequences of false self-employment?

False self-employment is considered fraud, and is not taken lightly by the German tax authorities. It can have serious consequences for both the client as well as the freelancer, that might well be career-ending. 

Consequences for clients 

If a company is found guilty of false self-employment, they are facing some serious legal consequences. 

First of all, the respective freelancer must be officially employed by the client and is entitled to receiving a regular wage as well as paid leave, and is protected against unlawful dismissal. 

In addition to that, the client has to retrospectively pay social security fees as well as income tax for the employee for the duration of their collaboration. 

That alone can have a substantial impact on a company’s cash flow, but there might even be a verdict of tax evasion lurking in the background if the courts in Germany determine that the client intentionally committed fraud. 

Consequences for freelancers

It’s not just the client who will be facing consequences for false self-employment. The freelancers themselves are actually also liable. This firstly means that their freelance status is revoked and they will be officially employed by their client.

What initially may sound not too bad quickly becomes more serious, as the freelancer is considered to be just as guilty of fraud as the client. Therefore, the new employer can deduct the outstanding payments for insurance and income tax from your wage, which massively impacts your earnings. 

Finally, if you are found guilty of false self-employment, you have to retrospectively adjust your issued invoices, and correct potential VAT payments as well. 

➡️ How to manage your taxes as a freelancer in Germany 

How can I reduce the risk of false self-employment?

False self-employment can quickly become a real problem. That’s why it is advisable to understand the criteria early on and to continuously check in with yourself to see if you may be wrongly considered self-employed. The following checklist can help you with that process.

Checklist for false self-employment

• Are you free to decide how to deliver your work?
• Are you free to accept or decline new work or projects?
• Are you able to negotiate the scope of your work?
• Do you use your own equipment?
• Can you set your own working hours?
• Do you generate income from several clients? (Remember, no single client should make up more than 80% of your income)
• If you only have one client, are you actively seeking new ones?
• Do you advertise or market yourself as an independent contractor or self-employed person?

If you answer “no” to any of these questions, make sure to address this sooner rather than later. One way to do this is by finding new clients to make sure that your income is not dominated by just one client. ➡️ Find out more about how to avoid false-employment in Germany

Test your status: Are you really self-employed?

Still not sure if you are really self-employed? Our free test will help you answer that question once and for all!

Neues E-book über den Einstieg in die Selbstständigkeit

20 Kapitel knallhart recherchiert und vom Steuerprofi geprüft

Kostenlos herunterladen

Author - Sophia Merzbach

Sophia has been a key member of the Accountable team for many years, bringing a unique blend of journalistic precision and in-depth tax expertise to her work.

Who is Sophia ?