DBA Act enforcement moratorium

Even after October 1, 2021, the Tax Authorities will not proceed to enforce the DBA Act, Minister Koolmees of Social Affairs and Employment and State Secretary Vijlbrief of Finance write in the seventh progress letter 'working as self-employed'. That letter was sent to the House of Representatives last week. The suspension of enforcement will now last at least until there is a new cabinet. The extension of the enforcement moratorium does not come completely out of the blue. Back in July, State Secretary Vijlbrief indicated in a debate that the moratorium would not expire in October. In this way, there does not seem to be an end to the issues surrounding the qualification of an employment contract and an assignment contract for the time being.

The DBA Act

In 2016, the DBA Act was introduced as a replacement for the Declaration of Employment Relationship. This law was intended to provide more clarity in the qualification of an agreement as either an employment contract or a contract for services. After all, the distinction between contractors and employees determines whether there is a withholding obligation for payroll taxes and an insurance obligation for employee insurance. Moreover, a self-employed person often earns more than an employee, while the client is not bound by legal provisions that protect the employee, such as protection against dismissal and continued payment of wages during illness. This makes the qualification issue a fraud-prone one.  

Pretty soon it became clear that the DBA Act did not bring the clarity and peace of mind that was intended. The Cabinet therefore decided to replace the law and until a good alternative was in place to suspend enforcement of the law. In the 2020-2021 Labor Relations Supervision Plan, however, the Tax and Customs Administration's authority to enforce has been slightly stretched. The Tax Authority can now enforce when there is malicious intent and when instructions from the Tax Authority have not been followed within the given reasonable period. However, with the already existing (staffing) problems at the Tax Administration, the very limited possibilities and corona-related problems such as implementation problems in audits and even more workload due to support measures, it is currently questionable how intensive that enforcement is.

The web module

The call for clarity and enforcement does come from practitioners. The employment relationship has traditionally been characterized by three main elements: wages, (personal) labor and the relationship of authority. The latter point in particular is one that may be subject to debate. Interviews conducted with various sectors indicate that the differences between salaried and self-employed work are too great. This creates an uneven playing field. Some employers feel unfairly competed by clients who hire self-employed workers, when in fact they are employees. In other sectors, because of scarcity and the preference of many workers to be self-employed, clients may feel compelled to hire self-employed workers when in fact they would be employees. They then take the risk of being penalized by the tax authorities for fear of staff shortages or losing clients.

In January 2020, the Borstlap Commission advised that reducing the (tax) differences between self-employed and employed people is a matter of great urgency. However, the advice offered no concrete proposals or alternatives to the DBA Act. Then, on Jan. 11, 2021, the cabinet launched a pilot with a web module. Here, clients can anonymously fill out a digital questionnaire. The outcome should provide more clarity as to whether a self-employed person may be hired for certain activities, or whether an employment contract must be concluded for this purpose. The purpose of the pilot is to gain insight into how the web module works and what it can mean for clients in practice. The results are not legally binding and no rights can be derived from them. The data that follow from the pilot through July 11, 2021 show that in 28% of the cases the 'indication outside employment' is given; in 33.9% of the cases there is an 'indication employment'. In 9.7% of the cases there is a so-called 'fictitious employment', where a contractor actually turns out to be an employee. In 28.4% of the cases, the web module could not make a judgment based on the information.

Future

The data collected from the web module will be used by the Cabinet to gain a better understanding of the assessment of employment relationships in practice compared to the current legal framework. In this way, the Cabinet hopes to gain a clearer picture of how the current qualification criteria work out in and for practice. However, the future of the web module and self-employment regulations lies in the hands of the new cabinet. Thus, five years after the introduction of the DBA Act, there is still no immediate prospect of a replacement, and the uncertainty for contracting parties and employers and contracting parties and employees will continue for some time. Now it is a matter of waiting for "a reasonably enforceable alternative.