Clampdown on false self-employment

At a glance

• From 1 January 2025, active enforcement of rules targeting bogus self-employment will begin.
• Businesses or self-employed individuals risk fines for non-compliance with rules.
• Employers are urged to exercise caution in their contractual arrangements. 

The Employment Relationships Deregulation Act (DBA Act), introduced in 2016, was designed to provide clarity regarding the status of individuals working as self-employed contractors. Its goal was to establish clear criteria for both clients and contractors to determine whether a worker is genuinely self-employed or, in reality, should be classified as an employee.

Despite these intentions, the introduction of the DBA Act resulted in widespread uncertainty as to whether a contractor qualified as genuinely self-employed or should be classified as an employee. To mitigate this uncertainty, a moratorium on the enforcement of the Act has been in place since 2016, giving businesses and contractors time to adjust and properly structure their working relationships in accordance with the law. The moratorium means the Tax and Customs Administration temporarily has not been taking enforcement action unless there is malice or explicit intent to exploit false self-employment.

However, as of 1 January 2025, the moratorium will be lifted. The Tax and Customs Administration will resume active enforcement of the DBA Act, specifically targeting bogus employment arrangements. This means that fines or surcharges can be imposed on clients or self-employed individuals who do not comply with the rules of the DBA Act.

Recent developments in case law and proposed legislation concerning employment status indicate that a growing number of working relationships are likely to be classified as employment agreements. This trend carries significant implications for employers, as it introduces a range of legal obligations, including compliance with employment laws and responsibility for payroll taxes. Consequently, it is essential for employers to correctly determine the nature of the employment relationship. Properly classifying these relationships is not only important to avoid legal disputes, but also to prevent unexpected financial burdens, such as tax penalties or back payments. The changing interpretation of employment relationships highlights the need for employers to exercise caution in their contractual arrangements.