Employment reclassification: what it means for your business

Hiring independent contractors or freelancers can be an efficient way to access specialized talent, but misclassifying employment relationships can lead to serious legal and financial risks. With the Dutch Tax Authorities resuming active enforcement from January 1, 2025, businesses must ensure their freelancer agreements are structured correctly to avoid reclassification into an employment contract.

Understanding false self-employment and how employment status is determined is key to staying compliant and minimizing risk. If a contractor’s role meets the legal criteria of an employment contract, authorities may decide that, despite the contract stating otherwise, the person is legally considered an employee. That reclassification can have major consequences for your business.

When does reclassification happen?

In the Netherlands, the nature of the working relationship matters more than the wording of a contract. Even if an agreement is labeled as a service contract, authorities look at how the work is actually performed. If the contractor is personally required to complete the work, receives a regular salary, and operates under your authority and direction, Dutch law may classify them as an employee. That means all labor laws, social security contributions, and tax obligations would apply, whether that was the original intention or not.

Reclassification doesn’t just happen through audits by the tax authorities. A freelancer may later claim they were, in fact, working as an employee, particularly if they face dismissal or illness. In such cases, they could argue that they were entitled to protection against dismissal, paid sick leave, and other employee benefits. Courts are increasingly ruling in favor of workers in these disputes, meaning businesses need to be careful about how they engage freelancers.

The financial and legal risks of misclassification

If a freelancer is reclassified as an employee, this can lead to significant financial consequences. The employer is then responsible for payroll taxes and social security contributions, which can result in substantial retroactive tax assessments. While no fines will be imposed in 2025 due to the Dutch Tax Authorities' “soft landing” approach, any unpaid employer contributions from January 1, 2025, onwards can still be recovered. Additionally, pension schemes may also apply retroactively, adding further financial strain.

Beyond tax liabilities, misclassification can trigger employment law protections. The freelancer may gain job security, paid sick leave, and vacation pay. If a company falls under a collective labor agreement (CAO), those terms could also apply to the reclassified worker, increasing labor costs. Legal disputes can follow, with claims from reclassified workers leading to drawn-out court cases, reputational damage, and even financial settlements.

How to stay ahead of reclassification risks

With stricter enforcement coming in 2025, businesses need to take a proactive approach. Reviewing existing contracts and ensuring the work structure aligns with genuine self-employment criteria is crucial. If a contractor works exclusively for your business, follows strict working hours, or operates under direct supervision, it’s time to reconsider whether a freelance arrangement is legally viable.

Businesses should also consider seeking advice in advance rather than waiting for an audit. The Dutch Tax Authorities offer the possibility of reviewing cases, which can provide clarity before any enforcement actions occur. In some cases, adjusting working arrangements or transitioning freelancers to employment contracts may be the safest long-term solution.

Is hiring freelancers the right choice of your business?

Freelancers can bring valuable expertise, but hiring them correctly is more important than ever. The enforcement of employment classification rules is tightening, and businesses must be prepared. If you work with freelancers, now is the time to assess whether your agreements and working arrangements align with Dutch labor laws.

Want to ensure compliance and protect your business? Our experts can help you review your agreements, minimize tax risks, and structure contracts correctly. Reach out to us today to find the best approach for your situation.