When one would look at the sheer effects of an individual fiscal/labour law, the DBA Law (i.e. Deregulation of the Assessment of the Labour relation) in The Netherlands is arguably one of the worst fiscal / labour laws in history.
Under the influence of this law – which was (as always) created with the best intentions by the Dutch liberal_conservative / labour government of Prime Minister Mark Rutte – perhaps more than half a million freelance knowledge workers are on the brink of losing their assignments and (thus) their jobs and sources of income.
What is the point?!
Freelance knowledge workers (and as a matter of fact all freelancers) have a number of ‘advantages’ for large employers (i.e. the principals) that normal workers don’t have:
- They have
fiscal advantages, like a starters’ rebate and an freelancers’ rebate,
which yield substantial discounts on their tax payments;
- Both the freelancers and their principals don’t
have to pay social premiums against death, sickness or permanent disability on their behalf, which
reduces their costs of labour substantially;
- The build-up of pension money is considered the responsibility and ‘problem’ of the freelancer himself. That sheer fact also substantially reduces the costs of labour for large principals;
- And last, but not least, when the project is finished and the work is done for the freelancer or in case that a freelance worker does not ‘fit in the team’, it is much easier to end his contract and dismiss him (or her): no strings attached and no hassle with the agreements within the fixed labour contract afterwards.
In other words: in spite of the substantial hourly fees that a freelancer requires, they are a relatively cheap and sensible solution for many large employers, due to the fact that they require less administrative hassle and carry less legal and financial risks for large companies. This largely explains the unprecedented popularity of freelance knowledge workers in the financial, the legal and commercial services industry and other knowledge-intensive industries.
However, for the Dutch government the main problem of this widely used method of hiring labour lie in the fact that these freelance workers enjoyed a substantial (and to government eyes unjustified) fiscal advantage, in comparison with normal workers. The aforementioned fiscal favouring was initially aimed at small, “real” entrepreneurs (like owners of small retail shops, small business entrepreneurs or small, but independently working handicraft workers), in order to help them mitigate the risks of financial their independence.
Yet, these knowledge workers with their relatively limited operational risk, due to their “one hour, one invoice” (in Dutch “uurtje, factuurtje”) working method and their virtually non-existent, structural investments in their company or working inventory, also collected this fiscal advantage, at the expense of roughly 15% of their annual fiscal payments. This gave them a competitive edge in comparison with normal workers, as they could work roughly 15% cheaper than the fixed personnel.
And on top of that: in relatively recent years (the starting point lie roughly five years ahead in the 21st Century) many companies in the construction industry, but also in (cheap) commercial and logistical services, started to abolish their fixed contract workers. They exchanged them for workers on project-based freelance contracts, which were often – but not always – the same workers as before: also regularly “expensive”, Dutch workers were replaced by cheap workers from the Eastern European countries.
Many postmen, post-office workers, lorry drivers and construction workers with a good salary and a decent fixed contract with sufficient labour protection – that they hoped would last them until their retirement – were suddenly ‘forced at gunpoint’ (i.e. by firing and hiring them back) to give up their fixed labour contracts.
They had to exchange it either for a freelance contract with a job guarantee for the duration of a project or period (i.e for a number of months or years) or even for an unfavourable piece-wages contract (hence: the postmen and post-office workers): “Accept it, or leave and be replaced by a cheap worker from Eastern Europe” was the explicit message of their former employers / new principals.
And that was when things started to turn really sour for the Dutch goverment.
Not only were massive amounts of freelancers (recently over a million) nibbling away the tax advantages that were aimed at the real freelancers, but in many cases this money was in fact directly handed over to the large principals in the form of discounts on social security payments and reduced hourly fee rates.
On top of that, there were numerous cases in which freelance workers – especially the ones in very vulnerable positions – were abused by their principals, as these knew the vulnerability of their freelance workers and (ab)used that knowledge to get their hourly rates down. The victims of this modus operandi were moderately educated Dutch workers in simple, labour-intensive jobs, but also foreign workers who were hired and deployed against very unfavourable contracts. These people earned just enough money to live from, but had not enough money to build up a pension and maintain a decent sickness and disability insurance.
And so the Dutch government got stuck with a growing group of vulnerable, underpaid and under-insured freelance workers, who posed a growing risk for the stability within the Dutch labour market and society, under the pressure of the enduring financial crisis and the stalling economy.
Unfortunately, however, the Dutch government had the right vision upon this enigma, but found the wrong solution to solve the problem.
For the Internal Revenue Service in The Netherlands (i.e. Belastingdienst), there were traditionally quite strict differences between a real freelancer and a normal worker. A freelancer was someone without an official ‘boss’ or superior, without fixed assignments and without restricted labour hours; in other words, someone who was result-responsible, and not only committed to achieve the result.
Nevertheless, the responsibility traditionally lie with the freelancer himself, as it was established in the form of the ‘labour relation declaration” (i.e. the “VAR verklaring”), in which the freelancer stated that he was really an independent worker, who was in full control of his working activities and employment. Once this official document was handed out to the freelance professional, his principals were officially preserved against counter measures from the Dutch IRS.
However, in June of the year 2016 this VAR verklaring was replaced by the aforementioned DBA Law, that made the principal co-responsible for the freelancer being a truly independent worker and not a false self-employed: independent in name only, but in reality solely committed to his temporary employer and totally equal to a fixed contract worker. That is, without the social security and pension payments and without a social parachute against sickness or disability.
And the most scary part of this new DBA legislation was, that the IRS could decide independently and reciprocally whether a freelance consultant had been a genuine freelancer indeed or a false self-employed in disguise.
And that is where the sh*t started to hit the fan...
Under the influence of anxious legal counsels, who were frightened for the financial consequences of their companies having “not-so-freelancers-who-could-prove-to-be-false-self-employeds-after-all” more and more companies started to abolish their freelance workers, as they posed a risk for the financial and legal wellbeing of the company. Those were banks like ABN Amro and ING, but also large commercial service providers like Brunel and many, many others.
And the more the Minister Lodewijk Asscher of Social Affairs and especially State Secretary Eric Wiebes of Tax Affairs waited with making official statements in order to take the unrest away caused by the law, the more anxious the large principals became. And when State Secretary Wiebes finally responded to the side-effects of the law a few months ago, his reaction was more akin to ‘extend and pretend’ than that he offered a real solution for the raised questions and concerns.
Wiebes’ reaction was almost equal to the reaction of the pre-World War II Prime Minister Colijn in The Netherlands, when he was confronted with the mounting German danger: “Please go to sleep quietly. Everything will work out fine!”
In this case Wiebes asked everybody to “go to work happily, as everything would work out fine”. Most large principals and their lawyers, who remembered this infamous statement by Colijn, drew their conclusions and panicked.
And now, a few odd weeks ago, Wiebes responded in a debate in the Second Chamber of Dutch parliament that he would postpone the enforcement of the law until January 2018. This means that the Dutch IRS only warns companies and freelancers, who are allegedly breaking the law, but does not penalize them.
This postponement did of course… nothing to take away the unrest.
As I stated earlier in this article, it is the reciprocity that has the large and smaller principals worried about. It is the knowledge that somewhere in the future companies can get penalized for presumed offences against this law, of which the rules are maintained by the IRS – which is both claiming party and primary judge in such cases – while there still is no jurisprudence at all. Now the large and small principals wait until the first presumed offender runs the gauntlett and starts a test trial against the IRS. That won’t now happen before January 2018, as only than the IRS will start to penalize alleged offenders.
This proves why this postponement of State Secretary Eric Wiebes is “a useless postponement of inevitable events”: events that have companies worried sick.
Instead of taking away the source of uncertainty that companies and freelancers suffer from, he prolonged the uncertainty for a few months, while playing “extend and pretend”.
So even though this DBA law has been deployed with the best intentions, the results are catastrophic for too many freelancers and also too many principals, who are temporarily strapped for commercial and ICT professionals during the execution of their projects, but don’t want to have them on the payroll in a fixed contract. Even though I can’t prove that this law cost me my career as ICT freelancer, it did not help it certainly.
Therefore I am asking both the Minister and the State Secretary to abolish this law, as it is currently creating havoc in a labour market with over half a million successful and certainly not underprivileged knowledge workers.
Go back to the drawing board and create a better law that does protect the really underprivileged freelancers in very vulnerable positions, like low-educated construction workers, underpaid postmen and post-office workers or lorry-drivers and low-educated workers in the agricultural industry. Those are the people that need a strongly improved protective law, like this one intended to be.
But you better leave a labour market to peace that does not need your intervention, as the freelance workers, as well as their principals have been able to work successfully and keep afloat for more than thirty years.
On top of that, State Secretary, you should do one more thing, even though the liberal-conservative VVD party will probably try to kill you for that:
Please make an end to the Starter Toeslag (i.e. a 'Starters' rebate) and the Zelfstandigentoeslag (i.e. a continuous tax deducation for freelance workers and small enterprise owners) for ZZP’ers (freelancers). Maintain both laws for retailers and owners of small businesses alone, as these people do have high starters' investments and run substantial financial risks in their daily operation.
Freelancers hardly have to make investments to execute their job, as they mostly have few more expenses than a laptop computer, a rental car and some representative clothes. They neither have expenses emerging from maintaining an office and staff nor do they have high investments to make in inventory and an administrative system. And when they are sufficiently employable and ‘fit for the market’ they start making money from day one of working.
This means that in a normally successful year, such freelancers make more than enough money to pay their dues, build up a pension and pay for a disability insurance, while still earning a decent profit to live from. And when they are not so successful for a longer period, they should really ask themselves whether they have found the right job to do.
And there is more.
When these two tax deduction sources are abolished for freelance commercial, legal, financial and ICT workers, this would make an end to the “false” competition with normal workers, who have to pay the full amount of taxes each year. Now the freelancers have a tax advantage of roughly 15% in comparison with normal workers. This discount can give them the edge in the minds of large principals. That is not fair for normal workers.
When these tax deductions are taken away from the aforementioned freelancers, this pushes principals to give them a fair remuneration for their efforts. A remuneration of which they can live in the long run, without tax subsidies. And also this makes normal workers cheaper in comparison. Then such principals can make a fair choice.
But the DBA Law? That one is dead-on-arrival! Even if you postpone the penalty phase until eternity, companies will leave the freelance professionals like a dead rat! And that is really a shame for my former colleagues in the freelance business. And an unnecessary one!