Freelancers vs. employees: What businesses need to know to comply with the new social security regulations

The recent social security Law 4387/2016 sets new criteria to distinguish freelancing from dependent employment, based on income source.

Dependent employment is assumed by social security authorities, when income derives from a systematic -and not opportunistic/periodical – exercise of an occupational activity and the provision of services is linked with up to two sources (natural or legal persons), on an exclusive basis.

 

As a consequence, insured employees are now required to declare their employment relationship on their monthly invoices.

From a legal standpoint, it is highly problematic to distinguish between “permanent” and “temporary” employment, since in a gig economy neither the employee nor the EFKA Social Security authority, which is competent to "ratify" the nature of employment, can safely implement the above regulation. Furthermore, this could lead to an inconsistent interpretation of the same relationship from an employment and a social security law perspective.

Moreover, the above measure is expected to cause a discord in the relationship between the two parties, as the "counterparty" employer should be held responsible in advance for covering the corresponding contributions and make explicit reference of the employment relationship in the Analytical Periodic Report, to be submitted to EFKA monthly.

In case the employer refuses, for whatever reason, to arrange the relevant registration in the Analytical Periodic Report (either questioning the permanent nature of the relationship, or because of the high cost of the associated social security contributions), the employee can notify EFKA and initiate administrative proceedings. Until, however, the competent bodies of EFKA rule definitively on the employment relationship, the insured employee will bear part of the social security contributions, as self-employed, which means that he/she will be required to deduct 9,22% of his income. On the other hand, the employer is bound to partially cover his corresponding contributions, only when he/she employs a salaried employee and grants additional payments, whereas the employee issues the associated invoices.

Following the above, it is evident that employers engaging individuals solely on an invoice basis or keeping them in their monthly payroll while simultaneously granting additional payments, based on invoices, should carefully reconsider their existing relationship, based on the following:

  1. To mitigate the risk of lengthy administrative procedures which may involve litigation, it is suggested to initiate a fruitful dialogue with the individuals falling into the scope of the aforementioned provisions, aiming at a rationalized evaluation of the new contributions’ framework and its economic impact to the business.
  2. In case of company’s employees, who supplementary issue invoices, the company should consider modifying the set terms/conditions or bear the burden of social security contributions on their behalf.
  3. In case of employees who solely issue invoices, the company should again exhaust, at first, all possibilities of sharing contributions with the employees, recognizing, however, the dependent nature of the job strictly to those, who fulfil the required criteria.
  4. Eventual employees’ claims, who despite retaining a 'flexible' relationship, request the sharing of the total due amount of contributions with their employers, should be evaluated as abusive.
  5. In case the nature of work rests on the boundaries between "permanent" and "temporary" employment, the parties can apply for judgement to the competent bodies of EFKA.
  6. Unilaterally transferring the relevant social security contributions’ cost to the employees’ monthly salaries (relating to a reduction of up to 22%), in order to avoid the relevant burden of contributions (13.33%), is unlawful. Instead, it is suggested, where applicable, to adjust the terms of the relationship as to the party eligible to pay social security contributions.

In any case, the role of the legal advisor to "illuminate" the "gray zone" between dependent and independent service providers appears more compelling than ever.

 

KREMALIS | Ius Laboris Greece | Global HR Lawyers
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