a. Factors that Determine Who is an Employee and Who is an Independent Contractor
Under the current Austrian labor law regime, the determination of whether an individual is a standard employee or an independent contractor hinges on their personal and economic dependence upon the employer. Austrian employment law provides many protections for the rights of employees. However, these protections are subject to numerous exceptions depending on the specific classification of the employee.
Austrian employment relationships still operate with an antiquated distinction between white collar and blue collar workers. This distinction provides different protections to separately classified employees. Blue collar workers refers to those employees who perform predominantly manual labor and white collar workers refers to those who perform non-manual labor. Due to the basic disparity in power relations between an employer and a blue collar worker, Austrian statues confer substantial protections to blue collar workers and lessened protections to their white collar colleagues. The distinction between full-time employees and an independent contractor (whether blue or white collar) is based on the level to which the employee operates under the professional purview of the employer. The typical employment arrangement entails an employee working directly under the employer’s control, on the employer’s premises, and using the employer’s resources to carry out their assigned tasks. Another cornerstone of the typical employment arrangement is the employee’s economic dependence upon the employer for their livelihood. Typical employment arrangements, like service contracts or freelance labor, do not have these same characteristics, and therefore fall under a different set of laws and regulations.
The current body of Austrian labor law allows for different kinds of independent contractor arrangements that confer varying degrees of protections and benefit entitlements to contractors and employers. The two most prominent legal forms of non-standard employment arrangements are Service Agreements (Freier Dienstvertrag) and Agreement for Work and Services (Werkvertrag). Within the scope of the Service Agreement, an employer agrees to hire an employee to provide limited services for a definite period. However, the affected employee is not as fully integrated into the em-ployer’s organizational chain or as dependent upon the employment for their continued livelihood as a typical employee. Furthermore, the contracted employees generally use their own resources to carry out the contracted tasks and do not generally guarantee the success or sufficient quality of the agreed services. This service agreement usually covers either students or pensioners who work part time, providing only a limited number of hours per week.
There are differences in legal substance between the freier Dienstvertrag, the Werkver-trag, on the one hand and the Dienstvertrag on the other hand. Employment may be defined as Dienstvertrag if the employment relationship entails a majority of the follow-ing factors:
- an ongoing employment relationship,
- the employee’s relative independence from the employer for continued livelihood,
- a lack of binding organizational directives such as an employee handbook,
- the contractor is free of restrictions upon personal behavior,
- the employee’s ability to regulate some facets of their own work product,
- the employer only need provide the essential operating resources, while the employee contributes their own tools to complete the contracted task,
- the contractor has no obligation to perform the work or service personally, and may sub-contract the assigned project.
b. General Differences in Tax Treatment
Generally, Austria has a progressive income tax structure that applies tax rates that range from zero to fifty percent depending on the competent regional authority’s end-of-year taxable income assessment. Employers deduct their employees’ income tax at the source and redirect it to the competent government authority. This monthly deduction is count-ed against the employee’s annual income tax liability, which is eventually balanced at the yearly tax assessment, taking into account the employee’s full income declaration. The Austrian Income Tax Act (Einkommensteuergesetz) lists specific types of income that fall under its purview. These mentioned types of income include income from agricul-ture, self-employed work, tradecraft, standard employment, capital gains, and from real estate.
Within this tax structure, if an employee is classified as an independent contractor, then they will be treated as if they are self-employed persons. With this classification, they are subject to standard income tax, but remain exempt from earnings tax. As stated earlier, they must settle their income tax payment in accordance with their annual taxable income (less deduction). The minimum income threshold that activates Austrian income tax in this setting is € 11.000.
c. Differences in Benefit Entitlement
Austria implements a strong social security system that requires employers to direct both their employee’s social security payments and the employers’ portion to the Regional Health Insurance Fund. Within Austria’s social security system, employees make contributions based on their income. Employee contributions generally amount to approximately 18% of their calculated gross income. Minutely different rates apply to blue and white collar workers. These contributions are capped at €4.980 per month for normal remuneration, and €9.960 per year for special payments. Furthermore, low income employees are exempt from making contributions to the system, the threshold for this exemption being €425,70. Since 01.01.2017 there is no daily threshold for this exemption anymore. In addition to employee contributions, employers make similar con-tributions to the social security system – paying approximately 22% of their employee’s gross income.
Independent contractors who have a monthly income lower than the minimum thresh-old that would trigger mandatory social security contributions still require a certain de-gree of insurance. If an employer agrees to enter into a service contract with this inde-pendent contractor, they must enroll the contractor in an accident insurance institution before the commencement of employment. Additionally, the independent contractor whose income falls below the minimum threshold may enroll directly for supplementary health and pension insurance.
If the independent contractors’ monthly salary exceeds the minimum threshold listed above, they are required to register as independent contractors with the Regional Health Insurance Fund. Once they complete this registration, they are covered by standard Aus-trian social security protections – including accident, health, and pension insurance. Fur-thermore, Austria has recently enacted litigation that requires independent contractors who have a monthly salary above the minimum threshold to sign up for unemployment and bankruptcy insurance on a voluntary base, which in turn entitles them to unemploy-ment entitlements if the well runs day and they cannot maintain consistent contracted employment.
Independent contractors’ social security benefit entitlements mainly differ from stan-dard employees’ in that the employer’s insurance obligation to draw the employee’s monthly contributions as well as make their own contributions to the social security fund cease once the contracted employment relationship ends. The end of the employment contract, and therefore the employer’s obligation, legally ends once the independent contractor no longer has a claim for remuneration.
d. Differences in Protection from Termination
According to the Austrian General Civil Code (Allgemeines Bürgerliches Gesetzbuch) independent contractors do not enjoy the same level of protection as normal employees. However, in the realm of protection from termination, the same provisions that apply to standard employees apply to independent contractors. Therefore, the same procedures of notice or exceptions to the requirement of notice that bind employers in standard employment arrangements, similarly bind employers when seeking to terminate independent contractors. Independent contractors cannot challenge the termination for being socially unfair. Furthermore, independent contractors cannot take legal action against any notice given on unlawful grounds. In order to establish the independent contractor’s employment with a given employer they need not have a written contract, although it is preferable to have one. If the employer does not create an employment contract, then they are at the very least required to hand out a service note to any contractor insured under Austria’s General Social Insurance. This note should include a general summary of the services contracted.
However, independent contractor’s rights fall short of those guaranteed to standard employee’s rights regarding post-termination remuneration. Since independent contractors are not protected by the provisions of the Salaried Employees Act, they are not qualified for entitlement of accumulated vacation days, and continued remunera-tion based on severance. Further, during the period of their employment, they are not protected under the other various rights conferred by the Salaried Employees Act, including the Working Hours Act, and the Act on Rest Periods.
e. Local Limitations on Use of Independent Contractors
As already mentioned every activity or project arising from an employer-employee relationship can also be the subject of an independent service contract. There are only a few branches with limitations on use of independent contractors, like in the federal public sector. Furthermore, an apprenticeship is a special employment contract and by law cannot be concluded with independent contract.
f. Other Ramifications of Classification
Generally, Austrian courts and Austrian law heavily lean towards protecting employee rights, as the foundation of Austrian labor law is the presumption that the employer holds the upper hand in negotiations with its employees. One specific ramification of this tendency is especially apparent in the scenario of hiring foreign workers within Austria. Employers are free to have a choice of law when hiring foreign citizens legally resid-ing and working within Austria. Therefore, the employer in this scenario may choose to apply the foreign law to this specific employment agreement. However, taking into consideration Austria’s tendency to protect employees, if the employee challenges that employment agreement as unfavorable, especially when compared to the minimum standards of relevant Austrian employment law, the courts may still find that Austrian law will overrule the disadvantageous foreign employment law terms and disregard any pre-existing contract that the parties signed.
g. Leased or Seconded Employees
In Austria an employee leasing agency is obligated to have a business license in accor-dance to the provisions of the Trade, Commerce and Industry Regulation. Basically, since leased employees are not excluded from the scope of mandatory provisions under employment law, all these provisions apply to leased employees as well as to non-leased employees. Additionally, the Temporary Work Act (Arbeitskräfteüberlassungsgesetz) includes further provisions concerning minimum legal standards.
In case of a secondment from an EU- or EEA country or Switzerland the secondment has to be notified electronically to tze ZKO one week prior the commencement of work in Austria. The foreign employer has to keep a copy of the residence and work permits or certificates as well as the employee’s social security document (A1 or E101) available at the place of work for the whole duration of the secondment. The authority can impose fines in case of infringements of these obligations. For secondments from other countries, a secondment permit or an employment permit are required under the Employ-ment of Foreign Nationals Act (Ausländerbeschäftigungsgesetz – AuslBG).
However, to protect temporary workers from discrimination compared with regular employees in recent years several individual acts were created, for instance the Temporary Work Act (Arbeitskräfteüberlassungsgesetz) or the Employee Protection Act (Arbeitnehmerschutzgesetz).
h. Regulations of the Different Categories of Contracts
In the absence of a specific agreement between an employer and an independent contractor, the regulations of the Salaried Employees Act (Angestelltengesetz), the vacation law, the Working Hours Act (Arbeitszeitgesetz), the Act on Rest Periods (Arbeitsruhegesetz) and the Continued Remuneration Act (Entgeltfortzahlungsgesetz) do not apply to independent contractors. Their legal relationship is only determined by the Austrian General Civil Code (Allgemeines Bürgerliches Gesetzbuch – ABGB). Nevertheless, contractors are also involved in the system of pension funds for staff and the self-employed (Mitarbeiter- und Selbständigenvorsorgegesetz – BMSVG).