a. Factors that Determine Who is an Employee and Who is an Independent Contractor
The Employment Relations Act created a legal framework to ascertain the legal nature of the employment relationship. The key test remains whether or not there is a relationship of authority/subordination between the parties. The new element introduced by the Act is that the intention of the parties (and therefore the mutually agreed legal status) constitutes the essential factor to determine whether or not a subordinate relationship exists. This is in line with the established case law of the Court of Cassation. Under this Act, re-qualification of the relationship (from self-employed to employee) and the resulting obligation to register with a different social security status, will only be possible in cases where certain factual elements are found to be incompatible with the qualification chosen by the parties.
The Act defines the four general criteria to be used in determining whether such factual elements exist in a particular case:
- the parties’ intention as expressed in the agreement: the qualification decided by the parties will be the starting point for the judge’s analysis of the nature of the contract; however, it is understood that the actual performance of the agreement must be in line with the nature of the employment relationship chosen by the parties.
- the worker’s freedom to organize his/her own working time: impossibility of freely organizing working time; obligation to strictly follow working days (performing a given number of hours, reporting any absence); execution of specific orders regarding specific tasks – all of these are elements that point to subordination.
- the worker’s freedom to organize his/her work: in the framework of self-employment, parties enjoy a wider degree of freedom regarding the organization and the practical execution of the work, even if it is accepted that general guidelines may be given to accommodate the requirements of the job itself (e.g. the opening and closing hours of a shop which, although placing an obligation on an independent contractor, do not necessarily indicate subordination). The absence of any obligation to justify the time schedule, freedom to work the number of hours of choice, complete freedom to choose the dates of annual vacations – all of these elements, in principle, indicate self-employment.
- the ability to exercise hierarchical control.
The Act also provides neutral criteria that are not relevant for determining the nature of the employment relationship. These criteria relate to a number of legal elements, which are mere formalities and concern the manner in which the contracting parties organize their relations with the social and tax administration. They contain no information regarding the way in which the parties perform the employment relationship. These criteria include the title of the contract, registration with a social security office, and registration with the Cross point bank for Enterprises, registration with the VAT adminis-tration, and the way in which the revenue is reported to the tax authorities.
Besides the general criteria, the Act also determined a list of specific socio-economic criteria, which apply in addition to the criteria listed above. They may not deviate from either the general or the neutral criteria laid down in the law. The Act sets out a number of examples: the possibility of hiring or replacing employees, working in places or with materials which are personal property, guaranteed pay, personal and substantial invest-ment in the enterprise with personal capital, power of decision over financial resources. The Act also provides a procedure for establishing these or other specific criteria in a determined sector or profession, or categories of professions by Royal Decree.
By means of an Act, in 2012, the Government reinforced its effort to counter bogus self-employment in some fraud-sensitive sectors, by introducing a refutable presump-tion (which can be reversed by all means of law) of the existence of an employment agreement, if, based on the contractual relationship, more than half of the following criteria are fulfilled:
i. Absence of any financial or economic risk for the worker, such as absence of a personal and substantial investment with his/her own resources in the undertaking, or absence of a personal and substantial part in the profits or losses of the undertaking;
ii. absence of liability and decision-making power in respect of the financial resources of the undertaking;
iii. absence of power of decision in respect of the purchase policy of the undertaking;
iv. absence of power of decision in respect of the price policy, unless prices are fixed by law;
v. absence of commitment in respect of the result of the agreed work;
vi. guaranteed payment of a fixed compensation without regard to the result of the un-dertaking or the volume of the work performed;
vii. not being an employer of personally and freely hired staff, or absence of possibility to hire personnel to carry out the agreed work or to be replaced;
viii. not acting as an undertaking towards other individuals or working usually or mainly for the same contractual partner;
ix. working in spaces of which one is not the owner or tenant, or working with materials provided, financed or secured by the contractual partner.
These criteria can be modified for per (sub)sector by Royal Decree.
Currently, the presumption only applies to:
- the construction industry;
- security and monitoring/surveillance activities on behalf of third parties;
- transport of goods and/or passenger transport on behalf of third parties, with exception for ambulance services and transport for disabled persons;
- activities falling within the scope of the Joint Committee for the cleaning sector.
b. General Differences in Tax Treatment
For the contractor of the self-employed worker, payment of the agreed remuneration will be made directly to the worker, without any required tax withholdings (however, in most cases, the value added tax will be generated). This means that the independent contractor is personally responsible for the tax obligations. Within the framework of an employment contract, mandatory source deductions must be made by the employer.
The level of income taxation for employees and self-employed individuals is similar. The income tax rate is progressive (the more the worker earns, the higher the tax rate). How-ever, an independent contractor can benefit from some tax advantages, for example, in the field of the writing of business expenses or by working through his own management company.
Social security contributions
The employer is responsible for the registration, declaration and payment of both the employee and employer’s social security contributions. The employee does not have to pay his social contributions by himself. The employer retains, each month, 13.07 % of the gross salary as personal social security contributions and pays a maximum of 35 % of the gross salary as employer’s contributions. In total, the social security contributions represent around 48 % of the gross salary of an employee (this stands for white-collars only, employer’s contributions on blue-collars are higher).
The self-employed person must register himself to a social insurance fund by the time he begins his activities. He will pay his own social contributions of approximately 21 %, every three months, to his social insurance fund. Contrary to employees, the social security contributions of a self-employed person are capped (i.e. beyond a certain amount of income).
c. Differences in Benefit Entitlement
Legally, independent contractors are not entitled to specific benefits. They normally only receive the remuneration agreed between the parties.
Apart from the base fixed salary, an employee will be entitled to benefits provided by law, such as, for example: Holiday leave and pay; End of year premium; Public holidays; overtime pay.
Social security benefits
The employer’s and employee’s social security contributions are used to pay:
- allowances in the event of sickness;
- unemployment benefits;
- allowances in the event of incapacity for work through sickness or invalidity;
- allowances in the event of accidents at work;
- allowances in the event of industrial disease;
- family allowances;
- retirement and survival pensions.
The self-employed worker’s contributions are fixed at a lower percentage than the joint contribution of employers and employees, and provide fewer rights. The independent contractor’s benefit entitlement covers four social security branches:
- family benefits, which includes childbirth or adoption allowance, monthly family benefits, and others benefits such as age-based supplementary payments and orphan allowance;
- retirement and survival benefits;
- sickness and incapacity insurance: covering some healthcare needs and incapacity for work (the self-employed person is required to register with the insurance fund of his choice);
- social insurance in case of bankruptcy: this insurance will allow the self-employed person to maintain his rights regarding healthcare insurance and family benefits for four quarters, and allow him to obtain temporary compensation.
In addition, the self-employed person will also benefit from a maternity insurance. As a rule, a self-employed person is not entitled to receive unemployment benefits, contrary to employees. It should be noted that the legislation on social security for independent contractors also applies to their caregivers. The caregiver is a person who, in Belgium, assists or supplies an independent contractor during the exercise of his function, but who is not engaged to him with any type of contract. The spouse of the independent contractor, or the person having made a declaration of legal cohabitation (provided that they do not have a professional activity as employee or independent) will automatically be considered as a caregiver and therefore, benefit from all the rules. This presumption is rebuttable.
d. Differences in Protection from Termination
The general termination modes of contractual relationships are the same for employees and self-employed persons. This stands, for example, for termination by mutual agree-ment, force majeure or judicial resolution of the contract.
However, for employees, there are a set of legal rules restricting the possibility to unilat-erally terminate their employment contract. Apart from the dismissal for serious cause, there are two methods of termination of an employment contract concluded for an in-definite period of time: either by giving notice or by paying severance compensation in lieu of notice. The duration of the notice period is, in principle, fixed by law and depends mainly on the seniority of the employee concerned.
It is important to note, that some employees benefit from a specific protection against dismissal based on their individual situation (e.g. maternity, trade union activities, com-plaint against sexual or moral harassment, etc.). Depending on the case, the protection involves procedure or motivation requirements and is sanctioned by a specific termina-tion indemnity fixed by law.
As a rule, there is no requirement to ask a court for permission to dismiss, except in very exceptional circumstances (e.g. for employees involved in trade union activities and representing the personnel in the Works Council, the Committee for Prevention and Protection at Work and/or the Trade Union delegation). Even under these exceptional circumstances in which prior approval would be required, not asking for approval will never result in the nullity of the dismissal itself. The sanctions that are imposed are only of a pecuniary nature.
With regard to the termination, it is clear that there is a higher degree of flexibility when working with a self-employed person, in comparison with the protective and mandatory legal rules applicable to employees. As a rule, a self-employed person does not benefit from any legal protection from termination, unless otherwise agreed between contract-ing parties. In absence of such protection rules, parties will have to take case law into consideration when determining the termination rights (notice period, compensation).
e. Local Limitations on Use of Independent Contractors
There are no specific local limitations on the use of independent contractors. However, the independent contractor will be assumed to work as an employee within the framework of the Act of 3 July 1978 relating to employment contracts, which provides that “Benefits of additional services performed under a contract of services are presumed to be done under an employment contract, without that the evidence of the contrary can be made, and this when the service provider and the recipient of these are bound by an employment contract for the performance of similar activities” (free translation). In other words, a worker can, in principle, not work as an employee and as a self-employed person for the same company.
f. Other Ramifications of Classification
Employees who have been struck by the closing-down of their company can benefit from the intervention of the “Indemnity Fund for the Closing-down of Firms” (IFCF).
The IFCF is mainly financed by employer’s contributions and reimbursements by receivers and liquidators of the amounts that were advanced to the employees. In addition, the IFCF receives limited funding from the Belgian government.
In practice, the IFCF pays the amounts payable to the employees and recovers them afterwards from the receiver(s) and liquidators.
The IFCF intervenes in case of bankruptcy, take-over after bankruptcy, conventional transfer, liquidation and closing-down. Following certain legal criteria, it pays different kinds of indemnities to the employees: closing-down indemnities, contractual indemnities, transition indemnities, company bonuses and additional remunerations due to certain protected employees.
g. Leased or Seconded Employees
Under Belgian law, the lease out of employees is governed by the Act on temporary work. This Act prohibits, in principle, activity that consists of a natural or legal person leasing his employees to third parties who use these employees and exercise over them, any part whatsoever, the authority belonging to the employer. The violation of this prohibition can lead to civil, criminal and administrative sanctions.
This Act provides, however, for some exceptions. In certain cases, an exceptional leasing of employees is indeed permitted, subject to the respect of general conditions and the warning to, or prior authorisation of, the Labour Inspectorate. Those general conditions are:
- Exceptional character: the leasing of employees must be of an exceptional character, which means that it must be both limited in time and not be repetitive.
- Permanent employees: the leased employees must be permanent employees, i.e. persons who are already in the employ of the employer who leases them and who work regularly for him.
- Level of remuneration: the remuneration and fringe benefits of the leased employees cannot be inferior to those from which employees carrying out the same functions within the user company benefit.
If the above-mentioned general conditions are fulfilled, it is possible to obtain authoriza-tion by the Labour Inspectorate. To this end, a specific procedure must be followed and a written document must be signed by the employer, the user and the worker, before the start of the leasing.
It is also possible to have recourse to the leasing of employees by means of simple prior information to the Labour Inspectorate in two hypotheses:
- within the framework of collaboration between companies of the same economic or financial entity (groups, holding);
- for the execution, on a temporary basis, of specialised tasks requiring a specific professional qualification.
In these hypotheses, the signature of a written document by all parties prior to the leasing is also required.
The legal leasing of employees not only implies that the contract between the employee and his/her employer continues to be legally valid and in force, but also that the user becomes jointly liable with the employer for the payment of social security contributions, remuneration, indemnities and benefits, which derive from the employment contract.
In case of illegal leasing, both the employer and the user are potentially exposed to civil, administrative and/or criminal sanctions.
The civil sanctions laid down by the Act on temporary work are the following:
- the employment contract between the employee concerned and the employer (i.e. the entity which leases the employee) is void as of the moment the employee starts working for the “user”;
- the user and this employee are bound, as of that moment, by an open-ended employment contract;
- the employee can terminate this contract without notice, nor indemnity, until the date on which he/she would normally no longer be at the disposal of the “user”; and
- the user and the employer (i.e. the entity which leases the employee) are jointly liable for the payment of social security contributions, remuneration and benefits deriving from this open-ended employment contract.
The administrative or criminal sanctions laid down by the Social criminal code, include a criminal fine of EUR 600 to EUR 6,000 or an administrative fine of EUR 300 to EUR 3,000. These amounts apply per employee, but are limited to a maximum of respectively EUR 600,000 or EUR 300,000 in total.
Besides, the Supreme Court ruled, in a judgment of 15 February 2016, that an employ-er who leases out his employees to a user in violation of the prohibition to lease out employees, in principle, imposed by the Act on temporary work, might be unable to rely on the contract, which formalizes such a leasing out, in order to claim the payment of his bill by the user.
An alternative to the leasing of employees could be to have recourse to a service agreement between the companies concerned.
In such a framework, a user company gives limited instructions to employees of a service provider working within the user company, based on a service agreement exe-cuted between the user company and the employer/service provider. The purpose of the said agreement is not the lease out of employees, but the execution of a determined work.
However, the following conditions must be simultaneously met:
- the service agreement must be in writing and clearly, and in detail, list the exact types of instructions that can be given to the service provider’s employees by the user company (the types of instructions will depend on the work to be performed and on the functions concerned and must cover all aspects thereof, which could result in an extensive service agreement; e.g. attendance to meetings; preparation of documents on a determined topic; respect of deadlines; etc.);
- these instructions may not undermine the legal employer’s authority over the employees;
- the factual situation must correspond to the wording of the service agreement.
- If any of these conditions are not met, there will be a prohibited lease of personnel.
h. Regulations of the Different Categories of Contracts
Belgian labour law is very protective and many aspects of the employer/employee rela-tionship are regulated by federal legislation and collective bargaining agreements. With regard to employments contracts as such, the main rules are stipulated in the Act of 3 July 1978 relating to employment contracts, which contains the major provisions in that matter. This Act regulates the conclusion, the execution and the termination of the contract, be it a contract for an indefinite or a definite period. It also regulates specific situations such as, for example, the salesman agreement, the domestic agreement and the homework agreement. Moreover, this Act contains provisions about the duration and the suspension of the contract, the obligation of both parties, the termination of the contract, the non-competition clause, etc. Another important legal source is the Act on Work, which mainly deals with working time issues. What is not specifically regulated by labour law is subject to general civil law.
Agreements concluded with self-employed persons are generally much less regulated. There is no specific global Act about the self-employment relationship. The general civil, commercial and corporate laws will apply. However, certain types of contracts concluded with a self-employed person are legally regulated (e.g. the Commercial agency agree-ment), but it is rather uncommon.