a. Laws and Guiding Principles
Such a re-characterization can only be established by a Court. Re-characterization of the relationship (from self-employed to employee) and the resulting obligation to register with a different tax and social security system, will only be possible in cases where certain factual elements are found to be incompatible with the qualification chosen by parties. Indeed, since 2003, and following several decisions of the Court of Cassation, the judge will have to first determine how the parties have qualified their relationship, so that the will of the parties and the qualification of the contract are the pre-emi-nent criteria, and this qualification can only be re-characterized if there are elements incompatible with the chosen qualification.
b. The Legal Consequences of a Re-Characterisation
Principle – in case of a re-characterization, there are several legal consequences; both for the self-employed person and the other party as regards to tax, social security, and labour relations.
Tax law – the Company (i.e. the employer) could be held liable for not having withheld personal income taxes. Tax increases and fines can be imposed. However, contrary to the social security contributions, the company will not become solely liable for the taxes. If the authorities demand the payment of the taxes from the company, the latter will have recourse against the employee for the amounts paid (provided the employee is still solvent).
The Tax Office could claim such amounts for a period of 3 years (or 5 years in case of fraud) preceding the re-characterization. The amounts due before this date are barred. It must be noted that the Office could claim a tax on secret commissions, equal to 103 % of the amounts that were not mentioned on the fiscal statement – which was naturally not delivered by the employer.
Social security – Basic approach – the corresponding social security scheme will be applied, taking into account the applicable prescription period. This means that, as a rule:
- the Company could be held fully liable for the entire amount of social security contributions that should have been paid, i.e. 13,07 % employee contributions and approximately 35 % employer contributions of the fees paid, to be increased with interest (7%), penalties and an increase of 10 %. There is no possibility of recovering the amounts so paid from the employee concerned (any contractual stipulation to the contrary would be null and void).
- moreover, criminal sanctions (fines) could also be imposed for not declaring the employment to the National Office for Social Security (NOSS).
- The NOSS could claim such amounts for a period of 3 years (or 7 years in case of fraud).
- Social security – Derogations – however, since January 1st 2013, the re-characterization has fewer consequences for the employer in the field of social security and this in two cases:
- when the employee voluntarily registers with the NOSS (in a specific notice);
- when the parties obtained a social ruling from the Administrative Commission on Employment Relations (see “t” below).
In these two cases (only), some reductions are possible with regard to the claimed amounts, the regularization in time and the calculation basis. Criminal sanctions are also excluded.
Labour law – the whole relationship will be qualified as an employment contract from the beginning. As a consequence, the worker will have the right to claim arrears of certain benefits, such as holiday pay, end of year premium, salary increases provided by law, salary for overtime work, etc. The worker could also claim a legal severance indemnity in case of termination.
c. Judicial Remedies Available to Persons Seeking ‘Employee’ Status
Most of the time, it is when the independent relationship comes to an end and the individual concerned starts legal proceedings, that a Labour Court will examine the qualification given by the parties to the contract as well as the concrete terms of the relationship. When there are sufficient elements that are not compatible with the chosen qualification of the contract, it will be re-characterized as an employment contract and the individual concerned will be granted several amounts specific to the execution and the termination of the employment contract (e.g. arrears of salary, termination indemnities).
d. Legal or Administrative Penalties or Damages for the Employers in the Event of Re-Characterisation
In addition to the tax, social security and labour law consequences as described above, the employer is, in case of re-characterization, exposed to financial sanctions provided by the Criminal Social Code, for example, due to the lack of:
- declaration to the National Office for Social Security;
- payroll documents;
- work accident insurance;
- work Rules;
- holiday pay.