Social Insurance
Bogus self-employment is the classic pitfall. What matters is not the label in the contract but how the work is actually carried out.
At a glance
Legal basis
Book IV of the Social Code and the rules of each branch
Typical pitfall
Bogus self-employment
Who is affected
Clients, managing directors, contractors
Consequence if found
Back payment of social insurance contributions
Prevention
Status determination by the German Federal Pension Insurance (Section 7a SGB IV)
Key deadline
Application within one month of taking up the activity
Social insurance and bogus self-employment
Bogus self-employment describes a situation where a person presents as self-employed but, given the particular circumstances of the case, is better classified as an employee. Often the contracting parties are not even aware that the relationship between them qualifies as an employment relationship.
What matters is not the label in the contract but how the work is actually carried out. Section 7(1) SGB IV focuses on work performed under instructions and integration into the work organisation of the person giving them.
Why the company audit becomes expensive
In a company audit this can have serious consequences for the client. If it is found that there is not a contract for services but an employment relationship, the employer is called upon to pay the social insurance contributions. That can quickly become expensive. Such surprises can also arise with managing director contracts.
What is claimed back is the total social insurance contribution, including the share the employee would otherwise bear. Recourse against the employee is possible only to a very limited extent.
How this can be avoided
To avoid unpleasant surprises it makes sense to initiate a determination procedure with the pension insurance at an early stage. Under Section 7a SGB IV the German Federal Pension Insurance decides on application by the parties on the basis of an overall assessment of all the circumstances of the individual case.
The timing of the application is decisive: if it is filed within one month of taking up the activity, special rules apply to when compulsory insurance begins. Filed later, the determination takes effect differently – and the back claim is already on the table.
When staff come from abroad
For companies employing staff from abroad, the question of the work permit is added; where assignments span several states, European social security law applies. Which state is competent is decided there not by the contract but by the Regulation.
Frequently asked questions about social insurance
Does a carefully drafted service contract protect against a back claim?
No. What is examined is how the work actually runs – subjection to instructions, fixed working hours, integration into the business, and your own entrepreneurial risk.
Who can apply for the status determination?
Both parties, that is the client and the contractor. In certain cases – for example where relatives of the employer are involved – the collection agency must file the application of its own motion.
How far back can contributions be claimed?
That depends on whether the contributions were withheld intentionally or negligently. The limitation periods differ considerably; this is regularly the heart of the dispute.
