Converting Contractors to Employees in EU

Independent Contractors vs Employees Differences

Whether a person is classified as an independent contractor (IC) or an employee mostly depends on the degree of control (or subordination) they have to you as an employer. Employees have a much higher degree of subordination in comparison to independent contractors.

In order to ensure independent contractors are not classified as employees, you need to be sure of:

Differences in conditions and benefits

• Independent contractors are not paid fixed amounts at regular intervals but
  have a compensation structure where they get paid for actual performance
  and against invoices, adding VAT;
• Independent contractors need to pay their ownVAT andsocial security;
• The contract does not state any holiday entitlement;
• Independent contractors provide their own insurance coverage.

The control level

• Independent contractors are not contractually bound to any time, place and content of work but are free to determine when, where and how they provide agreed services;
• Independent contractors are free to provide services or work for other clients (therefore, one should be careful with non-compete clauses in the contractual agreement);
• Independent contractors are not forced to perform in person but are free to subcontract or engage the help of others.

Reasons for Contractor-to-Employee Conversion

Said briefly, if you as an employer are willing to hire an employee, then you have a higher degree of control over “what, how, where, and when” but also obligations to pay vacation benefits, sick pay, overtime compensation, etc.

Hiring an independent contractor, on the other hand, frees you from such and the abovementioned responsibilities. Companies engage in such relationships for the purpose of flexibility, lower costs, reduction of the administrative burden and, of course, saving one of the most precious resources – time (e.g., from recruitment/onboarding processes).

It might seem too good to be true, but there is a certain risk to hiring independent contractors. The main reason for the risk is that workers who are misclassified as independent contractors work without the legal protections typically provided to employees. In the case of misclassification, this will incur a lot of costs – you will have to pay back taxes, insurance, penalties, etc.

That's why you should consider converting contractors to employees.

How to Successfully Change Independent Contractor to Employee

Lastly, it is important to keep in mind that although these principles serve as a comprehensive framework of differences, every European country comes with its own laws and regulations. This means that there might be additional rules in different countries. In cases of doubt, it is better to be safe than sorry and seek advice.

We offer you assistance with converting contractors to employees in the EU based on our expertise in European HR Outsourcing. Feel free to gain more insight into our Recruitment, HR Consulting, or PEO & EOR services.