The End of VAR – What’s Next?
After a long period of deliberations, a decision has finally been made on the status of VAR certificates in the Netherlands. The result? The end is nigh for the Declaration of Independent Contractor Status (Verklaring Arbeidsrelatie, VAR), meaning it is time to stop contemplating the effects of such a change and start taking some action.
The VAR certificate provided proof for clients of self-employed contractors and freelancers that they will not be held responsible for any payroll taxes and contributions with regards to the professionals working for them. The certificate was relatively straightforward to obtain, with a contractor applying in writing or digitally to the authorities.
The new legislation, the Deregulation of Assessment of Independent Contractor Status Act (Wet Deregulering beoordeling Arbeidsrelaties), was accepted by the Dutch Senate in February 2016 and will come into effect this May, with a transitional period until May 1, 2017. The aim of such a change, and something we continue to see introduced under different guises throughout Europe, is to ensure that the contractor or freelancer is not simply a misclassified employee and that clients are fulfilling their social obligations, as deemed by the State, to their external workforce. The State’s stake in this, of course, is to ensure that workers are not left without social cover, which would ultimately prove costly for the state.
Given that there is Chain Law in the Netherlands, it is likely that some end-clients will rule out the use of self-employed contractors following the removal of VAR. With this mind, the big question is, how can the contractor and end-client relationship continue in the Netherlands without VAR? There are in fact two options available:
1. Submit a contract to the Dutch Authorities
The new bill outlines that contractors and/or end-clients should submit contracts to the Dutch Tax Authorities, which will either be accepted or rejected. The decision will be returned in writing, taking, on average, two to three months. If the contract is approved, end-clients and contractors will be able to work in exactly the same way they did before, with the same level of indemnity.
The concern, aside from the amount of time this process will take, is that the decision made is final and cannot be objected. This means that a contractor has to be certain of their status before making the application. And, if a contract is concluded without this process being entered into, the Authorities will consider that individual to be an employee of the end-client.
- Employment Solution
End-clients can of course avoid the lengthy process of applying to the Dutch Authorities by taking on the contractor as an internal employee. For some, this option works extremely well, especially for long-term placements, but others have rightly expressed the opinion that taking on an individual as an employee defeats the object of appointing a contractor or freelancer in the first place.
This option can still be achieved with this level of commitment if the end-client uses a third-party employer, therefore removing the burden of payroll taxes and contributions while still remaining fully-compliant. By working through a third-party employment provider the need for a VAR certificate or equivalent indemnity is removed, although chain law still applies.
However end-clients approach this change, it is evident that some homework is very much necessary in order for both parties to prosper. It is advised that companies review any current contractor agreements in place and take appropriate action. It is likely we will see an increasing number of contractors steered towards agencies and third-party solutions in the future, in order to provide minimal disruption to traditional ways of working.
Although the abolition of VAR may be causing headaches, we have at least received a definite answer after a long period of speculation, meaning that businesses can plan for the future. It is likely that this is the start of things to come throughout Europe, with continuing discussions around IR35 in the UK and the recent news around restrictions on the AüG licence in Germany showing that authorities are working hard to ensure that workers are correctly classified and subject to the appropriate social coverage. Nothing is set in stone but it would be safe to assume that the next step will see even more legislation and regulation around the use fixed-term contracts emerging to ensure that end-clients take responsibility for their external workforce regardless of the supply chain involved.
Capital Consulting provides tailor-made employment and payment solutions all over the world. Visit www.capitaltaxconsulting.com.