Is it Safe to Hire a SAP Contractor?
The new Dutch Declaration of Independent Contractor Status (VAR) legislation has been a hot topic in the Netherlands over the past couple years, however, official enforcement has been pushed back for the second time to June 2018. While retroactive penalty from May 2016 remains valid, there are some doubts brewing as to the enforceability of the new law.
The new VAR DBA law, which refers to independent contractors, was initially approved in 2015 and sought to protect minimum wage contractors, as well as collect due taxes from higher wage contractors working in the Netherlands. Prior to 2015, applying to become an independent contractor was a relatively simple process. However, the Dutch government and tax authorities found that many contractors operating under these licences were essentially performing tasks and activities more suited towards permanent employees with none of the protections or tax withholding attributed to permanent employment. By removing the guarantee of contractor status and distributing any penalty between both contractor and client, the Dutch authorities sought to limit the number of independent contractors operating in the Netherlands.
Looking at this legislation from the perspective of SAP contractors in the Netherlands—who are within the scope of this particular law— there are several issues regarding contracting and project success that should be at the forefront of every client and contractors’ consideration.
To manage or not to manage?
First, is the relationship between contractor and client. The new VAR legislation identifies several core areas that determine the presence of a contract over employee relationship: management and services. The new legislation asserts that a contractor cannot be directly managed or supervised by a client, and ultimately, if they behave as a permanent employee, they must be considered as such. This means that a contractor must carry out work unsupervised or managed by the client, but also must behave like a contractor.
The reality of contracting, however, is that most contractors are directly managed by the client and report into a single member of staff. So what would it look like if contractors worked without this supervision?
For firsts, the plan of action and services contracted at need to be clear from the outset in the absence of management. Often this can be challenging for managers, as they may understand the contractor skillset needed to drive the project forward, but need the flexibility to ensure that contractors can carry out various tasks as needed within their stream. Additionally, managers may have limited foresight issues that might arise and unforeseen tasks that may need to be taken on. Thus, the contract will be limited in the time frame and the intention would be to extend or renew more frequently.
The idea that a contractor cannot act like a permanent employee is somewhat problematic as it is open to interpretation. This element may discourage contractors from fully integrating into a workforce and cause hesitation among clients looking to on-board contractors.
The unintended consequences of removing the management component pushes managers to improve (or at least detail) their project planning and may ultimately improve the clarity of some contractor assignments. While the ability to work independently has always been key in contracting, it becomes more important than ever. Clients will be looking for contractors with shining references from previous clients that can attest to their capabilities and ability to carry out work independently.
No room for contractors
Before the new VAR legislation, if a contractor was audited and found to be operating as a permanent employee, the contractor would bear the total cost of back due taxes. This was seen to be rather unbalanced (particularly when it came to minimum wage contractors), so under the new ruling both client and contractor are liable for any unpaid taxes and social security premiums. This increased risk on the client’s side has made many prospective companies squeamish when it comes to taking on contractors in the Netherlands.
Hesitation to bring on contractors could negatively impact the success of major SAP projects. Often these projects require specialist expertise, which is only found in the contractor market. If clients fail to secure the services of niche consultants, they may struggle to deliver the most effective results, within scope, time, and budget.
The new legislation on independent contractors has had unintended consequences outside of protecting minimum wage contractors and collecting due taxes from others. The legislation may positively impact project planning by enforcing more detailed contracts to ensure that contractors are not being managed directly by the client. However, potential enforcement of higher fines for clients in the case of violation has discouraged some to take on contractors for critical projects.
It is natural that companies become risk adverse when it comes to new legislation and their hesitation to bring on contractors is understandable. However, in reality, the risk that contractors will be found to be operating as permanent employees is low and it is a risk that is not without a solution. Global staffing agencies, like Global Enterprise Partners, ensure compliant solutions for independent contractors and manage the contract on behalf of the client. This is an additional service that we offer in order to ensure that clients not only get the right contractor with the right skills, but that they are also fully compliant with national legislation. Furthermore, companies can rest easy on boarding contractors coming through Global Enterprise Partners, as we have a negotiated agreement in place with the Dutch authorities.
With the right partnerships, it can be safe to be and safe to hire a SAP contractor.