False self-employment in Germany: What every expat freelancer should know

Germany continues to attract international professionals who choose to work as freelancers, especially in sectors such as IT, design and marketing. However, what initially appears to be a flexible and independent work model can quickly turn into a legal minefield regarding false self-employment. For foreign expats unfamiliar with German labour laws, this issue carries significant risks.

What is false self-employment?

False self-employment occurs when someone is formally classified as self-employed but is, in reality, working for a company like a regular employee. Unlike genuine freelancers, who work independently, set their own schedules and serve multiple clients, falsely self-employed individuals are often integrated into a company’s structure, follow instructions from a superior and rely on a single client for income.

What are the signs of false self-employment?

The misclassification of employment status can lead to the denial of important employee rights such as paid leave, minimum wage and social security benefits, while also exposing both the worker and the company to legal and financial risks. 

Indicators that suggest a dependent employment relationship include:

• Fixed working hours and schedules
• Instructions on how to perform tasks
• Use of internal resources (for example, a company e-mail address)
• Participation in team or company events
• No own clients or market presence
• Payment is not based on performance or results

When determining whether false self-employment exists, what truly matters is not how the contract is written, but how the working relationship is actually carried out in practice. Even if a contract labels someone as a freelancer, the reality of the day-to-day work can indicate an employment relationship.

Unsure about your employment status? Contact Rotwang Law for advice

The risks of false self-employment

There are four main areas that can be impacted if you are determined to have falsely claimed self-employment.

1. Retroactive social security contributions

If you are found to have been working as a regular employee instead of a freelancer, your work will be treated as social security–liable employment from the start of the working relationship. 

Your employer will be liable to pay both the employer and employee contributions retrospectively, and the employee portion can be reclaimed from you. However, they can only charge you for the three months before the reclassification, and only under certain conditions.

2. Tax implications

All the tax returns that you filed while falsely classified as self-employed will likely need adjusting. Income that you previously declared as business income may be reclassified as wage income, affecting deductions and tax rates.

As a result, you might receive a refund or face a tax bill, depending on the difference.

3. Criminal liability

While there are legal implications for false self-employment, the good news is that if you acted in good faith, you are not criminally liable. The main legal risk lies with the employer, especially under §266a StGB. which relates to withholding social security contributions.

4. Risk of repayment or contractual disputes

In rare cases, the employer may attempt to reclaim part of your fees, particularly if they exceeded the amount that a regular employee would have earned. However, these claims are often difficult to enforce and depend on the specific contract and circumstances.

If you are facing this issue, it is recommended that you contact an employment lawyer to increase your chances of retaining your past pay.

When it makes sense to clarify employment status

Determining whether you are dependently employed or hired as a freelancer can be particularly valuable in the following key situations:

• Termination: If a contract is terminated by the client, a subsequent review may reveal that the working relationship was actually that of an employee. In such cases, the German Protection Against Dismissal Act (Kündigungsschutzgesetz, KSchG) may apply, potentially entitling the individual to severance pay or even reinstatement.
• Vacation: Employees in Germany are legally entitled to a minimum of 20 days of paid vacation per year. Freelancers do not enjoy this benefit unless it is determined that they were falsely self-employed, in which case, they may be entitled to retroactive compensation.
• Minimum wage: The statutory minimum wage only applies to employees. If a freelancer is paid below this threshold and is later found to have been in an employment relationship, they may be eligible for back payments to meet the legal wage requirements.
• Illness: Employees are entitled to continued pay for up to six weeks in the event of illness. Freelancers, unless privately insured, typically lack this protection. A status determination could therefore unlock entitlements to sick pay that would otherwise be unavailable.

Better safe than sorry

For international freelancers in Germany, understanding the legal framework is essential. If you suspect from the outset that a freelance contract might actually be an employment relationship, it’s best not to sign it.

The risks, from lack of protection to legal consequences, far outweigh the supposed benefits. Early status clarification, legal advice, and transparent communication with the client are the best safeguards against false self-employment.

True self-employment means not only freedom but also responsibility, and that starts with legal clarity.