The DBA Act: What to keep in mind

Understanding the DBA Act for Freelancers and Companies in the Netherlands

The DBA Act (Wet Deregulering Beoordeling Arbeidsrelaties) is a crucial piece of legislation in the Netherlands that affects the relationship between freelancers (self-employed individuals) and the companies that hire them. It was introduced to clarify when freelancers should be considered independent contractors and when they should be classified as employees. This distinction is important because it impacts tax liabilities and compliance for both freelancers and the companies they work with. Below, we’ll explain the DBA Act, how it impacts both parties, and what companies and freelancers need to be aware of to stay compliant.

What is the DBA Act?

The DBA Act came into force in 2016, replacing the earlier VAR (Verklaring Arbeidsrelatie) system. The objective of the act is to provide clearer guidelines on the relationship between freelancers and their clients, particularly with regard to false self-employment (schijnzelfstandigheid) —where freelancers are, in fact, acting as employees but without receiving the legal protections employees are entitled to.

Under the DBA Act, companies and freelancers must ensure that their working relationship does not resemble an employer-employee relationship. If the Dutch Tax Authority (Belastingdienst) determines that a freelancer is effectively an employee, the company could be responsible for paying additional taxes and social security contributions.

Key Criteria to Avoid Employee Misclassification

To determine whether someone is genuinely a freelancer, the Dutch Tax Authority look at many factors. You can complete this this scan (in Dutch) to get a better idea of whether your situation and the project you are working on can properly be classified as a freelance assignment. 

While there is a long list of requirements when it comes to registering with the Chamber of Commerce and Tax Authority as a freelancer, here are some of the key elements the Tax Authority uses to classify a freelance contract:

1. Authority Relationship: The freelancer should have control over how they complete their work without being directed by the client. Unlike employees, who are subject to the direct supervision and control of their employer, freelancers should have a high degree of autonomy in how they execute tasks. If the client has significant authority over the freelancer's work (i.e. setting hours, supervising workflow, or providing direct instructions), it suggests an employment relationship and does not qualify as a freelance construction. 

2. Personal Obligation to Perform the Work: This has to do with whether the freelancer must personally carry out the work or if they can delegate tasks to others. A self-employed individual should have the freedom to send a substitute to complete the work in their stead when desired, while employees are usually obligated to perform tasks themselves.

3. Compensation for Work: How payment is structured, and the agreed upon compensation for the tasks, can make a difference in whether a worker is considered an employee or a freelancer. The hourly rate for a freelancer should be significantly higher than the industry standard for an individual employed by a company. Self-employed individuals also typically charge on a project basis or per deliverable, whereas employees receive a regular salary, that is periodically paid out on a set schedule. Additionally, freelancers should not receive a benefits package like employees do, such as holiday pay or sick leave. These insurances and investments are arranged by the freelancer themselves. 

If these criteria suggest that the freelancer is functioning as an employee, the Tax Authority may decide to reclassify the freelancer’s status, which can have significant consequences for both the freelancer and the hiring company.

Why the DBA Act Matters for Freelancers

As a freelancer in the Netherlands, you are responsible for ensuring that your working arrangement with a client complies with the DBA Act. If the Tax Authority reclassifies you as an employee, it could affect your tax status and potentially lead to higher personal tax obligations. You may also lose some of the freedoms typically associated with freelance work, such as autonomy over how you complete your projects.

To avoid these issues, freelancers should:

- Use clear contracts: Ensure that contracts outline the nature of the freelance relationship and specify that you maintain control over how and when the work is completed.

- Diversify clients: Working for multiple clients can help demonstrate that you are truly self-employed rather than dependent on one company.

- Maintain autonomy: Make sure your working arrangement shows you have flexibility in determining your workflow, work location, and how the work is done.

What Companies Need to Know

For companies, misclassifying freelancers can result in penalties, back taxes, and additional social security contributions. It is therefore vital for businesses to ensure that they are compliant with the DBA Act when hiring freelancers.

Here are some practical steps for companies:

- Model contracts: The Dutch Tax Authority provides model contracts that companies can use when hiring freelancers. These contracts outline the terms of engagement and help ensure compliance. Although using these contracts is not mandatory, they can provide legal security and reduce the risk of reclassification. U-Connect can provide you with a model contract should you wish to view or use it as a template. 

- Review existing arrangements: Companies should review their current freelance contracts and working relationships to ensure they meet the criteria for self-employment.

- Regularly update contracts: Over time, working relationships may evolve, potentially blurring the lines between freelance and employee status. Regularly updating contracts helps ensure that both parties remain compliant.

Enforcement of the DBA Act

The enforcement of the DBA Act has been somewhat delayed and lenient since its introduction. The Dutch government has acknowledged the complexity of the law and its impact on the labor market, especially for freelancers and small businesses. Initially, full enforcement of the DBA Act was postponed, allowing companies and freelancers more time to adjust to the new rules. However, this grace period is gradually coming to an end, and stricter enforcement is expected in the near future.

The government has signaled that it will take a phased approach to enforcement, starting with industries where false self-employment is most prevalent. This means that certain sectors, such as construction, healthcare, and the gig economy, may be under greater scrutiny. Currently, 2025 is being seen as the year to get everything in order before stricter enforcement takes place in 2026, so please reach out if you have any questions. 

Potential Future Changes

The DBA Act has been criticized for creating uncertainty in the freelance market, and the Dutch government is considering potential revisions or replacements. One of the proposed solutions is the introduction of a minimum hourly rate for freelancers to help differentiate them from employees, and clearer definitions of what constitutes genuine self-employment. U-Connect already enforces a minimum hourly rate of €35 euros for freelance projects to ensure compliance and meet the current as well as future requirements. While many changes are still under discussion, it’s important for freelancers and companies to stay informed about potential developments. Our U-Connect team also stays up to date so that we can inform and advise you on any changes to the DBA Act. 

Conclusion

The DBA Act is a significant regulation that impacts the freelance landscape in the Netherlands. Freelancers must ensure that their work arrangements align with self-employment criteria, and companies must take care to avoid misclassifying workers. By using model contracts, maintaining clear and transparent relationships, and keeping an eye on future legislative changes, both freelancers and businesses can continue to work together in compliance with Dutch law.