As part of the status determination procedure it can be bindingly clarified upon application whether an employment is subject to social security contribution. The procedure is carried out by the Clearing Department of the German Pension Insurance Association (DRV). A reform of this procedure was part of the coalition agreement of the current federal government concluded in 2018.
Just before the end of the current legislative period this reform was passed, hidden in the Barrier-Free Reinforcement Act (Barrierefreiheitsstärkungsgesetz) on May 20, 2021 and published in the Federal Gazette (Bundesgesetzblatt) on July 22. 2021.
Frequently we are asked to check whether a certain activity is classified as self-employment or as employment relationship that is subject to social security insurance. A lot depends on this assessment. If a self-employment activity is wrongly assumed and no social security contributions are paid, the actual employer is threatened with a back payment of contributions (employer and employee share) for the last 4 years and up to 30 years in the case of intentional misjudgement. In addition to the back payment considerable surcharges for late payment will be levied. According to Art. 266a German Criminal Code (StGB) the employer can also be sentenced to imprisonment, in particularly severe cases up to 10 years.
The new version of Art. 7a German Social Code, Book IV (SGB IV), which has now been adopted, implements the following significant changes for these procedures:
- The newly implemented possibility of a group assessment is expressly to be welcome. So far separate processes had to be carried out for each person in the case of several similar contractual relationships. By means of a group assessment procedure an expert opinion of the German Pension Insurance Association (DRV) can be obtained, if several contractual relationships are carried out on a uniform basis in a largely identically manner. Within a group assessment procedure, at least one specific case has to be provided as example. However, a binding decision is not made in these new procedures. In the course of a subsequent tax audit, the expert opinion can only be used as an indication. Only practice will show, as to what extent auditors will feel bound to such an expert opinion.
- In future, a decision regarding the social security insurance obligation will no longer be made within the individual branches of social insurance but an overall decision will be made on the basis of the actual employment status (employed/self-employed). The intention is to speed up the assessment processes. Following a decision with the result “employment”, the employer himself is obliged to check the insurance and contribution obligation in the individual branches of social security insurance (e.g. health insurance, pension insurance) himself or consult the responsible collection agency. Hence, it seems questionable whether this reform will lead to an overall acceleration and the reduction of liability risks.
- Further, a new status determination is introduced regarding triangular relationships (e.g. temporary employment). In triangular relationships it is often the question whether there is an employment relationship that is subject to social security contributions and if so which one. As of April 2022, the German Pension Insurance Association (DRV) will be authorised to decide on this for all involved parties. Under certain circumstances, the companies deployed as third parties will be granted the right to apply for a status determination. In these cases a group assessment as well as a forecast decision are excluded.
- Whereas it was previously only possible to apply for an assessment as of the commencement of the activity, the possibility has now been implemented to file an application before the actual commencement of activity. Based on the concluded contractual agreements and additional information on the involved parties regarding the intended contractual implementation the German Pension Insurance Association (DRV) can make a forecast decision. Such a forecast decision allows the involved parties to decide, whether they want to go ahead with the contractual agreement with the corresponding consequences under social security law. Any changes to the initially filed circumstances have to be reported to the German Pension Insurance Association (DRV) within one month of starting work. The German Pension Insurance Association (DRV) can then reverse its decision if necessary.
Changes regarding the delimitation criteria for employments / self-employments have not been introduced by the new regulations.
From our point of view, the new regulations are to be seen positive as an acceleration of the procedures as well as more legal certainty are to be expected. By the end of 2025 the German Pension Insurance Association (DRV) has to submit an evaluation of its experience with the new regulations, which are initially limited to the end of June 2027, to the Federal Ministry of Labour and Social Affairs. Perhaps the status determination 3.0 will follow with further improvements.