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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:
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.
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