7 ms·

The push for employees to become a "Consultant, freelancer or independent contractor" was the hope from companies that they could unload many costs of business

The push for employees to become a "Consultant, freelancer or independent contractor" was the hope from companies that they could unload many costs of business to their ex-employees. Things like phone rental, insurance, car running costs, tools, etc. However, people quickly learnt that unless the remuneration was increased in proportion, then the ex-employee was much worse of. Plus the Tax Man quickly got involved and ruled that many Contracting arrangements were actually a sham. There are now a list of standard tests to determine if a supposed contractor is actually an employee.

antupis 3y ago
It is not that simple and varies country to country. Here Finland best software developers usually go consulting/freelancing in their later career because that is where big money is in our software ecosystem and it has some rather big tax benefits.
- WJW 3y ago
  Here in the Netherlands I've seen this too. It's somewhat confusing to speak about freelancers as a single group because they stretch all the way from doordash drivers making minimum wage (and sometimes less) to well-paid someware developers making about twice what a employed senior dev would. One of those is economically precarious and needs (government) assistance, the other is doing just fine.
  - bryanrasmussen 3y ago
    also I should note for being a consultant to make any sense you should really make twice as much as a permanent employee since you have to take care of your own pension, vacation, often have to pay for meals where employees get them paid for, and have the chance of going some months without work when a contract gets over.
    - saiya-jin 3y ago
      Also sick days, public holidays etc. Yeah, twice the rate is just about right to compensate all the added stress and potential to have 0 income for months, without much of a social safety net. Good year and you will come on top easily, a bad one can literally wipe you off the face of Earth. Also depending on given system pension savings can be minimal. Once you have kids and whole family to feed and pay various expenses for, the pressure to keep earning is non-trivial. There is some envy from perm employees towards better paid contractors, but I always tell them to try that. A lot of 'but but XYZ' reasoning for why it can't be done now happens afterwards.
      - WJW 3y ago
        > a bad one can literally wipe you off the face of Earth This is where living in western Europe helps a lot. But yes, you have to take care of more things yourself. If you cannot maintain a financial buffer of at least a few months, I would not advise starting off on your own just yet.
        mcv 3y ago
        Even in western Europe, being self-employed means you're opting out of a lot of the things that are so well-arranged for employees. No paid sick leave, no paid vacation days, no unemployment benefits, you have to save up for your own retirement and get your own disability insurance. And yet, for me it works. I'm much happier this way somehow.
        saiya-jin 3y ago
        I write this from Western Europe perspective, it goes all downhill on social help from there anywhere else you look :) You don't have that much of social safety net when working on your own, thats mostly for perm employees. Financial buffer is obvious, but what if you end up with some horrible accident or illness that will drain it and need more. The amount of continuous stress is much higher compared to perm employees, additional bureaucracy, the need to chase next employment, overall insecurity etc.
        systemtest 3y ago
- bryanrasmussen 3y ago
  basically same in DK, although also ageism in the industry I think means you often have to go consulting. There are a lot of companies that seem willing to hire me as a consultant, not so many as a permanent employee.
- distances 3y ago
  Same in Germany. You can get about twice the pay (if you manage to stay fully booked), though you don't save anything in taxes -- unless you count in VAT free equipment purchases and avoiding the public pension scheme.
  - tuukkah 3y ago
    Are you saying you can't get any of your business revenue classified as capital gains, or that capital gains are not taxed lighter than salaries in Germany? In Finland, you actually have to participate in the public pension scheme even as an enterpreneur - this is part of the mandatory social security system.
    - distances 3y ago
      In Finland, the first part of the dividend is taxed very lightly. That's not the case in Germany, where all dividends are taxed at the regular capital gains rate. Which yes is generally lower than your income tax rate. But you're also paying corporation tax, which pushes the tax rate a bit above what you'd pay if you just paid the regular income tax. And then you're in another level of bureaucracy and accounting. That was the rough situation when I was considering incorporation and abandoned the idea. Others have taken the company route and may have found ways to make it work for them.
    - deleted 3y ago
      [deleted]
- mikeegg1 3y ago
  Off topic: can you talk more about the tax benefits?
resonious 3y ago
There definitely are companies that do this "strategically". But then there are employees who intentionally become freelancers for their own benefit.
FlyingSnake 3y ago
True. Germany has strict rules against scheinselbständigkeit (shadow employment) as well. However many intrepid consultants find ways to skirt around it.
- qwertox 3y ago
  It's officially called `bogus self-employment`. The linked-to site also lists an example case. https://www.eu-gleichbehandlungsstelle.de/eugs-en/practical-guide/bogus-self-employment https://www.eu-gleichbehandlungsstelle.de/eugs-en/practical-...
kodah 3y ago
Agree to an extent. Contractor relationships are abused at many companies, but this is usually the case with mid to low level positions. People who make it through senior ranks and go on to become consultants get treated very differently. The latter is also incredibly lucrative.
- josephg 3y ago
  Can confirm. Senior consultants are also very valuable to companies because they can say and do things that are necessary but politically taboo within the organisation. - Like pointing out underperforming teams and managers to upper management.
  - mkl95 3y ago
    One of the best House MD plot lines was when House was fired, then hired as a consultant because the other guys were not that good.
ttymck 3y ago
Which tax man in what countries? Based on your vague description I see a picture of labor protection asking employers to pay their fair share, not the tax man.
- H8crilA 3y ago
  Yes that's the problem. People often work exclusively for a single employer but call this contracting because supposedly it's a deal between two companies (a real company, and a one-person shop). But no, that's still an employment contract, this is determined by the nature of the relationship, not by specific words written in the contract or rituals such as issuing an invoice.
  - puszczyk 3y ago
    Is this a problem though? I a lot of countries you can open a 1 shop company, and any two companies can sign whatever they agree on into the contract. Of course some higher level laws may void (parts of) the contract. Do you think that “nature of the relationship” is more important than wording of contract? Why? If countries hate the idea of 1 person shop contractors they can still ban the “shadow employment” via higher level laws. If they don’t I don’t understand how this is a problem.
    - ant6n 3y ago
      > If countries hate the idea of 1 person shop contractors they can still ban the “shadow employment” via higher level laws. If they don’t I don’t understand how this is a problem. They do. The problem is deciding whether you are a contractor or an employee under such laws, and the risk that the tax man (and employment insurance system including health care and pensions) will retroactively deem you a factual employee, thus creating a large set of potential liabilities for all involved.
    - Thoeu388 3y ago
      If you work as a contractor in EU, you absolutely need multiple clients. Single client sets many red flags in tax office, and should be avoided.
Lio 3y ago
> There are now a list of standard tests to determine if a supposed contractor is actually an employee. Not in the UK there's not. HMRC refuse to provide a definitive list or say how they determine if a contractor is "acting as a disguised employee" (BTW you're still not an "employee" even if you're working Inside the IR35 regulations). Instead they provide a vague tool that gives you some suggestions but reserve the right to arbitrarily decided later who is and isn't an independent contractor. They can, and have, retrospectively change the rules even for accepted tax returns. That puts a lot of risk on anyone doing contract work. When the government changed the rules to shift some of that risk the customer, many customers just decided to drop small external contractors all together rather than work to a vague set of suggestions that they can't definitively say if they're complying with. For small contractors it's difficult to get insurance for IR35 risks because of this. You can get it but it's not cheap or easy compared to other liabilities. The contract market in the UK has been slowly dying since the tabloids first decided that contractors where another group they could demonise and the Tories gleefully went along with it.
- Nursie 3y ago
  IR35 is an absolute clusterfuck and I'm glad I left the UK and contract in Australia now. It's a huge financial risk being held over your head at every turn. If HMRC decide to investigate that can cost you and you're likely to be on the hook for all sorts of legal fees to fight them. If the courts side with them and decide that you are, in fact, caught by the legislation, they don't seem to work out liabilities based on what you paid in corporation tax, dividend tax etc, and what would have been owed under PAYE and NI, no, you get sicced with the whole lot again AFAICT. Neither does your determination as an employee entitle you to the employment benefits you would have had - pension contributions, paid time off etc - under that status. The whole thing is a big "fuck you" to the contractor. IMHO it only exists because of the imbalance in taxes in the UK between earned and invested income. The system is broken and in response, instead of fixing it, they decided to fuck over small players by putting them in jeopardy.
  - benjaminwootton 3y ago
    It really is a disaster for innovation. If a startup wants to launch or a company want to start a new product then they need a flexible workforce. They are going to end up with system integrators or nothing.
saurik 3y ago
> people quickly learnt that unless the remuneration was increased in proportion I mean, not only is this my experience, but that's the trope, no? You get fired and then hired back as a consultant for twice the cost? Regardless, if that isn't happening, this doesn't seem like a problem we should be fixing using government. No matter how you are classified, you need to make sure the net compensation you are receiving for doing the job is worth all the costs (which includes not only any time and materials you are supposed to be bringing to the job yourself, but also indirect stuff like occupational risk exposure). To put this story in reverse: somehow in the United States we've pawned off the problems we SHOULD be solving using government--stuff like health care, retirement planning, and disability leave--to private companies to each separately manage for their individual pool of employees, which has resulted in a system that privileges larger companies that can have larger and more amortized employee pools and has created this ridiculous idea that there is this concept of an "employee" that must be mandated and enforced. It is all a massive misdirection that helps lock in and prevent collective action.
varispeed 3y ago
> Plus the Tax Man quickly got involved and ruled that many Contracting arrangements were actually a sham. That's not entirely true. The tax man was lobbied by big consultancies that were losing talent. Because quite often, an employee of consultancy would have found they could make more money by working with the consultancy client directly and cutting out the middleman. If these arrangements were "a sham" then tax man would have included big consultancies in the scope of relevant legislation, like IR35 here in the UK.
mcv 3y ago
In Netherland, being a consultant, freelancer or independent contractor is the only way to get paid your worth. Salaries for programmers are often terrible. Well, maybe not terrible, but lower than they should be. I had a project at a bank, where I created the initial prototype for a new, vague idea and guided the project (through constantly changing product owners and other team changes) to become very successful. Because the tax service was being difficult about the difference between a self-employed contractor and an employee, the bank had a rule that self-employed contractors couldn't stay for more than two years, but after two years, I wasn't done with that project yet. So I became an employee. The bank has pay scales for employees, and I had to fit in there. Software engineers could have a pay scale from 8-12, product owners, scrum masters, business architects and other people I worked with had pay scales from 10-13. One freelancer-turned-employee that I spoke to came from a very similar hourly rate to scale 12 (as product owner). I figured I was worth scale 12 too, but it turned out they had no programmers in scale 11 or 12 at all, and 10 was the maximum that was used, despite the fact that 10 was the minimum for pretty much every other job at that department. Later at a department-wide meeting, the manager had the gall to complain that all their senior engineers would leave. Many other companies pay similar rates for programmers as employees, but have no problem paying much more for you when you're a contractor or freelancer of some sort.
- wofo 3y ago
  This is one of the reasons why I'm contracting in The Netherlands! Though also because of the flexibility (3 billable days / week)...
scarface_74 3y ago
That’s easily remedied. Many companies will not work with 1099 contractors and will only work with third party consulting companies. When I was a dev lead, my manager wanted “another me”. I had a friend looking for work and he wanted $80/hour. My manager didn’t have a problem with the hourly rate. He was willing to pay $110 per hour to the consulting agency we were going through so they could hire him and we could work through them.
JohnFen 3y ago
> However, people quickly learnt that unless the remuneration was increased in proportion, then the ex-employee was much worse of. People who have only ever been employees are often ignorant of how much money is spent on them that they never see. It can be quite a shock when they become self-employed and are required to pay these costs directly. Although that's nothing compared to the shock when they learn they now have to pay taxes quarterly, and in advance of each quarter. My (very rough, US-based) rule of thumb is that I need to bring in revenues between 50 and 100% greater than what I want to "take home" in terms of personal income.

antupis 3y ago

It is not that simple and varies country to country. Here Finland best software developers usually go consulting/freelancing in their later career because that is where big money is in our software ecosystem and it has some rather big tax benefits.

WJW 3y ago
Here in the Netherlands I've seen this too. It's somewhat confusing to speak about freelancers as a single group because they stretch all the way from doordash drivers making minimum wage (and sometimes less) to well-paid someware developers making about twice what a employed senior dev would. One of those is economically precarious and needs (government) assistance, the other is doing just fine.
- bryanrasmussen 3y ago
  also I should note for being a consultant to make any sense you should really make twice as much as a permanent employee since you have to take care of your own pension, vacation, often have to pay for meals where employees get them paid for, and have the chance of going some months without work when a contract gets over.
  - saiya-jin 3y ago
    Also sick days, public holidays etc. Yeah, twice the rate is just about right to compensate all the added stress and potential to have 0 income for months, without much of a social safety net. Good year and you will come on top easily, a bad one can literally wipe you off the face of Earth. Also depending on given system pension savings can be minimal. Once you have kids and whole family to feed and pay various expenses for, the pressure to keep earning is non-trivial. There is some envy from perm employees towards better paid contractors, but I always tell them to try that. A lot of 'but but XYZ' reasoning for why it can't be done now happens afterwards.
    - WJW 3y ago
      > a bad one can literally wipe you off the face of Earth This is where living in western Europe helps a lot. But yes, you have to take care of more things yourself. If you cannot maintain a financial buffer of at least a few months, I would not advise starting off on your own just yet.
      - mcv 3y ago
        Even in western Europe, being self-employed means you're opting out of a lot of the things that are so well-arranged for employees. No paid sick leave, no paid vacation days, no unemployment benefits, you have to save up for your own retirement and get your own disability insurance. And yet, for me it works. I'm much happier this way somehow.
      - saiya-jin 3y ago
        I write this from Western Europe perspective, it goes all downhill on social help from there anywhere else you look :) You don't have that much of social safety net when working on your own, thats mostly for perm employees. Financial buffer is obvious, but what if you end up with some horrible accident or illness that will drain it and need more. The amount of continuous stress is much higher compared to perm employees, additional bureaucracy, the need to chase next employment, overall insecurity etc.
      - systemtest 3y ago
bryanrasmussen 3y ago
basically same in DK, although also ageism in the industry I think means you often have to go consulting. There are a lot of companies that seem willing to hire me as a consultant, not so many as a permanent employee.
distances 3y ago
Same in Germany. You can get about twice the pay (if you manage to stay fully booked), though you don't save anything in taxes -- unless you count in VAT free equipment purchases and avoiding the public pension scheme.
- tuukkah 3y ago
  Are you saying you can't get any of your business revenue classified as capital gains, or that capital gains are not taxed lighter than salaries in Germany? In Finland, you actually have to participate in the public pension scheme even as an enterpreneur - this is part of the mandatory social security system.
  - distances 3y ago
    In Finland, the first part of the dividend is taxed very lightly. That's not the case in Germany, where all dividends are taxed at the regular capital gains rate. Which yes is generally lower than your income tax rate. But you're also paying corporation tax, which pushes the tax rate a bit above what you'd pay if you just paid the regular income tax. And then you're in another level of bureaucracy and accounting. That was the rough situation when I was considering incorporation and abandoned the idea. Others have taken the company route and may have found ways to make it work for them.
  - deleted 3y ago
    [deleted]
mikeegg1 3y ago
Off topic: can you talk more about the tax benefits?

resonious 3y ago

There definitely are companies that do this "strategically". But then there are employees who intentionally become freelancers for their own benefit.

FlyingSnake 3y ago

True. Germany has strict rules against scheinselbständigkeit (shadow employment) as well. However many intrepid consultants find ways to skirt around it.

qwertox 3y ago
It's officially called `bogus self-employment`. The linked-to site also lists an example case. https://www.eu-gleichbehandlungsstelle.de/eugs-en/practical-guide/bogus-self-employment https://www.eu-gleichbehandlungsstelle.de/eugs-en/practical-...

kodah 3y ago

Agree to an extent. Contractor relationships are abused at many companies, but this is usually the case with mid to low level positions. People who make it through senior ranks and go on to become consultants get treated very differently. The latter is also incredibly lucrative.

josephg 3y ago
Can confirm. Senior consultants are also very valuable to companies because they can say and do things that are necessary but politically taboo within the organisation. - Like pointing out underperforming teams and managers to upper management.
- mkl95 3y ago
  One of the best House MD plot lines was when House was fired, then hired as a consultant because the other guys were not that good.

ttymck 3y ago

Which tax man in what countries? Based on your vague description I see a picture of labor protection asking employers to pay their fair share, not the tax man.

H8crilA 3y ago
Yes that's the problem. People often work exclusively for a single employer but call this contracting because supposedly it's a deal between two companies (a real company, and a one-person shop). But no, that's still an employment contract, this is determined by the nature of the relationship, not by specific words written in the contract or rituals such as issuing an invoice.
- puszczyk 3y ago
  Is this a problem though? I a lot of countries you can open a 1 shop company, and any two companies can sign whatever they agree on into the contract. Of course some higher level laws may void (parts of) the contract. Do you think that “nature of the relationship” is more important than wording of contract? Why? If countries hate the idea of 1 person shop contractors they can still ban the “shadow employment” via higher level laws. If they don’t I don’t understand how this is a problem.
  - ant6n 3y ago
    > If countries hate the idea of 1 person shop contractors they can still ban the “shadow employment” via higher level laws. If they don’t I don’t understand how this is a problem. They do. The problem is deciding whether you are a contractor or an employee under such laws, and the risk that the tax man (and employment insurance system including health care and pensions) will retroactively deem you a factual employee, thus creating a large set of potential liabilities for all involved.
  - Thoeu388 3y ago
    If you work as a contractor in EU, you absolutely need multiple clients. Single client sets many red flags in tax office, and should be avoided.

Lio 3y ago

> There are now a list of standard tests to determine if a supposed contractor is actually an employee. Not in the UK there's not. HMRC refuse to provide a definitive list or say how they determine if a contractor is "acting as a disguised employee" (BTW you're still not an "employee" even if you're working Inside the IR35 regulations). Instead they provide a vague tool that gives you some suggestions but reserve the right to arbitrarily decided later who is and isn't an independent contractor. They can, and have, retrospectively change the rules even for accepted tax returns. That puts a lot of risk on anyone doing contract work. When the government changed the rules to shift some of that risk the customer, many customers just decided to drop small external contractors all together rather than work to a vague set of suggestions that they can't definitively say if they're complying with. For small contractors it's difficult to get insurance for IR35 risks because of this. You can get it but it's not cheap or easy compared to other liabilities. The contract market in the UK has been slowly dying since the tabloids first decided that contractors where another group they could demonise and the Tories gleefully went along with it.

Nursie 3y ago
IR35 is an absolute clusterfuck and I'm glad I left the UK and contract in Australia now. It's a huge financial risk being held over your head at every turn. If HMRC decide to investigate that can cost you and you're likely to be on the hook for all sorts of legal fees to fight them. If the courts side with them and decide that you are, in fact, caught by the legislation, they don't seem to work out liabilities based on what you paid in corporation tax, dividend tax etc, and what would have been owed under PAYE and NI, no, you get sicced with the whole lot again AFAICT. Neither does your determination as an employee entitle you to the employment benefits you would have had - pension contributions, paid time off etc - under that status. The whole thing is a big "fuck you" to the contractor. IMHO it only exists because of the imbalance in taxes in the UK between earned and invested income. The system is broken and in response, instead of fixing it, they decided to fuck over small players by putting them in jeopardy.
- benjaminwootton 3y ago
  It really is a disaster for innovation. If a startup wants to launch or a company want to start a new product then they need a flexible workforce. They are going to end up with system integrators or nothing.

saurik 3y ago

> people quickly learnt that unless the remuneration was increased in proportion I mean, not only is this my experience, but that's the trope, no? You get fired and then hired back as a consultant for twice the cost? Regardless, if that isn't happening, this doesn't seem like a problem we should be fixing using government. No matter how you are classified, you need to make sure the net compensation you are receiving for doing the job is worth all the costs (which includes not only any time and materials you are supposed to be bringing to the job yourself, but also indirect stuff like occupational risk exposure). To put this story in reverse: somehow in the United States we've pawned off the problems we SHOULD be solving using government--stuff like health care, retirement planning, and disability leave--to private companies to each separately manage for their individual pool of employees, which has resulted in a system that privileges larger companies that can have larger and more amortized employee pools and has created this ridiculous idea that there is this concept of an "employee" that must be mandated and enforced. It is all a massive misdirection that helps lock in and prevent collective action.

varispeed 3y ago

> Plus the Tax Man quickly got involved and ruled that many Contracting arrangements were actually a sham. That's not entirely true. The tax man was lobbied by big consultancies that were losing talent. Because quite often, an employee of consultancy would have found they could make more money by working with the consultancy client directly and cutting out the middleman. If these arrangements were "a sham" then tax man would have included big consultancies in the scope of relevant legislation, like IR35 here in the UK.

mcv 3y ago

In Netherland, being a consultant, freelancer or independent contractor is the only way to get paid your worth. Salaries for programmers are often terrible. Well, maybe not terrible, but lower than they should be. I had a project at a bank, where I created the initial prototype for a new, vague idea and guided the project (through constantly changing product owners and other team changes) to become very successful. Because the tax service was being difficult about the difference between a self-employed contractor and an employee, the bank had a rule that self-employed contractors couldn't stay for more than two years, but after two years, I wasn't done with that project yet. So I became an employee. The bank has pay scales for employees, and I had to fit in there. Software engineers could have a pay scale from 8-12, product owners, scrum masters, business architects and other people I worked with had pay scales from 10-13. One freelancer-turned-employee that I spoke to came from a very similar hourly rate to scale 12 (as product owner). I figured I was worth scale 12 too, but it turned out they had no programmers in scale 11 or 12 at all, and 10 was the maximum that was used, despite the fact that 10 was the minimum for pretty much every other job at that department. Later at a department-wide meeting, the manager had the gall to complain that all their senior engineers would leave. Many other companies pay similar rates for programmers as employees, but have no problem paying much more for you when you're a contractor or freelancer of some sort.

wofo 3y ago
This is one of the reasons why I'm contracting in The Netherlands! Though also because of the flexibility (3 billable days / week)...

scarface_74 3y ago

That’s easily remedied. Many companies will not work with 1099 contractors and will only work with third party consulting companies. When I was a dev lead, my manager wanted “another me”. I had a friend looking for work and he wanted $80/hour. My manager didn’t have a problem with the hourly rate. He was willing to pay $110 per hour to the consulting agency we were going through so they could hire him and we could work through them.

JohnFen 3y ago

> However, people quickly learnt that unless the remuneration was increased in proportion, then the ex-employee was much worse of. People who have only ever been employees are often ignorant of how much money is spent on them that they never see. It can be quite a shock when they become self-employed and are required to pay these costs directly. Although that's nothing compared to the shock when they learn they now have to pay taxes quarterly, and in advance of each quarter. My (very rough, US-based) rule of thumb is that I need to bring in revenues between 50 and 100% greater than what I want to "take home" in terms of personal income.