Pseudo-self-employment in non-artistic activities
Guideline for the legal distinction between employment and self-employment in non-artistic activities
Status: Dezember 2024
The aim of this guideline is to help stakeholders in the arts and culture sector clarify the important question of whether individuals involved in work processes and productions can be engaged as independent contractors or should be employed. An independent contract should be agreed upon only if pseudo-self-employment and the associated negative legal and financial (delayed) consequences can be reliably ruled out.
Info: This guide covers only non-artistic employment relationships or assignments.
Topics of this page
- What is pseudo-self-employment?
- Backgrounds
- Principles
- Risks of pseudo-self-employment relationships
- Criteria and characteristics of self-employment and pseudo-self-employment
- Review and documentation of the individual case
- Examination of individual example cases of non-artistic activities
- Possibility of a status determination procedure
- Conclusion of contracts with self-employed persons / actual implementation
- Conclusion
- Checklist – personal requirements for self-employment
Links/sources
Review and documentation of the individual case
Questionnaire on the description of the contractual relationship
Checklist and downloads regarding status of "self-employment"
Classification catalogue for persons working in theatre, orchestras, broadcasting and television organisations, and film and television productions
Status determination procedure
Form package for status determination
Information on the status determination procedure of the DRV
Definition: What is pseudo-self-employment?
Pseudo-self-employment occurs when a supposedly self-employed contractor is, based on objective criteria, actually in an employment relationship. In other words, the appearance of self-employment is created – even though it is, in fact, a social security-insured employment relationship.
Backgrounds
The reason why pseudo-self-employment is strictly scrutinised and handled is directly related to the special protection of employees in Germany.
This protection of employees has a long historical development: After the often inhumane working conditions during the industrialisation of the 19th century, trade unions and organisations fought for fundamental rights for the working population. The Social State Principle enshrined in the Basic Law (Grundgesetz) obliges the state to ensure social justice and social security for its citizens. This also means protecting the dignity and rights of employees and linking (market) economic success to fair conditions for workers – a philosophy that fundamentally differs from purely market-driven models and places social justice at the forefront.
The Social State Principle underpins the far-reaching labour and social legislation in Germany. Employees enjoy extensive protection (e.g. rights to holiday and minimum wage, protection against dismissal, social security in case of illness, unemployment, or old age, protection in the event of accidents, claims for safe workplaces through occupational health and safety laws, and collective protection through collective agreements).
In order to prevent the protection granted to employees from being undermined, individuals must not be employed as pseudo-self-employed.
Principles
It is not at the free discretion of employers or clients to decide whether an individual works under an employment or contract relationship. There are numerous laws (Section 611a(1) BGB, Section 7(1) SGB IV) that define when a person must be classified as an employee, and a range of principles and criteria for distinguishing between the two has been developed through case law, primarily by the Federal Social Court.
If the following criteria are met, the individual is considered to be in a dependent employment relationship and thus subject to social security contributions:
- Obligation to follow instructions regarding the time, duration, location, and manner of execution
- Integration into the organisation of the employer (i.e. the work organisation of the party giving the instructions)
In contrast, self-employment is primarily characterised by personal entrepreneurial risk, often the presence of a business premises, control over one’s own labour, and work that is generally self-organised, including flexible working hours (constant case law, including the Federal Social Court ruling from 4 June 2019, B 12 R 12/18 R).
Whether someone is employed or self-employed depends on the circumstances that shape the overall picture of the work performance in the specific case and hinges on which characteristics prevail (constant case law, including the Federal Social Court ruling from 4 June 2019, B 12 R 12/18 R).
Which characteristics prevail must be determined objectively in an overall assessment of all relevant criteria for each individual case. How the contract is labelled is at most an indication, as ultimately the label is irrelevant (this is also reflected in Section 611a(1), sentence 5 of the German Civil Code (BGB)) if the actual conditions or the overall picture show that the characteristics of an employment relationship prevail.
It is therefore not possible to protect oneself as an employer or client simply by labelling the contract as, for example, a “commission”, “fee agreement”, or “contract for work”. It is also not possible to prevent the determination of pseudo-self-employment – even if both parties to the contract firmly believe it to be an independent engagement.
If, in the overall assessment, the objective characteristics of a dependent employment relationship prevail, it is considered pseudo-self-employment (i.e. an employment relationship) – even if the contract is labelled as a “commission”, “fee agreement”, or “contract for work” and even if the parties involved assume it to be so. This also means that, from the beginning of the employment relationship, it is considered a social security-insured employment for which social security contributions must be paid.
Risks of pseudo-self-employment relationships
Unfortunately, the risks for the client/employer are particularly significant in the event of an incorrect classification: If pseudo-self-employment is later determined by social security authorities or the tax office, the employer must retroactively pay all social security contributions for health and long-term care insurance, pension insurance, and unemployment insurance, covering both the employee’s and employer’s share. In addition, the employer is also liable for any unpaid income tax, church tax, and solidarity surcharge. Late payment penalties, interest, fines, and potentially other sanctions are also added. The management is typically personally liable. Finally, one must also consider potential (especially employment contract) claims that could be made by the pseudo-self-employed individual.
It would be negligent not to carry out the necessary checks and instead rely on the hope that everything will work out or that “others are doing it the same way”. Routine inspections by the pension insurance provider take place for all businesses, and checking for pseudo-self-employment is part of the standard procedure.
These are all good reasons to take precautions to ensure that such a situation does not arise.
Criteria and characteristics of self-employment and pseudo-self-employment
Activity-related characteristics / work performance and circumstances
| Criteria | Characteristics of (genuine) self-employment | Characteristics indicating pseudo-self-employment |
| Freedom from instructions / obligation to follow instructions | Full freedom of decision over execution of work; No reporting obligations | Dependence on instructions Reporting obligations |
| Work organisation | Freedom to determine working time and location; No integration into the organisational structure of the client | Client dictates when and where work is performed Appointments and meetings are predetermined, and attendance is mandatory (integration into the organisational structure of the client); Agreement on availability times or other time-related directives from the client |
| No integration into company processes | Integration into company operations | Integration into the company (e.g. workplace, business card); Agreement on absences with colleagues or notification obligations in the case of absences |
| Remuneration | Common practices: performance-based remuneration, lump-sum payments, or compensation exceeding the hourly rates of employees performing comparable tasks | Possibly regular or even fixed remuneration akin to salaries; hourly rates similar to those of employees in comparable positions |
Personal characteristics
| Criteria | Characteristics of (genuine) self-employment | Characteristics indicating pseudo-self-employment |
| Clients | Works for various clients. This can be affirmed only if the income of the individual contracting party remains below five-sixths of the total income. → No personal dependency [1] | Essentially working for only one client, meaning at least five-sixths of the income comes from this relationship. → Personal dependency |
| Operating resources | Own work equipment and infrastructure (personal office space, IT equipment, business furnishings, possibly a vehicle, etc.); | Use of client’s operating resources (IT systems, workspace, and telephone) |
| Economic risk | Assumption of full entrepreneurial risk | Economic risk often lies largely with the client |
| External presentation | Own entrepreneurial appearance to the outside world (e.g. website, advertising, letterhead, and logo) | Own entrepreneurial appearance to the outside world may be lacking |
| Possibility of representation | Common: Right to representation by third parties | No possibility of representation |
| Social security | Insurance against illness, accidents, own provision for old age | |
| Professional liability insurance | In most cases, professional liability insurance should be in place | |
| Legal form / form of professional activity | Not mandatory but an indication of genuine self-employment:
| |
| Employees | Not necessarily, but often: own employees |
[1] For the sake of completeness, it should be mentioned that there are also rare cases of self-employed individuals with only one client, such as commercial or insurance agents working exclusively for a single company. This is not addressed within this guide because this particular constellation is scarcely imaginable in the cultural/artistic sector discussed herein and must always be clarified separately. In such cases, there is inevitably also a mandatory pension insurance obligation for the self-employed individual, necessitating registration with the DRV.
Review and documentation of the individual case
Check
Each individual case must always be considered and examined separately.
Exception: if the case is clearly entirely unproblematic (e.g. commissioning a tax consultancy to prepare tax returns, a tradesperson’s business to renovate office premises, a photographer to take team photos).
During the assessment, careful attention must be paid to
- the specific work performed and the circumstances, particularly with regard to obligation to follow instructions and integration into the company. Any form of obligation to follow instructions and integration into the organisational structure of the client indicates pseudo-self-employment.
- the person who is to perform the service (i.e. whether they actually meet the criteria for genuine self-employment).
A corresponding freelance contract may be concluded only if the overall assessment of all criteria supports self-employment in the actual circumstances of the (planned) work performance and the person also fulfils the requirements for self-employment.
In the following constellations, special caution is required in addition to the criteria mentioned:
- if a previous dependent employment relationship existed with the same person – how does the intended activity now differ?
- if the client has employees performing similar activities.
If the overall assessment shows that the individual is obligated to follow instructions and/or integrated into the client’s company and/or does not meet the personal requirements for self-employment, an employment contract must be concluded.
For the overall assessment of all work-related characteristics, it is useful to include the questionnaire on the description of the contractual relationship provided by the German statutory pension insurance scheme (DRV) in the review.
To assess whether the contracting party fulfils the personal requirements for the status of “self-employment”, it is advisable to carry out the review using a questionnaire in which the contracting party provides statements and also submits supporting documents.
Checklist for questionnaire.
Examples of questionnaires, checklist for assessment, and model contract (Haufe).
In the cultural sector, the classification catalogue for persons working in theatre, orchestras, broadcasting and television organisations, and film and television productions issued by the GKV umbrella organisations is also relevant (though particularly for artistic contributors) and is used as a guide by auditors.
If doubts remain after the overall assessment, there is the option of initiating a status determination procedure (see below).
Documentation
If the overall assessment leads to the conclusion that genuine self-employment exists and a freelance contract can be concluded, the circumstances reviewed and the reasons for the classification should be carefully documented for internal records in order to be able to respond securely and with sound arguments to any queries during audits. Documentation also includes relevant documents, contracts, invoices, declarations, copies of evidence such as professional liability insurance, business registration, KSK membership, proof of health and pension insurance, and a list of other clients.
Regular review
Especially in the case of longer or recurring contractual relationships, internal reviews should be carried out periodically in order to ensure that the conditions for commissioning on a freelance basis are still met.
Examination of individual example cases of non-artistic activities
Production management/project management/event management
In most cases, the assessment will conclude that individuals performing these functions are, and are intended to be, integrated into the organisation and obligated to follow instructions. If the activity is carried out on a continuous basis, this always indicates a corresponding level of integration.
For assignments tied purely to individual projects, the situation may be different, for example if a production agency professionally manages events and productions using its own resources (infrastructure, office, staff) and without being obligated to follow instructions. In the field of independent performing arts, “creative producers” often manage different projects for multiple clients. In the case of highly professional production agencies that operate exclusively from their own business infrastructure, determine their own working hours and locations, are often connected with others in freelance associations, have an independent market presence, and bear their own economic risk, the review will certainly conclude that these individuals are self-employed, particularly because they are neither integrated into the client’s organisation nor obligated to follow instructions.
Here too, if genuine self-employment cannot be clearly confirmed in the specific case, a status determination procedure should always be requested from the pension insurance provider.
Production assistance / direction assistance / assistance
A self-employed activity is ruled out from the outset simply based on the terminology. The term “assistance” always implies integration into the organisational structure of the employer and an obligation to follow the instructions of the person or organisation for whom the assistance is provided.
Press and public relations/marketing/editorial
Here, too, integration into the organisation and the obligation to follow instructions in the individual case are particularly important. In the case of a permanent role as press officer in a production house with a fixed workplace and integration into the organisational structure, employment must be under a formal employment contract.
The classification catalogue for persons working in theatre, orchestras, broadcasting and television organisations, and film and television productions issued by the GKV umbrella organisations classifies “all external persons working in advertising/public relations for a theatre under their own company as self-employed in principle, particularly photographers, PR specialists, and graphic designers”. Ultimately, this simply means: For the application, it is crucial to review the terms “external” (no integration, free from instructions) and “own company” (existence of genuine self-employment).
Translations / text assignments
If only individual translation or text assignments are awarded (e.g. for a publication or programme booklet) and the person works from their own business organisation, free from instructions, and fulfils all requirements for self-employment, an assignment can be awarded or a freelance contract concluded.
Moderators, trainers
Moderators of events and trainers for courses and the like are typically freelancers and are commissioned for individual formats. Accordingly, they are generally not integrated into operational processes and work free from instructions; moreover, their overall activity is often largely shaped by their own creative contribution. In such cases, commissioning by means of an assignment or freelance contract is unproblematic.
(Payroll) accounting / financial administration
As a rule, integrated into the organisation, obligated to follow instructions, and therefore required to be employed. Only in cases where these administrative activities are outsourced (e.g. a tax consultancy or an agency for cultural project management) can genuine self-employment be assumed.
Note:
It is not sufficient to justify a freelance employment relationship solely on the basis that the person belongs to a liberal profession, such as a journalist (section 18 (1) No. 1 of the Income Tax Act (EStG), which is relevant for freelancers, also only classifies the income of members of liberal professions as income from self-employment if the professional activity is actually carried out independently). What matters here too is the overall assessment for the individual case, examining whether the person is obligated to follow instructions or integrated into the client’s organisation, and thus considered an employee.
In the case of doubt: Possibility of a status determination procedure
If, after careful review, doubts still remain as to whether the work might involve pseudo-self-employment, there are further options:
- practical and fully legally secure: conclusion of an employment contract
- clarification by consulting external advice (tax consultancy, lawyer)
- binding clarification of whether it is a dependent employment relationship or self-employment through a “status determination procedure” by the DRV.
The DRV Clearing Office is responsible for the status determination procedure. Applications can be submitted by either the client/employer or the (pseudo) self-employed person, and the decision of the DRV provides legal certainty for both sides.
Since 2022, the procedure can also be carried out before the activity begins provided that a corresponding contract has already been concluded and the circumstances of the service provision can be described. In the latter case, the DRV makes a “forecast decision”, and the status of the worker for the contractual relationship carried out according to the prior description is then determined as binding.
An application and a description of the contractual relationship using the forms provided are required for the status determination by the DRV. The underlying contract must be attached.
Conclusion of contracts with self-employed persons / actual implementation
Regardless of the outcome of the overall assessment of the actual circumstances, the subsequent contract and service provision should correspond to it.
Even though, as mentioned above, a freelance contract has only indicative value during an audit, it should still clearly express the freelance nature of the relationship (i.e. that two independent entrepreneurs are agreeing on a service, and that the commissioned party performs the service as part of their own business activity, not obligated to follow instructions and independent in terms of time and place).
The relationship must, of course, also be reflected in practice; integration into internal communication structures (e.g. meetings), a company email address, a workplace at the client’s premises, and reporting obligations would not be appropriate.
The topic of contract drafting is covered elsewhere on this knowledge platform, where, among other things, there is a link to a sample freelance contract (IHK Frankfurt) that can be used as a guide.
Conclusion
The choice between permanent employment and a freelance contract requires a case-by-case, careful review, and overall assessment of the actual circumstances.
If doubts remain that are not to be clarified, for example through the status determination procedure, permanent employment is the safer option.
A strong resource is the flexibility to adapt employment models when necessary.
By regularly carrying out this review and assessment and structuring contractual relationships accordingly, legal and financial risks are minimised, and ultimately fair working conditions are created for all parties involved. In this way, those involved in the cultural sector can benefit from both the flexibility of freelance work and the stability of permanent staff.
Appendix: Checklist – personal requirements for self-employment
It is advisable to query the following points by means of a questionnaire for the internal status review of contractors before concluding a contract.
- Name/contact details/website/place of business/company headquarters
- Proof of self-employment (e.g. business registration, KSK membership, professional association)
- List of other clients during the calendar year
- Written confirmation that no more than five-sixths of total annual income will be earned from the assignment in the calendar year
- Existence of professional liability insurance (proof)
- Existence of private or voluntary statutory health insurance/pension provision (proof)
- Has a status determination procedure already been carried out for the relevant activity? (proof)
- Existence of a legal form (e.g. GbR, GmbH)?
- Are employees subject to social security contributions employed?
- Use of own business resources for the assignment?
- Has a business start-up grant been received or will one be received?
- Tax number/VAT ID
As with the personnel questionnaire, the contractor must confirm by signing the questionnaire that the information provided is truthful and that any changes in circumstances that could lead to a different assessment for insurance purposes will be reported immediately. The individual proofs must be substantiated with appropriate documents.
Note:
The points listed above relate only to the personal characteristics (i.e. whether the person actually meets the criteria for genuine self-employment). The other criteria and characteristics (specific work performance and circumstances, particularly with regard to the obligation to follow instructions and integration into the organisation) must be assessed separately by the client on a case-by-case basis as part of an overall evaluation.