The big grey area of Europe’s labour market: false self-employment

Many European countries are currently struggling with the big grey area in its labour markets: false (or bogus) self-employment. While Germany is renowned for its strict ‘monster of a law’ called the Scheinselbstständigkeit, other countries opt for a more measured approach. 

Jasper Spanjaart on April 03, 2024 Average reading time: 4 min
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The big grey area of Europe’s labour market: false self-employment

While the number of self-employed workers in Europe is slowly decreasing — there’s another slight issue that may drive that number down even further: false self-employment. False (or pseudo) self-employed professionals are people who are registered as entrepreneurs, but who actually exercise a professional activity under the authority of an employer. 

Sometimes it’s simply born out of innocence. A self-employed worker starts on a small assignment, but it quickly grows into a more serious relationship. But sometimes it’s simply a strategic move by companies, as they are the ones who don’t need to pay social security premiums or keep any real records. In other words: in that scenario employer has no obligations towards those they hire as freelancers. They could fire him or her on any given day, resulting in little security for the self-employed worker.

The concerns are there

“There is a concern that many dependent employees are misclassified as self-employed in order to circumvent certain elements of liabilities”, a 2020 report by the European Platform tackling undeclared work states. “Such as collective agreements, labour laws (e.g., minimum wages, working time legislation, protection in case of redundancy), employment tax and other employer liabilities attached to the standard contract of employment.”

‘4.3% of jobs are bogus self-employment’

So, just how many bogus self-employment occurs in Europe? That’s tough to say, according to the same report. Depending on whether narrow or wider criteria are used, the prevalence of bogus self-employment varies from 0.5% – 4.3% of total employment in the EU. For instance, the EU Labour Force Survey defines ‘bogus self-employment’ as individuals who work for themselves but only have one client or a primary client who controls their working hours. According to the survey data from 2017, this type of employment makes up 0.5% of all jobs in the EU. But it’s worth noting that data is scarce on this subject.

Overall, 4.3% of jobs in the EU are categorised as bogus self-employment.

The 2015 European Working Conditions Survey indicates that, based on broader criteria, a grand total 1.4% of all jobs are considered ‘pure’ bogus self-employment, meeting less than two of the criteria: having more than one client, the power to hire, or decision-making authority. Additionally, 2.9% fall into a ‘grey’ area, meeting exactly two criteria. Overall, 4.3% of jobs in the EU are categorised as bogus self-employment. If you were to solely focus on whether individuals are paid a set fee regularly, instead of their strategic decision-making power, the rate of bogus self-employment adjusts to 2.4%.

The North-South divide

But as is the case for every European analysis: differences between country are vast. The working paper identifies the highest amount of bogus employment in Portugal (9.3% of total employment), Romania (8.2%), Italy (7.8%) and Greece (7.5%). Meanwhile, Scandinavian neighbours Sweden (0.8%) and Denmark (0.6%) score the lowest. “This clearly indicates a North-South divide in the EU in the prevalence of bogus self-employment”, the researchers add.

Bogus self-employment is significantly higher in countries with lower levels of state expenditure on social protection.

But there’s more to it. “Comparing these cross-national variations in its prevalence with structural conditions in European countries, bogus self-employment is significantly higher in countries with lower levels of state expenditure on social protection, lower governance quality, greater inequality and higher poverty levels.”

Is the platform economy driving bogus employment?

The driver behind it? Whether it’s your Uber Eats driver delivering tonight’s cold chicken. Or the local handyman doing some work on your house tomorrow, the (digital) platform economy is likely responsible for the influx of pseudo self-employed workers. The platform economy has made its way to every European economy — and it has resulted in a new discussion around what employment truly entrails. 

 

The (digital) platform economy is likely responsible for the influx of pseudo self-employed workers.

Platforms can typically be categorised into three types. 1: platforms that connect consumers with service providers. 2: platforms that match supply with demand. 3: service-providing platforms, such as Uber or Bolt. The latter has been subject to legal scrutiny in various countries, with courts ruling that they act as employers and must adhere to employment laws. 

Combating false self-employment

So, what are European countries doing to combat false or bogus self-employment? Well — the approach varies quite a bit. In Luxembourg, for example, the focus has been on refining the criteria for classifying workers as self-employed. Especially concerning platform workers, which will also extend to unemployment benefits to self-employed individuals facing involuntary cessation of activity.

Contrastingly, in the Netherlands, the government’s has a proposition in place for a new mandatory disability insurance for self-employed individuals. That underscores a different dimension of addressing the vulnerabilities associated with self-employment.

Scheinselbstständigkeit as the norm?

Germany is one country that is renowned for already doubling-down on bogus self-employment. German tax authorities take Scheinselbstständigkeit very seriously as a form of social security fraud — and it can lead to enormous fines and even a prison sentence when found guilty. Businesses and individuals involved in Scheinselbstständigkeit risk immense scrutiny, with audits that can dig deep into work arrangements, contracts, and financial records to determine the true nature of employment relationships. For those classified as falsely self-employed, the ramifications extend beyond immediate legal consequences. 

According to Eurofound, one in five self-employed workers chose self-employment because they could not find a job as an employee.

It has to come with a side-note, however. Most self-employed people enjoy good working conditions and job quality, as the report states. However, it is important to note that self-employment is not always chosen. Sometimes it is simply entered into due to a lack of alternatives. According to Eurofound, one in five self-employed workers chose self-employment because they could not find a job as an employee. 

Legislation still in limbo

Meanwhile, it’s a topic very much on the agenda of the European Commission and European Union. However, its proposed Platform Work Directive, aimed at improving working conditions for platform workers in the EU, faces uncertainty. After member states rejected a compromise agreement, the future of the directive is unclear. This leaves millions of platform workers in legal limbo, with their employment status and rights undetermined.

The grey self-employment clouds will continue to loom over Europe. If and when they do clear up, it’s likely going to drive self-employment numbers down even further.

Amidst the various facets of self-employment in Europe, the main conclusion that can be drawn is a fairly complex one. The declining trend of self-employment, as well as the complexity of dealing with forms of false self-employment, are resulting in a shift in the nature of work and employment across the continent. As legislation isn’t quite there — the grey self-employment clouds will continue to loom over Europe. If and when they do clear up, it’s likely going to drive self-employment numbers down even further. 

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Jasper Spanjaart

Jasper Spanjaart

Editor-in-Chief and Writer at ToTalent.eu
Editor-in-Chief and writer for European Total Talent Acquisition platform ToTalent.eu.
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