Players in the sharing economy never tire of stressing that they’re merely bringing together private individuals and thus operating purely as intermediaries or providers of technological platforms. But it’s worth examining this claim in its full context. In this article we’ll be taking a closer look at the relationship between the platform operator, the service provider and the employees − and how they’re treated. And we’ll be examining in more detail the way employment relationships are categorised, employment law, social security and tax.
All employment relationships aren’t created equal
Let’s first take a look at how employment relationships are defined in Swiss law. The provisions of the Code of Obligations (CO) governing employment contracts, Art. 319 ff., outline the typical employment relationship in terms of things like long-term, full-time employment, daily duties, working for a single employer, integration in the company’s organisation, authority of the employer to issue instructions, payment of a living wage by the employer and dependence on the employer. There are also various atypical types of employment relationships defined in terms such as the people involved, the place and time the work is performed, remuneration, and the duty to observe instructions and organisational integration of the employee. Drawing a distinction between an employment contract and other forms of gainful employment is not always easy – but it’s crucial to do so.
A complex equation with many variables
In Switzerland, it’s the responsibility of the competent social security office or the accident insurer to decide whether an individual has employed or self-employed status under the terms of Swiss social security legislation. But as soon as aspects of tax legislation and immigration law are considered, the thresholds and criteria can differ. This doesn’t make the handling of individual cases any easier. And the situation gets even more complicated when the international factor is added to the equation. No global, standard definition of employment and self-employment exists, and a work relationship categorised as self-employed abroad might well have employee status in this country.
The table below sheds light on the differences between an employment relationship and other common forms of work from a legal perspective. The determining factor isn’t the agreement or contract between the parties involved, but how the work is performed in reality.
The employment law perspective
An employment relationship is always bound by standardised protective structures arising from the employment contract. These include the primary duty of paying the employee’s wage and maintaining these payments in the event of incapacity, as well as various secondary obligations concerning the provision of care, for example protecting an employee’s rights of privacy, granting time off, holidays and issuing employment references. The binding provisions of employment law such as working and rest times and the payment of social security contributions must also be observed when an employment relationship comes into being.
Care required with social security
Whether someone is categorised as employed or self-employed will have considerable implications for the individual involved. If a person is self-employed it’s the employer’s responsibility to pay their social security contributions, but if they’re self-employed they’re responsible for correctly determining how much they owe themselves and actually paying the contributions. Even if a self-employed person pays all the necessary dues such as social security contributions and taxes, if an audit or other control finds fault the company runs the risk of having to pay back-taxes or contributions over several years. Things get even more difficult, for example, if the individual has an accident and the company sues for payment of treatment costs or maintenance of income because the worker wants to invoke the safeguards afforded by the employment relationship.
Occupational pensions are geared to an individual’s AHV/AVS (social security) status. Only employees have to be affiliated to a pension fund. If the competent authority deems someone previously considered to be self-employed to be a company employee, this person must be integrated retroactively into the employer’s occupational pension scheme (provided they satisfy the regular entry requirements in terms of age and income). This can prove a major burden in terms of social security costs and, in the worst case, give rise to an additional outlay no-one had reckoned with.
Income tax at source
Depending on the situation, if a worker is re-categorised as an employee the employer may be obliged to calculate the tax that has to be deducted directly from their income and issue a salary statement. It’s up to the employer to ensure that the correct amount of tax is calculated and handed over to the authorities. Under certain circumstances, this can be a considerable financial risk for the employer. And if the matter only comes to light several years after the end of the employment relationship through an audit or other check, the employer may be liable to pay tax at source in arrears. Claiming this tax back from the former employee will require a huge effort on the part of the company – if it’s possible at all.
The die is not yet cast
In spring 2016, SUVA (the Swiss accident insurance authority) notified one of Uber’s drivers that he didn’t satisfy the criteria for self-employed status. Not surprisingly, Uber sees things differently. In compliance with SUVA’s decision, the AHV social security offices asked the online transportation network company to produce a salary statement backdated to 2015 as a basis for calculating the necessary social security contributions. Thus far, Uber has failed to respond. So it looks like the Swiss courts will need to take a more detailed look at Uber’s business model. It remains to be seen how they will weight the various criteria for categorising an individual’s status as self-employed or employed.
In a nutshell
An individual’s status as employed or self-employed depends on how they perform their work in practice – not on the wording of their employment contract. In a court case, criteria such as authority to issue instructions and liability for results, economic independence and the duration and frequency of the relations − including any earlier business connections, for example an employee relationship − will be considered in the judgement. As the sharing economy expands and more and more organisations look at changing their business models from traditional ‘provider/consumer’ models to sharing platforms, it’s important to look carefully at the nature of the employment relationships that are created in the early stages of the project, to avoid incurring significant unforeseen costs in the form of unpaid taxes in the future. Companies that maintain this type of working relationship would be advised to set up an internal unit with the know-how and skills needed to assess these matters compliantly and devise appropriate solutions.
+41 58 792 47 50
Senior Manager and Specialist for Payroll & Employment Solutions
Tel. +41 58 792 2002