Item — HN Reader

I'm a Fractional CTO in NL. We're quite a bit more expensive than regular employees or even freelancers (per hour), so I think they mention the lack of payroll taxes, bonuses etc to persuade companies that it's less expensive than it appears.

We're still paying taxes, the only difference is that the client isn't paying for it, and maybe there is a bit of a discount for starters.

As a fractional/freelancer, I enjoy the freedom and mutual expectation that I'm in this for the money and for the short term. (In my case it gives me the resources to bootstrap my own product company).

In NL the regulations for false self-employment (enforcement kicks in January 1st) is primarily aimed at low-wage jobs like meal delivery etc. High paid professionals with multiple clients per week (like most fractionals are) are not the target.

3 comments

> High paid professionals with multiple clients per week (like most fractionals are) are not the target.

Yes, that's also what used to be the common knowledge in Germany. However (according to my tax advisor), the tax office here has gotten increasingly agressive and are now also targeting high paying jobs like physicians and software engineers more and more.

> We're still paying taxes, the only difference is that the client isn't paying for it

Yes, that's also how you in Germany would optimally protect yourself against fallout from false self-employment (= backpay of evaded social security payment), but even in that case your customers can be fined for engaging in false self-employment, which will likely kill that customer relationship. One practice against that I've seen is to have a clause in the contract where you as the freelancer guarantee that you also spend X time with other clients, which should give the customer a shield of plausible deniability, but I haven't heard any experience reports whether that holds up in an audit. The most bullet-proof method seems to be to have at least one employee that you pay minimum social security for (e.g. working student or family member), but that's not trivially cheap.

In NL, UK and probably Germany there is a plague of "freelance" developers and indeed also physicians that work full-time for the same companies for multiple years. In my opinion, it's fine to raise taxes on those kinds of freelancer/employer relations to the same level as salaried employees.

I see my own services as very different. You call me when you need short-term & part-time help to solve a problem or bootstrap something within your own company. Doing that in a long-term salaried position would not make sense.

Curious to see what will happen over the next years!

> In my opinion, it's fine to raise taxes on those kinds of freelancer/employer relations to the same level as salaried employees

omg, brilliant idea! Since we are not paying enough already.

> In NL the regulations for false self-employment (enforcement kicks in January 1st) is primarily aimed at low-wage jobs like meal delivery etc. High paid professionals with multiple clients per week (like most fractionals are) are not the target.

I spoke to an accountant about this and he was very clear about it that having one employer is a problem. He said the new rules were there to make it less easy for employers to work around pension, taxes, and social security. According to him it was not about low versus high wages. So he would disagree with your first sentence and the first half of your second sentence. The last part is correct. Individuals with multiple clients (3-5 different clients per year at minimum) will not get into trouble.

> We're still paying taxes, the only difference is that the client isn't paying for it, and maybe there is a bit of a discount for starters.

How can the client not be paying for it somehow?

They pay a higher hourly wage. As an entrepreneur you typically you see "monthly salary of employee is X" and translate that to "actual cost is X*1.4". With fractionals you don't have to do that. The hourly wage is simply what you pay.

Bundling things together still means they are paying for it with one degree of separation…?

Yes they are, but I think the blog post is meant to educate the companies that they don't have to mentally multiply the price again. What you see is what you pay.

This is exactly correct. We're not saying somehow somebody is cheating the system (e.g. by not paying taxes), we're showing how it's a lot more transparent.

Client is not paying taxes, only for my services. What if I decide to not pay taxes myself and pocket all the money?

Not sure if you are trolling, but in that case you're a criminal and you'll have a problem with tax authorities.