Employed or self-employed: the test, the procedure and the back-payment

An advertising agency pays a graphic designer €4,000 a month for three years as a freelancer. He works on its premises, follows its rota and does whatever the art director assigns him. The social insurance audit classifies him as an employee. The pension contribution alone, at 18.6 percent, comes to €744 a month, and the agency may deduct the designer's share only from his next three salary payments.

What the law means by employment

German social insurance law does not ask what heading the parties put on their contract. It asks whether someone is employed. Where there is employment for pay, compulsory insurance generally arises in several branches, and the client becomes an employer with every reporting and payment duty that goes with it.

The word ‘indicators’ deserves attention. Instructions and integration are pointers, not conditions that must both be fully met. Someone who is entirely free in how the work is done can still be so tightly woven into another business that the result is employment. Conversely, a single requirement from a customer does not turn a contractor into an employee.

§ 7 SGB IV does not say what instructions may concern. Employment contract law does: under § 611a (1) BGB, the right to give instructions can cover the content, performance, time and place of the work. A person is bound by instructions if he cannot essentially shape his own activity and set his own working hours.

The same provision contains two sentences that matter in every review. First, it requires an overall assessment of all circumstances. Second, the label in the contract is irrelevant if the way the relationship is actually carried out shows an employment relationship. A contract titled ‘freelance cooperation’ therefore offers no protection against an employment relationship lived in practice.

Integration describes the other side: does someone work within another business's processes as if part of it? Pointers can include shared rotas, a fixed workstation, the business's own tools, or being built into teams and cover arrangements. None of these decides the matter alone; they are weighed against each other.

The social courts have developed further considerations from these principles, for instance whether someone bears a genuine entrepreneurial risk. That is case law, not statutory text. This course does not turn it into a points checklist: no provision contains such a list, and a case-by-case weighing cannot be replaced by ticking boxes.

The status determination procedure at DRV Bund

Anyone wanting certainty need not wait for the next audit. § 7a SGB IV lets the parties apply, in writing or electronically, to the Deutsche Rentenversicherung Bund for a decision on whether a contractual relationship is employment or self-employment. The parties are the client and the contractor; either of them can file the application alone.

The procedure is barred if, when the application is made, a collecting agency or another insurance body has already opened proceedings to establish compulsory insurance on the grounds of employment. A business that only reacts once an audit has been announced may therefore already have lost this route.

In two situations the application is made without the parties doing anything. If an employer registers his spouse, registered partner or descendant, or a managing shareholder of a GmbH, the collecting agency must have the status determined by DRV Bund of its own motion.

• application by one of the parties, in writing or electronically, to the Deutsche Rentenversicherung Bund
• request for the information and documents needed, with a reasonable deadline
• hearing: DRV Bund announces the intended decision and the facts it relies on, unless it grants a joint application
• decision based on an overall assessment of all circumstances of the case
• objection and court action with suspensive effect

The decision is binding. Other insurance bodies must base their assessment of compulsory insurance arising from that contractual relationship on it. This ends the situation in which the health insurer and the pension insurer might classify the same activity differently.

The statute also covers triangular set-ups. If the contractor works for a third party and there are indications of integration into that party's organisation and of following its instructions, DRV Bund, on finding employment, also determines whether it exists with that third party. The third party may then apply itself.

If the authority does not act, a special rule applies. Under § 7a (6) SGB IV, an action to compel the decision is admissible after only three months, departing from the waiting period otherwise laid down in the Social Courts Act. In objection proceedings, the parties may request an oral hearing once they have given reasons for their objection.

Before the first working day: forecast and group opinion

Under § 7a (4a) SGB IV, nobody has to start working before being allowed to ask. On application, DRV Bund decides before the activity begins. The basis is then the written agreements and the intended circumstances under which the contract is to be performed.

This forecast comes at a price: if the agreements or circumstances change within one month of starting, the parties must report it without delay. If the change is material, DRV Bund revokes its decision, and the start of the activity itself counts as the moment the circumstances changed.

Clients with many similar contracts can use the group opinion. Once DRV Bund has decided an individual case, it gives, at the client's request, an expert opinion on the status of contractors in identical contractual relationships. Relationships are identical if the activities match in nature and circumstances and rest on uniform contracts.

A client holding such an opinion must hand a copy to every new contractor in an identical relationship. If the opinion assumed self-employment and an insurance body later finds employment after all, compulsory insurance only starts when that decision is notified, provided the contractor had his own cover. This applies to contracts concluded within two years of receiving the opinion.

These three instruments, the forecast, the group opinion and the triangle rule, were introduced for a limited time. § 7a (7) SGB IV repeals the relevant subsections at the end of 30 June 2027. They apply in 2026; anyone planning a procedure for the period after that must check whether the legislature has extended them.

When compulsory insurance begins

If DRV Bund finds employment, compulsory insurance in principle starts on the first day of the activity. For a procedure lasting months, that means contributions build up retroactively, even though nobody could pay them while the question was open.

§ 7a (5) SGB IV offers a way out with three conditions. The application must be made within one month of starting. The employee must consent. And for the period between starting and the decision, he must have provided his own cover against illness and for old age, of a kind that corresponds to the statutory benefits.

If all three conditions are met, the day on which the decision is notified counts as the day employment began. The period before stays free of contributions. DRV Bund itself determines which date counts as the start; the parties do not have to work it out.

A second relief concerns the due date. In these cases the total social security contribution only falls due once the decision that employment exists has become final. Since objection and court action have suspensive effect, parties who contest the decision do not yet have to pay while the dispute continues.

What a misclassification costs the client

If employment is only established after the fact, the bill goes to the client. Under § 28e (1) SGB IV, the employer pays the total social security contribution, meaning the employer's and the employee's share together. The collecting agency claims both from the business, not from the former freelancer.

The employer can recover the employee's share in one way only: by deducting it from pay. § 28g SGB IV allows a missed deduction to be made up from the next three wage or salary payments. After that, it is only possible if the deduction was missed through no fault of the employer.

For the typical case of bogus self-employment, that is a hard limit. If the contract continues, three payments remain to deduct arrears built up over years. If the cooperation has ended, there is no pay left to deduct anything from. The client then bears both halves.

Late-payment surcharges come on top. Under § 24 (1) SGB IV, one percent of the arrears, rounded down to a full €50, is charged for every month of delay begun. On a back-payment spanning several years, this can reach a substantial share of the principal claim.

For contributions determined retroactively, § 24 (2) SGB IV contains an exception. The surcharge is not charged if the debtor shows credibly that, through no fault of his own, he did not know of the obligation to pay. A client who went through a status determination or otherwise checked carefully is in a much stronger position to show this.

§ 25 SGB IV sets how far back a claim reaches. Contribution claims become time-barred four years after the end of the calendar year in which they fell due. For contributions withheld intentionally, the period is thirty years. § 25 does not define intent; anyone who knew of the obligation and still did not pay must expect the long period.

Limitation is suspended while the pension insurer audits the employer. The suspension starts when the audit begins and ends when the contribution notice is issued, at the latest six calendar months after the audit is completed. Under § 28p SGB IV, audits take place at least every four years, so a misclassification rarely goes unnoticed.

Two further consequences require a graver charge. An employer who withholds the employee's contributions commits an offence under § 266a StGB, punishable by up to five years' imprisonment or a fine. And for illegal employment, § 14 (2) SGB IV deems a net wage to have been agreed, which raises the assessment base.

Self-employed does not always mean exempt

One last distinction prevents a common short circuit. Someone who is genuinely self-employed after this test can still be compulsorily insured for pensions, for instance as a self-employed teacher or with essentially a single client. The contribution is then paid by the self-employed person, not by the client. The second module covers these groups.