False self-employment in Germany
Everything about the criteria and consequences of bogus self-employment in Germany.
Here you learn ...
what bogus self-employment is
when bogus self-employment exists ( criteria )
what consequences bogus self-employment has
Table of Content
1. False self-employment as a freelancer and entrepreneur
2. When does bogus self-employment exist?
3. Consequences of bogus self-employment
4. Conclusion
1. False self-employment as a freelancer and entrepreneur
False self-employment is a central issue in German labor law and affects companies as well as freelancers and sole proprietors. Anyone who appears to be self-employed but actually works as an employee risks serious legal and financial consequences . This makes it all the more important to know the criteria for false self-employment and actively avoid them. If false self-employment is discovered, it can retroactively lead to substantial back payments of social security contributions and taxes .
The issue of bogus self-employment is also relevant for foreigners, as bogus self-employment can have significant implications for their residence permit . Many freelancers initially attempt to obtain a freelancer permit with only one employer. These applications are then rejected due to bogus self-employment. Even if a residence permit is granted, working for only one client with a residence permit for self-employed persons can lead to the foreigner being accused of deception . In this respect, working for a company requires a residence permit for employment purposes (e.g., Sections 18a and 18b of the Residence Act ) and not a residence permit for self-employed persons ( Section 21 of the Residence Act ). Furthermore, bogus self-employment can therefore constitute illegal employment .
2. When does bogus self-employment exist?
False self-employment occurs when a person is officially hired as a self-employed person, but is in fact integrated into the client's business organization and subject to their instructions – comparable to a traditional employment relationship. Whether false self-employment exists can be examined, for example, by the German pension insurance company in the so-called status determination procedure . The German pension insurance company then examines, in particular, whether:
There is a requirement to follow instructions (e.g. regarding working hours, place of work or working methods),
the person concerned does not employ any of his own staff,
he has only one main client,
it is integrated into the company's processes and infrastructure.
If these criteria show that the foreigner is actually employed and not self-employed, this constitutes bogus self-employment.
3. Consequences of bogus self-employment
False self-employment can have serious financial and legal consequences. If it is retroactively discovered, employers must expect high back payments of social security contributions and taxes. In addition, there is a risk of fines under the Social Security Code and criminal sanctions , particularly for withholding social security contributions. This finding also has serious consequences under labor law: The employment relationship is retroactively considered employment, which can give rise to entitlements to vacation, continued payment of wages in the event of illness, and protection against dismissal – a significant risk factor for companies.
To avoid bogus self-employment, in addition to a clear and professionally drafted service or work contract, the actual structure of the collaboration is crucial. Clients should ensure that the self-employed person has entrepreneurial freedom, for example, through flexible scheduling and independent project management. If uncertainties exist, a status determination procedure with the German Pension Insurance (Deutsche Rentenversicherung) is recommended to ensure legal clarity. This allows risks to be identified early and avoided with legal certainty.
Summary of this Page
False self-employment poses a significant risk under German labor law – especially for freelancers, solo self-employed individuals, and their clients. Incorrect classification can lead to high back payments of social security contributions, criminal prosecution, and retroactive employment law claims. Foreign skilled workers are particularly affected, as false self-employment can jeopardize their residence permit. The actual nature of the collaboration is crucial – not the contract alone. To ensure legal certainty, status determination procedures should be conducted with the German Pension Insurance in case of doubt.
