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Pardon my terminology. I'm very much not a lawyer, but I used to watch Ally McBeal as a kid, so I think I got the hang of this.

This is actually a subset of a vastly larger problem, so the arrangements may seem a bit weird. This is an EU question, but having any common law jurisdiction answers would certainly help, as would anything even tangential on this.

We have the following legal entities:

Main company X, located in either Ireland or Northern Ireland (UK)

Accounting company Y, located somewhere in EU, could be the same country as X if that makes things easier.

Freelancer A (and others), located somewhere in EU, ideally the globe.

X has made a contract for service with A. X wants to lower the bureaucracy overhead for A, as it is essential for the business model for make it easy to join as a freelancer (think Uber). Ideally this would be as hassle free for A as having a contract of service with X.

For this, X has two different models:

1) A sends X all the necessary paperwork. When A gets paid, X pays income taxes, pension payments, VAT and whatnot for A and sends the rest for A.

2) A sends Y the paperwork, X sends Y the full amount payable to A and the info required, Y pays the taxes etc and sends the rest to A.

Are either of these (or modifications of those) possible without the relevant authorities interpreting this as a contract of service instead of as a contract for service as intended.

It is worth noting, that even without X handling tax bureaucracy for A, it is not completely clear if the model would pass as a contract for service. Based on the IRS 20 questions on the subject 15 or so say it's for, 3 are indecisive and 2 say of. It would also not make any sense for X and A to have a contract of service relation (again, think Uber).

EDIT:

A few things to clarify:

  1. Our goal is not (necessarily) to minimize taxes for A, but to minimize bureaucracy overhead for working small sporadic gigs for the company

  2. Scope of A's work could range from anywhere from an hour to a few years

  3. Ideally A would just have to provide X (or Y) the required paperwork, then receive payments as if he would be an employee and not have to worry about taxes or social payments.

  4. Having an employer-employee relationship between Y and A is almost as bad as having it between X and A

  5. The main reason why we want to avoid employer-employee relationship is not tax optimization or avoiding social payments, but avoiding minimum wage regulations. This may seem quite exploitative, so I might need to open up the idea a bit more:

The point of company X is essentially to provide a legal & software (latter one being our core competence and first one just a major obstacle) platform for collaboration between the mentioned 'independent contractors'.

As a simplified example that wont catch many of the reasons why we need a legal platform as well:

Freelancers A and B collaborate together to build the ultimate fart app. A handles the coding and clocks in 100h while B farts on mic for 50 hours, both work being deemed equally valuable. When the project cashes in, A will get 2/3 of the profits and B 1/3. A and B can also sell their equity to 3rd parties any time they want.

This would be implemented by having a (quite exotic) contract for service between company X and independent contractors A and B.

Now consider the two following scenarios:

  1. The app ends up grossing very little or nothing at all, meaning that hourly rate for A and B would be way below minimum wage. This would obviously mean a disaster for company X if the authorities interpreted the relationship as employer-employee, so that is why we absolutely need to steer clear of it.

  2. Freelancer C joins the project and does 10 hours of design work. Let's say that C his main source of income from a steady 9-5 elsewhere and does not really do freelancing other than this gig. While setting up a service company for A and B would possibly be an option (given that this is not their only collaboration under company X), the overhead for C would be completely unbearable.

  • For those of us in the U.S.: Can you clarify the practical consequences of differentiating between a contract of vs for service? – feetwet Jul 6 '15 at 20:06
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    and fwiw here's the IRS test I referred to. So of = employee, for = independent contractor – Seppo420 Jul 6 '15 at 20:20
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    What's the difference between company X and, say, a book publisher? Book publishing is (AFAIK) a field in which authors are not considered employees, and are paid based largely on sales. – cpast Jul 8 '15 at 18:50
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    BTW there is a stackexchange site for Freelancing. – CodesInChaos Jul 24 '15 at 10:42
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    There are companies that do this and there is a whole niche area of labor and tax law explaining how to deal with it. They are sometimes called "employee leasing" companies. entrepreneur.com/encyclopedia/leased-employees – ohwilleke Nov 9 '17 at 19:48
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Can a company handle paying taxes and other bureaucracy work for a freelancer?

Yes. The recipe is not very easy but robust:

  1. No employee-employer relationships / contracts of service with the freelancers whatsoever. This is not just because of the minimum wage concerns, but also because of visa/work eligibility issues in case you go beyond EU for finding freelancers;
  2. Divide and conquer: the freelancers will have two separate contracts:
    1. Contract for service CFS1 where A (or company Z owned by A, see below) provides services to X e.g. hourly paid programming/design work. To avoid doubt, this will have nothing about the A's taxes/pensions etc. as if A had to worry about that stuff like a classic independent contractor;
    2. Contract for service CFS2 where Y (or even X) provides accounting/compliance managing services for A. This will include the registration of sole trader (or even a company Z completely owned by) A, filling annual returns, paying taxes and whatnot to make A not worry about anything but the work itself. In this contract, A will authorise Y/X to act on his/her behalf to the extent required to make their work bureaucracy-free, even if this will require nominating people from Y/X to be the directors of Z.

Now, the most challenging bit in that scheme is this:

Freelancer A (and others), located somewhere in EU, ideally the globe.

Essentially, Y/X would need to design separate CFS2 solutions for every country/jurisdiction A may reside in, learn location-specific nuances and communicate with the corresponding authorities. Say in some places it might be enough to register A as a sole trader and file personal income tax returns, while in others you might need to register company Z and figure out how to Z will pay to A.

Hint: find a local accounting-focused freelancer in every place you want to have freelancers from ;)

4

This is a well established model in the UK. One route is the umbrella company. Y here would be the umbrella company. A would then either be providing services to Y or be employed by Y. You may be wondering what use it is if A is employed by Y. The answer here is that whilst A may not benefit from the tax treatment, X does not bear the burden of running PAYE etc. Further, because of regulations such as IR35, it may be that there is a doubt as to whether employment tax apply even if there is a contract for service. Essentially disguised employment means taxes are levied on the employer as if an employment existed; however, in this situation X has the comfort that if this arises they will (normally) fall on Y rather than X. Another route is the service company, where normally A himself will own it (or it is owned between A and A's spouse), take a combination of salary and dividends out (using two allowances if owned between spouses), and he will bill X or Y; companies exist which will perform all the necessary paperwork to do this (in which case Y is called a managed service company), as opposed to a personal service company (if A sets it up himself).

It's not clear where you are based, but if you are based outside the UK (and possibly if you are inside the UK) there are accountancy companies that specialise in setting all this up.

  • Hey, thanks for the info. However, neither of the models would work too well in our case. See my edits in the OP. – Seppo420 Jul 7 '15 at 10:52
  • @Seppo420 I understand what you want to do, but in minimum wage regulation even more so than in tax regulation, you are working against the grain as this is specifically what the legislation is designed to outlaw. I'm not saying it's impossible, but I suspect Uber etc. took lots of expensive per country advice. – abligh Jul 7 '15 at 11:00
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    Like it or not, the minimum wage legislation (derived from the relevant EC legislation) is designed to prevent a worker and an employer striking a bargain at which the worker is paid less than minimum wage, whether or not they are making that bargain freely. Ditto the working time directive. There doesn't have to be "exploitation" of the worker concerned to make it fall within the purposive intent of the law, as one effect of allowing 'non-exploitative' working below the minimum wage would be to reduce the wages for other workers, who may see their (consequently) lower wages as exploitation. – abligh Jul 7 '15 at 11:21
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    @Seppo420 your question is, I think, is this possible without the relationship being construed as service contract, not a contract for services. That will depend under which legislation (tax legislation and minimum wage legislation are different). Under tax legislation it is normally the company 'closest' to the A that is relevant. Under English statute law, it's normally the letter of the law not the spirit of the law that is relevant. Whether someone is a 'worker' or an 'employee' or a 'disguised employee' is a matter of fact which will depend on the circumstances. – abligh Jul 7 '15 at 13:06
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    Yup. I took the spirit of the law up because you said that the minimum wage laws were designed to outlaw what we're doing, which I don't think is the case. Also not being against the spirit of the law is a decent sign of not being against the letter either, which I will have to dive deeper into (thanks for the pointers). As for legislation, company X has not been set up yet, but candidates are either Ireland or Northern Ireland. – Seppo420 Jul 7 '15 at 13:13

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