Avoiding False Self-Employment among Freelancers in Germany

If contracts with freelancers and independent contractors are not drafted in a legally compliant manner and the collaboration is not consistently implemented accordingly, there can be significant consequences:

• The person hired as a freelancer or independent contractor is retroactively considered a dependent employee with all the associated claims under employment law (e.g. vacation, continued payment of wages, protection against dismissal).
• Retrospective social security contributions (employer and employee contributions) can be claimed for up to four years (up to 30 years in cases of intent), often in the five- to six-figure range.
• In addition, there are late payment penalties and, in some cases, criminal investigations for withholding social security contributions (Section 266a of the German Criminal Code).
• In practice, both the client and the contractor can be held liable, but the client typically bears the majority of the financial burden.

Is it possible to be employed by the same organization and work as a self-employed person at the same time? Yes, but this is difficult to arrange in practice.

For nonprofit organizations, false self-employment can threaten their very existence. Smaller associations, adult education centers, music schools, and educational institutions with tight budgets in particular can find themselves in a situation of balance sheet over-indebtedness due to high additional claims from the German Pension Insurance, with the result that they have to file for insolvency. Charitable status itself does not provide protection! Nonprofit organizations are audited just as strictly by the BSG and DRV as commercial enterprises.

In addition to these obvious financial risks, there is often a threat of a massive loss of trust – internally among employees and externally among customers, shareholders, the works council, or the public. This can even jeopardize the status of nonprofit organizations. It therefore makes sense not to ignore the issue of false self-employment, but to manage it consciously.

The legal situation regarding the distinction between self-employment and dependent employment is complicated. Not because the law is particularly extensive, but because the BSG and DRV apply a large number of open, case-specific criteria.

According to established case law of the BSG and the assessment practice of the DRV, the following factors are particularly relevant:

• Subordination
  To what extent is the person subject to the client's instructions in terms of content, time, and location?
• Integration into an external work organization
  Is the freelancer actually integrated into the client's processes, teams, meetings, systems, and structures, similar to an employee?
• Existence of entrepreneurial risk
  Does the person concerned bear their own economic risk (e.g. for downtime, investments, personnel)? Do they operate on the market as a company for several clients?

For years, the BSG has emphasized that these criteria are neither ranked in order of importance nor do they have to be cumulative. The overall picture of the circumstances in each specific case is always decisive.

In recent years, other factors have come into focus in audit practice, in particular:

• Fee level: Remuneration that is significantly higher than the comparable employee level may be an indication of self-employment, but is not a “free pass.”
• Higher-level services: Even in the case of highly qualified activities (e.g. lecturers, teachers, consultants), the BSG considers that dependent employment may exist if the integration into the client's processes is significant.

A prominent example is the BSG's so-called Herrenberg ruling (ruling of June 28, 2022, B 12 R 3/20 R). In this case, the BSG ruled that, despite professional freedom, dependent employment may exist in the case of teaching activities if, for example:

• the content, times, and locations of the events are largely predetermined,
• organizational processes (registration, room booking, participant management) are entirely the responsibility of the client,
• the lecturer is effectively integrated into the teaching operation over a longer period of time.

For education, IT, and consulting activities in particular, this means that even in areas where “freelance” employees have traditionally been used, the risk of a reinterpretation of status is increasing.

The DRV uses questionnaires, criteria catalogs, and standardized queries in status determination and operational audit procedures. The following are examined in particular:

• Number of clients, distribution of sales
• Market presence (own website, business cards, logo, business equipment)
• Existence of own business premises and own operating resources
• Type of billing (project/flat rates vs. hourly rates)
• Integration into operational processes and reporting structures

Formally, the DRV considers these criteria to be “equally important.” In practice, however, different priorities are set depending on the industry and constellation. As a result, the legal situation is perceived as difficult to calculate and “confusing” for companies and self-employed persons – the same contract structure can be assessed differently in different procedures.

The DRV also conducts regular audits of nonprofit organizations, checking not only payroll accounting but also all payments to freelance staff, trainers, and external employees. Nonprofit organizations should therefore carefully document contracts with trainers, coaches, lecturers, and other freelance staff and keep an eye on the distinction between genuine and false self-employment.

Certain situations repeatedly come under review by the DRV and social courts. Particular attention is paid to, among other things:

• IT freelancers with a permanent workplace at the client's premises, their own company e-mail address, participation in regular meetings or daily stand-ups, and cross-project assignments like internal employees.
• Lecturers and trainers who have been working regularly for a (nonprofit) educational institution for years, who have to adhere to seminar times according to its specifications and who appear in the program as “their own” teachers.
• Consultants and project managers who work full-time on site, with a laptop and access to the client's systems, who control the client's processes and act as employees of the client vis-à-vis third parties.
• Creative professionals (designers, copywriters) who are effectively on permanent assignment for a single client and invoice monthly like a salary based on hourly quotas.
• Instructors, teachers, and trainers who regularly conduct training at fixed times, must report canceled classes, and have no creative freedom in terms of training content.

The more the actual arrangement resembles a classic employment relationship, the greater the risk that false self-employment will be determined in retrospect, regardless of how “free” the contract is worded.

Many associations and nonprofit organizations work with the trainer allowance (Übungsleiterpauschale; EUR 3,300 per year, as of 2026) or the volunteer allowance (Ehrenamtspauschale, EUR 960 per year, as of 2026). These tax- and social security-free allowances are intended for part-time activities in the nonprofit sector or a social institution.

However, the trainer allowance requires that the activity is actually carried out on a part-time basis (maximum one-third of a full-time position) and that there is no dependent employment. If the activity exceeds these limits or if the characteristics of dependent employment are present, the allowance no longer applies or the DRV may classify the activity as subject to social security contributions.

Charitable status does not protect against false self-employment. A common misconception is that a more lenient standard applies due to charitable status. This is not true. Nonprofit organizations (associations, gGmbHs, foundations) are subject to the same strict screening by the DRV and the social courts as commercial enterprises. The social security obligations and the criteria for pseudo-self-employment are identical for both types of organizations.

1. “Employee relationship in freelancer guise”
   Although the contract is described as a fee or freelance contract, its content is designed to provide a mere supply of labor (fixed working hours, compulsory attendance, reporting obligations, vacation coordination).
    
2. Hourly recording accurate to the minute, as with employees
   Invoices list hours and attendance times to the day, sometimes with overtime, break regulations, or flexitime details – effectively a record of working hours.
    
3. Quasi-single-customer relationship
   The freelancer generates almost 100 percent of their turnover with one client over a long period of time without visibly appearing as an entrepreneur on the market.
    
4. Full integration into the organization and hierarchy
   Use of company e-mail address and company resources without reference to external status, inclusion in telephone directory, participation in team and department meetings as with employees, instructions from client's superiors.
    
5. Contract and actual practice do not match
   On paper, there is talk of “free time management” and “independent organization,” but in practice, work is carried out according to duty rosters, attendance lists, and detailed specifications.

False self-employment cannot be prevented by a “trick” in the contract design. It is crucial that the contract, invoicing, external appearance, and actual practice are consistent and convey a consistent image of genuine self-employment.

This requires

• A clear contractual structure with a description of services, remuneration based on results rather than time, freedom from instructions and personal responsibility, and the avoidance of clauses typical of employment contracts
• Practical and consistent implementation, with no compulsory attendance, a clear distinction between employees and freelancers, and monitoring of the duration and intensity of work
• Strengthening the entrepreneurial profile through genuine visibility and advertising on the market, use of own operating resources, and a professional external image
• Consistent and proper invoicing by billing for services rather than hours and clearly describing the services provided rather than, for example, “working hours in November”

In cases of doubt, it is possible to obtain a binding classification under social security law through a status determination procedure at the DRV clearing house. This can be useful if:

• long-term, intensive cooperation is planned,
• high remuneration is involved and legal certainty is desired,
• there are differences of opinion between the client and the contractor.

However, it should be noted that the DRV conducts strict checks! The procedure may also lead to an undesirable outcome (determination of dependent employment). This makes it all the more important to carefully analyze the contractual basis and the actual structure before submitting an application and to adjust them if necessary.

In view of the dynamic case law of the Federal Social Court, the changing audit practices of the German Pension Insurance Fund, and the considerable financial consequences, a purely schematic “checklist solution” is generally not sufficient. False self-employment is no longer a marginal issue, but a central compliance risk, especially in industries with a high density of freelancers. Those who coordinate contracts, invoicing, appearance, and actual practice at an early stage cannot completely rule out the risk of later reclassification in every borderline case, but they can significantly narrow the legal risk corridor and position themselves much better in the event of an emergency.

If you are unsure whether your freelance contracts and employment models meet the current requirements of the BSG and DRV, it is worth conducting a targeted review at an early stage.