False self-employment: hiring contractors abroad from DACH

A freelancer abroad can count as an employee when the work is done in substance as employment, whatever the contract says. In Germany the test starts with § 7 SGB IV, and the Deutsche Rentenversicherung (DRV) can decide the question in a Statusfeststellungsverfahren under § 7a SGB IV. Austria uses § 4 ASVG with the SV-ZG classification procedure. In Switzerland the Ausgleichskasse decides case by case, as explained in AHV Merkblatt 2.02. For a freelancer who lives and works in another country, a further question comes first: which country’s social-security law applies, and that is governed by Regulation (EC) No 883/2004 where it reaches the case.

Quick answer

Which country’s rules decide whether a foreign freelancer is an employee?

Your home state’s test is not automatically the relevant one. Regulation 883/2004, Article 11(1), provides that persons within its scope are subject to the legislation of a single Member State only. Article 11(3)(a), subject to Articles 12 to 16, provides that a person pursuing an activity as an employed or self-employed person in a Member State is subject to that State’s legislation. Article 1(a) and (b) define an activity as employed or self-employed by reference to how the legislation of the Member State where the activity exists treats it.

So for a freelancer who works only in their residence state, that state’s law normally applies and decides whether the activity counts as employed or self-employed. Work in a second state, or a posting, can change this under Articles 12 to 16. Article 2 limits the personal scope to nationals of a Member State, stateless persons and refugees residing in a Member State. The Swiss FSIO states the same place-of-work principle for insurance: in principle you are insured in the country where you work, and the place of residence does not matter.

The regulation reaches Swiss cases through the free movement agreement, and the personal scope depends on nationality. For a freelancer in a country outside that framework, this guide cannot say which rules apply; ask the competent institution there.

What German law itself says is limited. § 3 Nr. 1 SGB IV applies the insurance provisions to persons employed or self-employed within the territory of the code, and § 6 SGB IV leaves supranational and international law untouched. No DRV page or circular we checked addresses a contractor who works wholly abroad. The German status procedure is built around German insurance obligation, so for a cross-border case, ask the DRV directly. The same territorial logic appears in Austria: § 3 Abs. 1 ASVG treats employees as working in Austria when their place of employment is there, and self-employed persons when their business is based there.

Three questions stay separate: social-security status, tax and labour law. German wage tax has its own definition in § 1 Abs. 2 LStDV, which is not identical to § 7 SGB IV. Which country’s labour law governs the contract is a question of private international law that this guide does not cover.

How does Germany test for false self-employment?

§ 7 Abs. 1 SGB IV defines employment as dependent work (“nichtselbständige Arbeit”), “insbesondere in einem Arbeitsverhältnis”, and names two indicators: activity under instructions and integration into the work organisation of the instructing party. The joint circular of the social-insurance bodies states that these two neither rank against each other nor have to be present cumulatively.

Substance wins over wording. The circular says the actual circumstances of the work matter first, not the label the parties gave or the legal result they wanted. The DRV puts it the same way: where the agreement departs from reality, reality decides, and the legislator set no fixed individual features but described a type of employment. The DRV defines false self-employment as appearing formally as a self-employed contractor while in fact being a dependent employee.

The circular lists indicators pointing to employment: instruction-bound work, integration into the business, no control over one’s own labour, no own business premises, no entrepreneurial risk, agreed holiday and continued pay in sickness. Indicators pointing to self-employment include entrepreneurial freedom of decision and risk, acting in one’s own name and account, and independent decisions on fees, sourcing, staff and equipment.

These indicators are weighed together. The circular says abstract criteria valid for every activity cannot be set, and its sector catalogues are orientation only. Whether an income is a main or a side income is “nicht von Bedeutung”. Labour law has its own definition in § 611a BGB, which also says the contract label is irrelevant when actual performance shows employment.

What does the German status procedure do, and what is changing?

Under § 7a Abs. 1 SGB IV the parties can ask the Deutsche Rentenversicherung Bund to decide whether an engagement is employment or self-employment. The DRV says the procedure is free of charge, uses online form V0027 and needs all agreements about the engagement. Either party may apply and the other is joined. The DRV states an average duration of about three months. It is optional, except for a defined group of mandatory cases including spouses, partners, descendants and GmbH managing shareholders.

A Prognoseentscheidung (§ 7a Abs. 4a) lets the parties apply before work starts, based on a written contract and the intended practice. Objection and court action have suspensive effect under Abs. 6 Satz 1. If an application is made within one month of the start and employment is found, § 7a Abs. 5 counts the notice date as the start of employment, provided the worker consents and had comparable cover in the meantime. The joint circular states that since 1 April 2022 the procedure is limited to employment or self-employment status, with no decision on insurance obligation.

Be aware of the sunset: § 7a Abs. 7 Satz 1 states that Abs. 2 Satz 2 and 3, Abs. 4a to 4c and Abs. 6 Satz 2 expire at the end of 30 June 2027. That includes the Prognoseentscheidung, the opinion on equivalent contracts and the oral hearing in objection proceedings. The text we checked on 2 November 2026 still shows that date, so check the current wording before relying on these tools.

How does Austria test for false self-employment?

Austria has three statuses, not two. § 4 Abs. 2 ASVG defines the employee (Dienstnehmer) as a person employed for pay in personal and economic dependence, including persons where the features of dependence outweigh those of independent activity. § 4 Abs. 4 ASVG treats a holder of a free service contract (freier Dienstvertrag) like an employee if the person receives pay, performs the services essentially personally and has no essential business equipment of their own, unless an exception applies, for example existing GSVG insurance for that activity. Persons who are genuinely self-employed fall under the GSVG.

The ÖGK describes personal dependence as a duty to work personally, binding to working time, place and conduct, instructions and integration. Assessment follows the actual circumstances, not the contract text. § 539a ASVG says the true economic substance, not the outward form such as a Werkvertrag, is decisive. The Unternehmensserviceportal adds that the heading of a contract is basically unimportant.

The procedure under the Sozialversicherungs-Zuordnungsgesetz (SV-ZG, §§ 412a to 412e ASVG) clarifies insurance classification between the health insurer and the SVS, starting on official fact-finding, registration for GSVG insurance or application by the insured person or the client (§ 412e). After a confirmed classification, the bodies are bound in later audits under § 412c Abs. 1, but not if the facts relevant to the assessment have changed (Abs. 5). The procedure presupposes Austrian GSVG or BSVG insurance; it is not shown to apply to a freelancer insured only abroad.

What is the Swiss equivalent?

Switzerland has no statutory “false self-employment” label. AHV Merkblatt 2.02 says the Ausgleichskasse assesses in each case, for the income from the particular activity, whether a person is self-employed for AHV purposes, so the same person can be self-employed for one activity and employed for another. The economic circumstances, not the contractual agreements, are decisive.

Self-employment means working in one’s own name and account, in an independent position and with one’s own economic risk. The leaflet’s indicators are external appearance under a business name (commercial register, own letterhead, invoices in own name, VAT), own economic risk (investments, equipment, collection risk, rent), free choice of business organisation, and several clients. Working for only one client is, according to the leaflet, usually classified as employment.

For a freelancer working in Switzerland, the consequences follow from the statute. Under AHVG Art. 1a Abs. 1 lit. b, those who work in Switzerland are insured, and self-employed income is any income that is not pay for dependent work (Art. 9 Abs. 1). The statutes do not use the term false self-employment, so the consequences for a paying company come from Art. 12, Art. 14 and AHVV Art. 39 read together.

What follows if the freelancer is reclassified?

The consequences arise under the law that applies to the work. For a freelancer wholly abroad, that is the residence state’s law; whether your company must register as an employer there depends on that state, so ask its competent institution. The overview below describes the home-state rules where they apply.

In Germany, the employee share can be recovered only by deduction from pay, and an omitted deduction can only be made up from the next three payments unless the omission was without the employer’s fault (§ 28g SGB IV, with further exceptions in Satz 4); the employer may therefore end up bearing the employee share. The limitation period is suspended while an employer audit is under way (§ 25 Abs. 2 SGB IV). Reclassification typically surfaces in an employer audit, which the pension insurance bodies carry out at least every four years (§ 28p SGB IV). The surcharge in § 24 can be waived where the debtor shows blameless ignorance (Abs. 2).

§ 266a StGB makes withholding employee contributions punishable by up to five years’ imprisonment or a fine, and withholding employer contributions through incorrect information is also covered. Intent is required, so not every misclassification is a crime.

What does this mean for your hiring model?

If the engagement looks like employment, a contractor agreement does not fix it. The general comparison is in hiring employees abroad: employee, contractor or EOR. Related questions have their own guides: the A1 certificate for which country’s social security applies to a person working across borders, and permanent establishment for remote employees for the corporate-tax position. Country guides such as hiring in the EU from Germany and hiring outside the EU from Germany show the other steps.

When is employment the safer route?

When the person works to your instructions, is embedded in your team and has no real business of their own, plan for employment: your own local entity, direct employment where the foreign state permits it, or an EOR. A genuinely independent freelancer, with several clients, own equipment, own pricing and real risk, can stay a contractor, but document the facts and use the status procedure of the country whose law applies.

When can an EOR help?

An Employer of Record (EOR) employs the person through its local employing entity, so the person is an employee of the provider rather than a contractor of yours. In Deel’s dated EOR workflow, Deel is selected as legal EOR. The flow asks for country, location, visa needs, title, seniority, job scope, compensation and work arrangement, and it includes role and location restrictions before quote and agreement review. Obtain written confirmation for the exact location, role and employing entity.

If the person should be an employee and you have no local entity, ask Deel how its EOR route compares with contractor status (opens in a new tab).

When may an EOR not fit?

An EOR may not fit when you already have a suitable group entity in that country, when direct employment is manageable, when the provider does not accept the role or country, or when the work is genuinely independent and a documented contractor arrangement is the right model.

Key terms

Contractor

A self-employed individual or business engaged for specific services under a commercial contract, without the employment protections or payroll obligations that apply to employees.

Misclassification

Treating a worker as a contractor when, based on the actual working relationship, local law would classify them as an employee, which can create back taxes, penalties and employment claims.

Employer of Record (EOR)

A third-party provider that legally employs a worker on behalf of a client company in a country where the client has no local entity, handling local payroll, contracts and compliance.

Employee

A worker engaged under a local employment contract, with the employer responsible for payroll, social security contributions and compliance with local labour law.

Final checklist

• Record where the freelancer lives and works, and which country’s social-security law applies.
• Do not assume your home-state test is the decisive one for a freelancer who works only abroad.
• Compare actual daily work with the indicators: instructions, integration, own risk, own equipment, several clients.
• Make the contract match the real arrangement, and keep evidence of independence.
• Consider the status procedure of the competent country; check whether the § 7a SGB IV time limits in force have been extended.
• Understand contribution, limitation and penalty exposure before relying on a contractor label.
• Read the decision guide, the A1 certificate guide and the permanent establishment guide.
• If employment is the right model, compare Deel's EOR route with your contractor setup (opens in a new tab) and set the written answer against a local-entity alternative.