Why is the distinction between freelancer and employee relevant?
It is important to know who is an employee and who is a freelancer to avoid so-called “false self-employment” or “pseudo-independence”.
It does not matter what the parties call the contract – just because somebody is labeled a freelancer does not mean they are a freelancer (this applies in Switzerland but also in most other countries). The actual details of the engagement count.
What are the criteria?
Having a freelancer agreement will only take you so far. You must check the following criteria:
- Number of customers and market appearance: If the freelancer only works for your company and does not have a website on which their services are promoted to other customers, chances are they are actually an employee. This is the most important criterion in practice. A freelancer is already considered economically dependent if they derive at least 50% of their revenue from a single company.
- Free organisation of work: The freelancer determines when, how, and from where any given task is completed. If the freelancer is, however, embedded in the company’s organisational structure, it is an indicator of an employment relationship.
- Own tools: The freelancer provides the equipment required for the tasks and does not rely on the company’s equipment.
What are the risks of misclassification?
There are major financial risks if someone is engaged and paid as a freelancer but is later found to be, in fact, an employee:
- If the “false freelancer” has a workplace accident, the company’s accident insurance may not pay for the damages and the company may end up paying for all of the damages.
- All social security benefits have to be paid retroactively, even for years past, if a case of false self-employment comes to light. In case of bankruptcy, the board members are personally liable for the payment of the social security benefits.
- In case of a dispute with the “freelancer”, the freelancer could claim the extended notice periods to apply (and threaten to inform the authorities).
What should a freelancer agreement include?
If you do engage a freelancer, a proper freelancer agreement is essential. A freelancer agreement is a contract between a company and a freelancer acting as a service provider. It should include the following elements:
- Scope of work: Determine the services and deliverables of the freelancer.
- Timelines and acceptance: State when the services must be provided and under what conditions the deliverables must be accepted by the company.
- Remuneration: Define how and when the freelancer is compensated. This could be a flat fee or on an hourly basis with a given hourly rate.
- IP assignment: Ensures that all IP created by the freelancer is transferred to the company.
- Confidentiality & non-solicitation: Have mechanisms to share information with your freelancer without jeopardizing your company.
- Liability: By default, the liability of the freelancer is unlimited. You can choose to limit or cap it in the agreement.
- Termination: Under Swiss law, both parties have a mandatory legal right to terminate any freelancer agreement immediately and without notice period. This applies even if you agree on notice periods in the contract.
- IP assignment: All IP created by the freelancer is transferred and assigned to the company.
- Confidentiality: A strict confidentiality clause is in place to protect shared information.
- Non-solicitation: Prevent the freelancer from interfering with employees, customers, or suppliers during the contract and for an additional 6 months.
- Independence: Clearly state that the freelancer acts independently and is responsible for their own taxes and social security.
- When in doubt: If you are unsure whether someone qualifies as a freelancer or an employee, we recommend either hiring the person as an employee or using third-party service providers to comply with local social contributions rules and mitigate risks.
FAQs
How do I know if someone is a freelancer or employee in Switzerland?
The contract title is irrelevant. Key criteria: number of customers and market appearance, free organisation of work, and own tools. A freelancer deriving 50%+ revenue from one company is considered economically dependent.
What is false self-employment in Switzerland?
False self-employment occurs when someone labeled as a freelancer actually functions as an employee based on material criteria. The contract title does not determine the legal classification.
What are the financial risks of misclassifying a freelancer?
Three risks: (1) accident insurance gaps leaving the company liable, (2) retroactive social security payments with personal board liability in bankruptcy, (3) the freelancer can claim employee notice periods.
What should a freelancer agreement in Switzerland include?
Key elements: scope of work, timelines and acceptance criteria, remuneration (flat fee or hourly), IP assignment, confidentiality and non-solicitation, liability provisions, and termination terms.
Can a freelancer in Switzerland terminate without notice?
Yes. Under Swiss law, both parties can terminate any freelancer agreement immediately without notice. This applies even if the contract specifies notice periods.
How do I get this done?
Book a free call here to discuss your case and see how to mitigate risks and take the right decision.
