Scheinselbständigkeit: False Self-Employment in Germany

Under German law, false self-employment occurs when a person is formally classified as self-employed or a freelancer but is actually integrated into the client’s organisation as an employee would be. The decisive factor is not how the relationship is described in the contract, but how the working relationship actually functions in practice.

Industries and working arrangements with higher risk include IT freelancers, consultants, and subcontractors, as well as construction, logistics, and the creative sector.

German authorities assess false self-employment based on several typical characteristics:

• Subject to instruction regarding content, execution, time, and location of work
• Integration into the client’s work organization, such as fixed working hours, designated workplace, use of the client’s equipment, or reporting obligations
• Lack of entrepreneurial freedom, particularly limited ability to organize the activity and working hours independently
• Absence of entrepreneurial risk, meaning no risk of incurring losses with personal capital, but rather guaranteed regular remuneration regardless of economic success
• Entitlement to typical employee benefits such as continued salary during illness, paid holiday, overtime compensation, or social security coverage
• Personal work obligation without the ability to engage substitutes
• No independent market presence, such as working exclusively for one client without marketing services to others

German authorities base their assessment on a comprehensive evaluation of all circumstances in each individual case.

False self-employment carries considerable legal and financial consequences for companies in Germany.

If German authorities reclassify an activity from self-employment to an employment relationship, companies face retrospective payment obligations for social security contributions and wage tax (up to 4 years retrospectively, or up to 30 years in cases of intentional misclassification).

Under German law (Section 28e(1) SGB IV), the company owes the full social security contributions covering both employer and employee portions for the entire period of false self-employment. The fees paid to the worker are treated as net wages and “grossed up” to calculate notional gross salary (Section 14(2) sentence 2 SGB IV), resulting in substantial recovery demands. German authorities also impose late payment surcharges of 1% per commenced month (Section 24(1) SGB IV), plus wage tax arrears for which the company remains liable as employer.

Managing directors of German companies (particularly GmbH managing directors) face unique considerations:

Managing directors as potentially falsely self-employed:

• External managing directors (without shareholdings) are generally subject to German social security contributions, as they remain subject to shareholders’ instructions and lack significant influence over the company.
• Shareholder-managing directors with less than 50% capital share are regularly classified as employees subject to social security contributions under German law, unless the articles of association grant them comprehensive minority blocking rights enabling them to prevent all shareholder resolutions relevant to management.
• Majority shareholder-managing directors (holding at least 50% capital share or comprehensive minority blocking rights) are generally not subject to social security contributions, as they substantially control the company and are not in a position of personal dependency.

Personal liability of managing directors:

Under established German case law, managing directors are personally liable for unpaid employee social security contributions under Section 823(2) of the German Civil Code (BGB) in conjunction with Section 266a(1) of the German Criminal Code (StGB). Managing directors also face potential criminal liability under Section 266a StGB.

What to Do When Facing an Investigation or Suspicion

Our recommendations:

• Make no hasty statements to authorities
• Contact a lawyer immediately and establish a defense strategy
• Analyze how the working relationship actually functions in practice
• Have relevant contracts reviewed by legal counsel

Early legal review provides the most effective protection against subsequent recovery demands under German law. At Schlun & Elseven, our lawyers analyse:

• existing contractual relationships with freelancers (status analysis)
• how work processes and organizational structures actually function
• sector-specific considerations and current German case law

Based on this analysis, we draft legally compliant contracts or adapt existing arrangements to minimize the risk that German authorities will determine that false self-employment exists.

The status determination procedure (Statusfeststellungsverfahren) provided by the German Pension Insurance is an important preventive tool. Our lawyers regularly provide strategic support in these proceedings by preparing the necessary documentation and representing the company’s interests before the authority.

If your company faces an operational audit, customs inspection (Financial Control of Illegal Employment), or public prosecutor’s investigation, our lawyers handle:

• all communication with German authorities
• legal assessment of allegations under German law
• defense against or limitation of recovery demands
• defense of managing directors in liability and criminal proceedings

Our objective is always to minimize financial losses and avoid personal liability risks under German law.

False self-employment under German law is a complex and high-risk issue with substantial financial and personal consequences for companies and managing directors. A specialist lawyer with expertise in German employment and social security law provides not only legal certainty but also strategic support – from preventive advice and contract drafting through to defense in audit and criminal proceedings.

Companies and managing directors who act early and rely on competent legal counsel effectively protect their businesses, management, and economic futures.

Contact our employment law team for an initial assessment of your situation under German law.