Hiring Across Borders - Freier Dienstnehmer (Freelancers) as Independent Contractors

One of the big challenges employers and their recruiters have to meet is a situation where the typical employer–employee relationship does not fit the company’s needs and the why and the how of the work structure within the organization.  

With increased regularity companies work entirely project-based or take on different types of projects along with the regular workflow. Hiring long-term employees is insufficient in this case because the costs are high and after the project is over, they have to be integrated into the regular company structure.

The solution to these problems is independent contractors.

There are a lot of benefits when choosing to work with independent contractors: 

• Allowing access to in-demand skills: Independent contractors are usually highly specialized in one specific area, so you can use their skills purposely for a specific project or specialized work. 

• Allowing companies to respond with flexibility to meet market demands: Engaging independent contractors for the purposes of specific projects will make it possible to access the market easily and finish projects faster and more efficiently. 

• Cost efficiency and flexibility: Hiring independent contractors will save costs for long-term employment. Furthermore, you will be able to apply different skills according to your project needs.

In Austria, you have two options to hire independent contractors. Depending of the structure of the work relationship you can work with self-employed people (Werkvertrag) or you can hire so-called freie Dienstnehmer. Below we will concentrate on the second option.

WHAT are freie Dienstnehmer and WHY do employers need them?

“Freier Dienstnehmer” is a mixed form between employment and self-employment. This basically means that some parts of your contracts will be the same as an employee’s contracts, but for others, the rules about self-employment will apply. 

The first and most important characteristic of freie Dienstnehmer is that they, just like employees, are obligated to provide work for a limited or unlimited period of time. Self-employed people for comparison owe their contractors a result: a code, a program, corporate design, pictures, etc. 

However, this is the only feature of employment applicable to freie Dienstnehmer. The structure of the further relationship between the employer and freie Dienstnehmer can be categorized as self-employment, because:

• They are independent from the employer. They have the freedom to choose another person to work on their behalf. 

• They have the freedom to deny or accept an enquiry. 

• They can hire subcontractors. 

• They don’t belong to the premises of the employer. 

• They do not have to follow the instructions of the employer about working hours, workplace or the organization of work. These factors have to be a subject of negotiating between the employer and freie Dienstnehmer. 

• They can choose where and how long to work. 

The big difference regarding employment is that the employee is obligated to follow the employer’s instructions. When it comes to freie Dienstnehmer all of these subjects are matters of freedom of negation.  

Choosing this kind of work relationship, you as an employer will allow your company to have the benefit of highly qualified working force for a limited or unlimited period of time and the flexibility of self-employment.

HOW can I hire Freie Dienstnehmer and WHAT will it cost me?

Hiring freie Dienstnehmer is similar to hiring employees. You have to be registered as an employer with the local Austrian insurance fund (Österreichische Gebietskrankenkasse) and receive an employer’s registration number. After that, you have to register freie Dienstnehmer with the same insurance fund. If the monthly payment for freie Dienstnehmer is more than the monthly marginal wage threshold, a social security contribution has to be paid. The contribution is 38,6 % from the monthly payment and is split between both parties. Employers pay 20,98 % and freie Dienstnehmer 17,62%. 

Furthermore, due to the mixed type of employment and self-employment, the employer is the one responsible for the payroll and providing all the necessary information to the authorities when it comes to social insurance. 

On the other hand, the employer (in contrast to actual employment) is not obligated to transfer the income tax to the authorities. This obligation exists only for freie Dienstnehmer.

What are my obligations towards freie Dienstnehmer?

On the basis of the mixed nature of the contract, some labor law regulations apply to the relationship between the employer and freie Dienstnehmer too. For example, if they are obligated to pay social insurance, they are directly insured against self-employment; the deadlines for terminating the contract are the same as the ones for employees; the liability for the provided work rests with the employer, etc.

WHAT if I want to hire someone from ABROAD?

Hiring freie Dienstnehmer who are based abroad does not fall under Austrian jurisdiction. The relationship employer – freier Dienstnehmer should be regulated by the law of the country the person is living in. However, employers have to be careful here, because if you choose to work only with independent contracts with people working from abroad, suspicions about salary or social security dumping may arise. 

In conclusion, using this type of work relationship may be very beneficial for both parties, employers and independent contractors alike, because it gives bigger flexibility to the employer than regular employment and provides similar social benefits to freie Dienstnehmer as employment.

If you instead believe that regular employment is the better option for you, here is an article on how to do it internationally… and how to manage social security and taxes…