Yes that's the problem. People often work exclusively for a single employer but call this contracting because supposedly it's a deal between two companies (a real company, and a one-person shop). But no, that's still an employment contract, this is determined by the nature of the relationship, not by specific words written in the contract or rituals such as issuing an invoice.
The core difference is contract of service vs contract for service (in the UK anyway). How many employees you have, or how many clients you have, doesn't enter into it because the decision is made on a per-contract basis.
If you think the length of the contract should be the determinant of the relationship, I have to ask what you think the maximum should be? I assume you still want to be able to hire a builder for three weeks to build an extension without going to the trouble of paying his tax for him, but you think three months for an IT contract turns you into a disguised employee. So where's the line?
Probably around the 3 months, maybe 6 months. It's also not just about time. Smarter people than me would have to answer, but the general principle, following the spirit of employment law, seems rather obvious.
Imagine I started a warming-up business, where you could sign a short contract for warm french fries and warm cooked meat. But I'd insist it's not a restaurant, so that any hygene rules do not apply to me.
They have! Lawmakers and judges that are better at this than both of us put together have been wrangling over it for decades. The spirit (and letter) of the law is pretty clear that length of service is not a consideration here - in fact, HMRC don't include it in their CEST tool, which is very maximalist.
The actual tests, in law, are supervision direction or control, mutuality of obligation and right of substitution. IT contractors are generally weakest on substitution - it's written in to contracts as a fig leaf, but very seldom triggered. If a court finds that actual working practices differ from what's written in the contract they'll prioritise working practices in determining employment status. The clause I had to modify most often was one attempting to control working hours - because that would point to supervision direction or control. It's amazing how many agency contracts had that baked in.
Is this a problem though? I a lot of countries you can open a 1 shop company, and any two companies can sign whatever they agree on into the contract. Of course some higher level laws may void (parts of) the contract.
Do you think that “nature of the relationship” is more important than wording of contract? Why?
If countries hate the idea of 1 person shop contractors they can still ban the “shadow employment” via higher level laws. If they don’t I don’t understand how this is a problem.
> If countries hate the idea of 1 person shop contractors they can still ban the “shadow employment” via higher level laws. If they don’t I don’t understand how this is a problem.
They do. The problem is deciding whether you are a contractor or an employee under such laws, and the risk that the tax man (and employment insurance system including health care and pensions) will retroactively deem you a factual employee, thus creating a large set of potential liabilities for all involved.
Not currently in Poland. There were attempts to do so though. All in all certain presumptions can trigger red flags for the tax office, all and any of the following: 40h a week, paid days off (especially 20/26 days), work in the same place, at the same time, under supervision. With IT its safest to contract for a company without entity in Poland. Also you’ll find many people who still cover a lot of the above and never been bothered by the tax man. So I’d say its just being extra careful.
Not in all of EU: at least in Finland, the tax office clarified a long time ago that if the papers (business registration, contracts, insurances etc.) are done properly, the number of clients doesn't matter.
