In this day and age with the way the economic situation is, it is not uncommon for business owners to insist that prospective employees register themselves as self-employed instead of giving them a work contract. There are some employment categories that simply won’t allow for this such as wait staff, chefs and similar but others facilitate this type of registry. What does it mean when somebody registers as self-employed but only has one “client”?
When one registers as self-employed, it is to establish a functional business and work with multiple clients, building up a strong database of contacts but this scenario is completely different to the one I mention at the start of the article and this type of self-employed model is known as a “dependent sole-trader” or colloquially as a “false sole-trader”, the reason being that they only have one client, making them dependent on one source of income. The term Dependent Sole-Trader refers to a self-employed person who carries out a professional activity for a company or client from whom he/she receives at least 75% of his/her income.
Why do companies prefer to have potential employees register as self-employed instead of hiring them? Well, basically it comes down to cost. It can become expensive to have employees on contract, what with the salary, social security contributions, quarterly taxes, severance pay and the risk of the person simply not working out as an asset for the business so this model is preferable, well at least to the business owner anyway. However, this is not the case of all dependent sole-traders as some choose to work in this way and only have one client in order to become an intricate part of their business and form a real bond with them.
In any case, one of the requirements of a dependent is to formalize a written contract declaring their status as a dependent and establish a start and end date or declare it to be an indefinite contract. This contract has to be registered at the Employment Office (INEM) within ten days of signing. Besides registering the work contract, some of the other requirements the dependent must comply with are:
- Include the concepts of work related accidents and professional illness in their monthly Social Security contribution
- Even though the dependent may have only one client, he/she must have their own office space and the necessary materials in order to carry out the professional activity, completely independent to the client’s.
- A dependent sole-trader may not have employees of their own and may not contract or subcontract work to third parties
There are certain clauses that must be included in the work contract such as:
- Identify both parties (full name, ID number, address…)
- Object of the contract
- Holiday leave, weekly days off, bank holidays but the dependent is entitled to at least 18 days off per year
- The dependent must formally state their situation as a dependent sole-trader
- A clause declaring compliance with all legal requirements established in Royal Decree 197/2009, 23rd February
As with all contracts, specific clauses that would allow either party to terminate the agreement must also be included. In the case of dependent sole-traders these could be by mutual agreement, non-fulfillment by either party (only justified causes would be reason enough to cancel the contract), if the dependent is victim of domestic violence or any other reason established by law. The same applies when it comes to being absent from the work-place, there would have to be just cause. However, if the business owner decides to terminate the contract for unjustified reasons, the dependent would be eligible for compensation.
As you can see, being a dependent is virtually the same as being an employee without the perks of limited responsibility in the work-place. As a sole-trader, the dependent has the same accounting and fiscal obligations as a regular self-employed person and would still be liable for payment of business tax, monthly Social Security contributions etc, nothing to do at all with being an employee. Also, a dependent lacks stability in a way because even though there is an agreement in place, relying on a sole source of income is always risky and if anything were to happen to your only client, you would be up sh*t creek without a paddle.
Even though it may seem like the best option, think long and hard before registering as self-employed at the behest of a potential employer. Think about whether it is the best option for you or simply more cost-effective for your employer. If this option is presented to you, perhaps it is a way for you to establish your own business so instead of becoming a dependent, you could have a main client and at the same time establish a larger client base so you can have your own independence within your business and have the opportunity to work with other clients and grow progressively but as with everything, some people feel more comfortable in the dependent situation and that is perfectly fine too.