The surge of the gig economy and the growing prevalence of flexible, short-term work arrangements are reshaping global talent markets. As businesses increasingly rely on independent contractors (ICs) to enhance agility and access specialized talent, governments worldwide have ramped up scrutiny of these engagements.
The European Union recently faced a significant hurdle in its bid to reclassify gig workers as formal employees. The proposed directive was positioned to impact up to 5.5 million workers. The proposal collapsed due to opposition from member states. However, its existence underscores a broader trend: IC engagement will remain under close examination.
This post explores key differences in IC engagement between Europe and the United States, the implications for businesses operating in these regions, and strategies for navigating the complexities of cross-border IC relationships.
Europe vs. US: key differences in IC engagement
When engaging ICs globally, understanding the contrasting approaches between Europe and the US is vital. Below is a comparative snapshot:
| Topic | Europe | US |
| Classification Tests | Classification is determined by country-specific multi-factor assessments. These often consider autonomy, integration and the balance of control. | IRS Common Law Test and the ABC Test dominate. Criteria vary across federal and state jurisdictions. |
| Labor Protections | Stronger protections for employees and significant penalties for misclassification. Gig economy regulations are growing. | ICs have fewer protections. State laws like California’s AB5 emphasize stricter classification standards. |
| Taxation | Employers handle employee taxes; ICs are responsible for their tax obligations. Misclassification leads to back payments and penalties. | Similar tax structure, but the IRS closely monitors classification to ensure proper self-employment tax filings. |
| Cultural and Regulatory Norms | European systems often favor employment relationships and view IC models with skepticism. | More acceptance of independent contracting, especially in the gig economy, as a flexible, viable work model. |
Each European country has distinct laws and enforcement practices surrounding IC engagement. Here’s a closer look at how select countries regulate the relationships companies have with ICs:
| Country | Regulation of IC Engagement |
| Belgium | Belgium maintains strict regulations for third-country nationals, requiring work permits or professional cards, with some exceptions. Recent legal changes mandate principals to verify subcontractor compliance with employment laws, particularly regarding work authorization. Starting in January 2025, Flemish regulations will make principals liable for subcontractor infractions if due diligence is not shown through proper documentation checks. |
| France | French law distinguishes between employees and ICs based on autonomy, including factors like exclusivity, control and business risk. Employees receive employer-managed taxes and social security, while ICs manage their own and lack benefits. Misclassification can lead to penalties and labor law obligations for employers. |
| Germany | Germany’s ‘Scheinselbstständigkeit’ law targets “false self-employment.” Freelancers must avoid conditions like a single client, employer equipment or lack of autonomy. Misclassification can result in fines and liability for taxes and benefits, as seen in a landmark 2021 case. Employers are advised to diversify freelance contracts to reduce risks. |
| Italy | Employees operate under employer direction and benefit from comprehensive protections under collective bargaining agreements (CBAs), including sick leave, maternity leave, pensions and severance pay. ICs, governed by service agreements, maintain independence but assume their own tax and social security obligations. Misclassification, as highlighted by recent fines against food delivery platforms, can result in substantial financial and legal repercussions. |
| Portugal | Portugal lacks specific IC laws but differentiates contractors based on autonomy, such as self-determined schedules and rates. The Portuguese Labor Code identifies employment relationships by factors like supervision, integration and reliance on employer-provided tools. Companies hiring ICs must clearly define roles and ensure agreements adhere to local labor laws. |
| Poland | Polish labor law distinguishes employees from ICs based on criteria outlined in the Labor Code and reinforced by Supreme Court rulings. Case law highlights that ICs maintain autonomy in deciding how, when and where tasks are completed. ICs may also subcontract work, provided their agreement lacks elements typical of employment. |
| Spain | Spanish labor law assumes most workers are employees unless proven otherwise. ICs (‘autónomos’) have autonomy over their schedules, clients and rates. However, they bear the burden of business expenses, taxes and social security. Spain’s “false freelancer” policy imposes heavy fines and penalties for misclassifying workers, including back pay for benefits. |
| United Kingdom | The UK’s IR35 legislation addresses IC misclassification by targeting individuals who operate through limited companies but function like employees. Since April 2021, businesses (except small private companies) must determine a worker’s employment status. With recent increases in National Insurance costs for employers, there has been a focus on more stringent vetting of ICs as a potential pathway for tax avoidance. As businesses explore this alternative to increased employer costs, the government is closely scrutinizing IC classifications. Workers deemed employees under IR35 face tax and National Insurance requirements akin to permanent staff. Non-compliance can result in significant penalties for organizations. |
Managing complexity: two solutions for global talent engagement
Engaging talent across borders requires careful navigation of diverse regulations and compliance risks. Two strategic models with distinct purposes—Agent of Record (AOR) and Employer of Record (EOR)—can mitigate the challenges of cross-border talent management.
| Agency of Record (AOR) | Employer of Record (EOR) | |
| Purpose | Used for engaging with true contractor relationships, where individuals are ICs according to local regulations. | Used for roles with a traditional employer-employee relationship, where workers are classified as employees. |
| Classification and Contract Management | Drafts compliant agreements that align with jurisdiction-specific standards for ICs. | Drafts employment contracts that comply with local labor laws and regulations for employees. |
| Tax Compliance | AOR will solely collect evidence of correct local tax obligations as fulfilled by the IC. All responsibility for ensuring local tax obligations lies with the IC. | Manages tax filings, deductions and contributions for employees. |
| Payment | Can handle paying ICs in the local currency. | Manages employee payroll, including salaries, benefits and bonuses, with local currency support. |
| Benefits | Does not provide employment benefits to contractors, as they are self-employed. | Provides employment benefits like health insurance, pensions, paid leave and other legal entitlements. |
| Risk Mitigation | Provides audit-ready documentation to mitigate risks related to misclassification and regulatory scrutiny. | Maintains full compliance with local employment laws, reducing the risk of legal and financial penalties. |
| Compliance and Reporting | Promotes compliance with IC local registration and IC classification, reducing misclassification risks. | Oversees compliance with labor laws, tax regulations and employment practices in the jurisdiction. |
| Scalability | Scalable solutions for managing multiple ICs across different jurisdictions. | Simplifies cross-border hiring, offering scalability for organizations with multiple locations without setting up a local entity. |
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Tapping into tomorrow’s workforce
As flexible work and new workplace models continue to expand, so does regulatory scrutiny of cross-border engagement. For businesses operating across Europe, understanding local laws and leveraging AOR or EOR solutions can reduce compliance risks and administrative burdens.
Navigating this complex landscape is critical for tapping into global talent while maintaining operational efficiency and regulatory compliance. By staying informed and adopting the right engagement models, businesses can successfully adapt to the evolving demands of tomorrow’s workforce.
Check out our guidebook ‘Contracting Beyond Borders’ or contact us to talk with an international HR expert about your talent management needs.