Changes in the status determination procedure
In September 2021, we had already informed you about the new version of section 7a German Social Security Code, Book IV (Sozialgesetzbuch, Viertes Buch, “SGB IV”) which will come into force on 1 April 2022. We would now like to present the most important changes which are meant to simplify and expedite the procedure.
The applicability of labour law provisions depends on whether or not a person is classified as an “employee” as defined in labour law. Social security law, on the other hand, takes the existence of employment within the meaning of section 7 SGB IV as a basis. The definitions of the term “employee” under labour law and under social security law are largely identical, but not entirely so. Since an incorrect classification, for example in connection with pseudo self-employment, gives rise to considerable financial and even criminal liability risks for the employer, section 7a SGB IV provides for a “status determination procedure” with which the principal and the contractor can have the German Statutory Pension Insurance (Deutsche Rentenversicherung, the “DRV Bund”) examine and ascertain in an administrative procedure whether or not compulsory insurance applies.
The new provision in section 7a SGB IV does not affect the substantive legal demarcation between dependent employment and self-employment, but makes significant changes with regard to the procedure:
- Employment status: As of 1 April 2022, the DRV Bund will no longer determine whether an obligation to insure exists, but rather what the employment status is, i.e. dependent employment or self-employment.
- Predictive decision: In the future, it will be possible to have the employment’s status determined even before the employment commences. The review will be performed primarily on the basis of the contractual agreement, but the contracting parties must additionally provide information on the intended practical implementation of the contractual provisions.
- Oral hearing: While up to now, the entire status determination procedure had only been conducted in writing, in the future, the parties involved in an objection procedure against a status determination by the DRV Bund will have a right to an oral hearing in which they can explain the circumstances of the employment relationship.
- Determination of status in three-party relationships: Up to now, whenever external staff were used, the relationship between the principal and the contractor, as well as that between the contractor and the third party, had to be examined separately. In the future, it will be possible to examine three-party relationships in a uniform procedure, in which the existence of covert personnel leasing can be investigated.
- Group determination: While up to now the DRV Bund had always determined employment status for a specific individual case, in the future it will also be able to determine the employment status of several persons at once by way of an expert opinion, provided that they perform an activity based on a uniform contract which is identical in terms of type and circumstances. Such a group determination can only be requested by the principal and has no binding effect on the DRV Bund or other insurance providers.
Gleiss Lutz comments
The changes, most of which are initially limited until 30 June 2027, pursue the objective of a simplified and expedited procedure. It remains to be seen whether these changes will in fact ease the DRV Bund’s workload and reduce the time needed to perform a status determination.
It is a welcome development that the question of employment status, which often remained open in the previous determination procedure, will in future be decided by the DRV Bund, thus creating more legal certainty for the parties involved. The newly created possibility of predictive decisions and status determinations in three-party relationships, as well as the binding effect of the DRV Bund’s decisions, are also of central importance in providing legally certainty for the parties involved.