Distinguishing Characteristics Among Freelancers, Self-Employed Individuals, and Employees

WHO IS CONSIDERED A FREELANCER?

When referring to a freelancer in Denmark, it generally means a self-employed individual who does not operate a typical company with a permanent office. As a sole proprietor, they have the option to hire employees if they can afford it. Freelancers can work in various industries, such as consulting, web design, or IT programming, and typically have low business costs and financial risks. In Denmark, a freelancer's income is called "honorar," which has no direct equivalent in Polish. It falls between a salary and the sales generated by a sole proprietorship, but for simplicity, it will be referred to as "income" in this article.

FREELANCER RECEIVES INCOME B

From a tax perspective, a freelancer's income is called B-income, similar to a sole proprietor, and the tax paid is called B-tax. However, despite being labeled as B-income and B-tax, a true freelancer is not self-employed. This distinction is important for the tax authorities, as it indicates that the income is not earned from a regular job (A income). However, working as a freelancer can make it complicated to determine the appropriate tax category and accounting and VAT obligations. In Denmark, it is impossible to refuse being an employee, even if the individual has signed a freelance contract stating otherwise. Therefore, an individual who believes they are a freelancer based on their contract may still be classified as an employee and subject to employment taxes and regulations.

WHAT IS THE DIFFERENCE AMONG BEING AN EMPLOYEE, FREELANCER AND SELF-EMPLOYED?

Typically, we have to be ready for 3 possible scenarios.

FREELANCER WHO IS CONSIDERED AN EMPLOYEE

If a freelancer meets any of the following criteria, they are considered an employee under Danish law:

1. You only have one employer or main client.
2. The contract between you and your client is ongoing and has no specific deadline for completion.
3. Your client gives you instructions on the work to be done and controls the work that you do.
4. Your client chooses the equipment and programs that you should use.
5. You are not allowed to hire other people to do the work.
6. You bear no financial risk as you will still get paid regardless of the outcome.
7. You do not incur any costs associated with the work.
8. Your client's company brand name is used on all documentation.
9. Your work hours and vacation time are agreed upon or set by your client.
10. The contract was concluded without specifying a specific end date.
11. The contract includes a notice period.
12. You are paid on an hourly, weekly, or monthly basis.
13. Your client covers the costs associated with the work performed, including vacation and employee insurance.

Instead of invoicing their services, employees receive a pay stub