An overview of insurance and tax regulations including ASVG and EStG

Independent contractors (freie Dienstnehmer) play a special role in the modern world of work: they are neither classical employees nor fully self-employed. Their correct contractual classification and subsequently the classification regarding social security and taxes is particularly important in order to gain legal certainty and pay the correct amount of levies and contributions.

This article summarises the central legal foundations – focusing on the Austrian General Social Insurance Act (ASVG) and the Austrian Income Tax Act (EStG).

Insurance obligation pursuant to section 4 para. 4 ASVG

The difference between an independent employment contract and a real employment contract is the lack of or weak presence of personal dependence and of the obligation to carry out instructions.

Employees are equivalent to persons that, due to an independent employment contract for a definite or indefinite period of time and for remuneration,

· provide services for an employer in the course of the employer’s business operation or business licence,

· perform their work predominantly in person,

· work without significant own operational resources,

· are able to determine their own workflow and

· are not already subject to another mandatory insurance (e.g. Austrian Commercial Social Insurance Act (GSVG))

The contribution basis is the remuneration due for the calendar month (excluding VAT) in accordance with section 49 ASVG. Independent contractors are subject not only to health, casualty, and pension insurance but also to unemployment insurance. In addition, independent contractors must pay the contribution to occupational pension provision, the surcharge according to the Insolvency Remuneration Assurance Act (IE), as well as the levy for the Chamber of Labour (AK). The housing subsidy contribution does not apply.

The same regulations that apply to employees also apply to this insured group concerning non-contributory components of remuneration, marginal employment, age- or income-related exemption from unemployment insurance contributions, maximum contribution basis, etc.

Tax classification according to EStG

The correct classification is also crucial from a tax law perspective. To qualify as an independent contractor within the meaning of tax law, the following requirements must be met:

· No integration into the business organisation of the client

· No obligation to carry out instructions from the client

If these criteria are fulfilled, the independent contractor earns income from self-employment. Such income must be declared in the income tax return (section 42 para. 1 subsec. 3 EStG). The employer is not obligated to withhold wage tax. However, be careful: non-wage labour costs (employer contribution, employer contribution surcharge, municipal tax) must also be paid for independent contractors.

If, however, in the actual working relationship the independent contractor is integrated into the client’s business organisation and is obligated to carry out the client’s instructions, no independent contractor relationship exists for tax purposes. Accordingly, the client must withhold and pay wage tax (section 47 para. 2 EStG).

In conclusion

The social insurance and tax treatment of independent contractors largely depends on the nature and manner of the activity as well as the contractual arrangements. The ASVG ensures social security through compulsory insurance, while the EStG governs tax liability according to clear criteria.

In case of uncertainties, comprehensive legal and tax advice is recommended.