What this is about
Bogus self-employment exists when someone works formally as a contractor but is in substance integrated and directed like an employee. The risk sits mainly with the client: if the status is reclassified later, the client is liable for social security contributions, often retroactively over years. With a Fractional model that runs on fixed days over a longer period, companies are right to ask the question, and it should be answered before the contract is signed, not after a social security audit.
The answer is neither "Fractional is always clean" nor "always risky". It depends on how the contract and the working relationship are set up. And that can be checked. For international subsidiaries, the question usually comes from headquarters, where the equivalent rules (IR35 in the UK, worker classification in the US) are familiar but the German test is not. The German test weighs the whole picture, and this page walks through it.
What the Pension Insurance checks
The German Pension Insurance takes an overall view. No single criterion decides, but three questions weigh most:
The twelve checkpoints
This is how I structure every Fractional and interim mandate, and how you can check it before the contract:
- Several clientsI work for several companies in parallel, not exclusively for one.
- Freedom from direction in how the work is doneThe engagement defines the outcome, not working hours or location in detail.
- No fixed workplace in the companyNo own desk, no company mobile phone, no inclusion in internal holiday planning.
- Own commercial riskPayment per engagement, no sick pay, own social insurance.
- Own equipmentOwn laptop, own software licences wherever possible.
- Engagement-based payDay rate per day delivered, no fixed monthly salary regardless of output.
- No right of direction as with employeesI report to the managing director as a contractor, not as a directed member of staff.
- Right of substitution agreedThe contract allows in principle for tasks to be delegated to qualified third parties, even if that is rarely used.
- No integration into the organisational structureNo email signature as internal staff, no participation in internal HR processes as an employee.
- Own business registration and invoicingInvoices with a VAT ID, no payroll tax deduction by the client.
- Time-limited engagementTerm and notice period fixed in the contract, no open-ended permanent relationship like an employment contract.
- Documented scope of engagementA clear service agreement with a description of services, not just a verbal arrangement.
Contract and lived practice
The most common mistake: a clean service agreement and a practice that contradicts it. The interim manager gets a company email address with the signature "Head of HR", appears in the org chart, enters holidays in the internal planning tool and checks out with the managing director every morning. Then the contract does not help, because the Pension Insurance checks the practice.
What stays clean in practice: an address in the company system for access to data is necessary and unproblematic, as long as it is visible that I am external. In the org chart I appear as "Interim, external", not as an employee. I announce leave rather than applying for it. I report results, not attendance. That is not formalism. It is the difference an auditor sees.
Status determination: if you want certainty
The status determination procedure (Statusfeststellungsverfahren) at the German Pension Insurance settles with binding effect whether an activity is carried out as self-employment or as dependent employment. Either the client or the contractor can apply. The procedure takes a few weeks to a few months and can run in parallel with the ongoing engagement. An application filed within one month of the start gives protection against retroactive contributions for the period up to the decision, provided the conditions are met.
I support the procedure with the documents on how the engagement is structured, and I have no interest in avoiding it. A properly structured Fractional mandate passes the check, and the determination removes the residual risk for both sides. Legal advice on your specific case stays with your law firm or tax adviser.
What a finding would cost
If bogus self-employment is found, the person counts retroactively as an employee. The client pays the social security contributions in arrears, both the employer and the employee share, for up to four years, longer in cases of intent, plus late-payment surcharges. On top come payroll tax claims and employment law consequences: dismissal protection, holiday entitlement, sick pay. For a company with 50 to 500 employees that is not a detail. It is a sum that exceeds the entire saving of the model. That is why this topic sits here, before you engage me, not after.
Fractional and interim mandates as Nick's Advisory, with my own business registration, several clients and service agreements on a day-rate basis. Practical guidance, not legal advice. More about me
Frequently asked questions
Is a service agreement on its own enough?
The contract is the foundation, but what decides is the lived practice. A status determination by the German Pension Insurance looks at both, and the practice weighs more.
Can you apply for a status determination?
Either the client or the contractor can apply. I support the application with the documents on how the engagement is structured, and I have no interest in avoiding it.
What happens if bogus self-employment is found?
The client is liable retroactively for social security contributions, both the employer and the employee share, often for several years, plus late-payment surcharges. That is why a clean contract from the start is worth the effort.
Is a fixed weekday not already a sign of being directed?
No. An agreed service day is a contractual arrangement about volume, not an instruction about working hours. Being directed would mean you telling me when to start in the morning and what to do in which order.
What if you work only for us for months?
Several clients is an important criterion, but not the only one. A full-time interim mandate over six months is common and clean if the other points hold. With Fractional models, several mandates run in parallel anyway.
Does this apply to full-time interim mandates too?
Yes, the same criteria. With full-time, freedom from direction and the absence of integration weigh even more, because the several-clients criterion is weaker for the duration of the mandate.