"Scheinselbständigkeit" and German pension system

Hi all,

I was at a lecture last week in Munich on the subject of mandatory payments to the German pension system. I thought I would post a few of the issues discussed for comment. In particular I would like to hear from anyone who knows about the issues involved. What I would like to avoid is a discussion about why the system is bad etc. etc. and stick to constructive suggestions on how to avoid getting trapped by the system.

The problem is the following: You are considered "Scheinselbständig" (self-employed in name only) if more than five sixths of your annual income comes from a single source. In this case you should pay a contribution to the German national pension system. I don't know the exact amount but it is around EUR 500 a month.

This means that you may be working (lets say as an IT freelancer) for four years for the same company (even the company is the same agency with different projects) and get audited by the Deutsche Rentenversicherung (not the Finanzamt) you could end up with a EUR 24000 bill (48 months back payments). You won't see this money until your retirement and at a yield of around 1% a year it will not be worth as much as if you had deposited it in a savings account.

I do not know anyone this has happened to but I am informed that it is the law and does happen.

There are way to avoid this.

1) Keep off the DRV radar and don't respond to correspondence. This is not an option I like.
2) File as an "Existenzgründer" and be officially exempt for three years (so you have a chance to find more clients). The problem with this is that after the three years you are on their radar.
3) Employ someone on a EUR 400 basis. This costs around EUR 80 a month I think.
4) Show them that you tried to find other clients but failed, keep records of meetings with potential clients, etc. Cheapest option, but I am not sure how watertight it is. I would like to hear if anyone has experience with it.
5) Find another client and tax this income. This may not be an option for most people.

My accountant tells me that setting up a GmbH makes it easier to avoid the problem, but the lawyer who gave the talk contradicted this. If the GmbH only has one client, it does not provide protection.

Finally, I should point out that one of my colleagues is "Scheinselbständig" for over 15 years, his one man GmbH was audited by the DRV (or whoever does the audit- he can't remember) and he did not have to make any payments (backpayments or otherwise). This issue is not new, and I don't want to start any waves of panic. I just want to start a constructive discussion on the issue and see if anyone has experience in the area which might help any of us working here as freelancers with one client. I am not an expert in the area and would appreciate corrections if any of the info above is wrong or just a big red herring.

Regards,

moran

I wouldn't really describe it as 'getting trapped'


as well as the actual 400, so €480

It's not a red herring. It's in place for a reason and YES, they do enforce it.
A friend of mine had to change job and city he lived in recently as his income was too dependent one a single client.

yes. it would cost EUR 480 unless you have some sort of arrangement with a friend. According to the lawyer who gave the talk it is not illegal to do this. If that friend happens to be a German pensioner you can get away with EUR 40 on social contributions.

Hi moran! Correct me if I am wrong (since you have had this bunch of information during this lecture) but is it not such that in case the BfA or DR come after you for "Scheinselbstständigkeit" and claim back-payment from you for pension etc. that you as the freelancer caught there have a claim against the company you worked for since they would have to cover at least a share of pension-dues and other social welfare costs? At least thats what I heard several times in the past. Just curious if that is true or not...

Cheerio

Hi Starshollow,
That sounds like a more reasonable interpretation of the law, in that it would then help to protect employees from unscrupulous companies who don't pay their social contributions for their employees. I have no doubt that it was the original motivation for the law. Maybe it is possible (and if it is I would like to see a court ruling on the subject) but my main concern right now is that the BfA or DR could send me a bill for a large amount of money when I am in my contract for more than two years (although the contracts are always 6 months long).