New ways of working break down the barriers between employment and entrepreneurship

The labour market is undergoing a broad transformation related to how work is done. New ways of working are currently giving many people new opportunities to do work. However, there is a great deal of uncertainty and somewhat false information surrounding the phenomenon, concerning things like who is responsible for handling the statutory insurance and taxation for the work. This transformation of ways of working is an international phenomenon.

The platform economy offers a place in the market

In the platform economy, a digital platform can be used to offer work to an unlimited customer base. The platform is essentially a place in the market. Different platforms operate differently and have different rules for how work is transmitted and carried out. This way, they can be used to do work in various positions, as an employee or entrepreneur. With respect to the employee’s position and the rights and obligations of the platform transmitting or commissioning the work, it is important to consider what the parties involved have agreed upon as well as whether the arrangement constitutes an employment relationship. These factors determine whether the platform has the obligations of an employer as laid down in the legislation on social welfare.

Invoicing service companies take care of the statutory duties on behalf of “light entrepreneurs”

Invoicing service companies are operators that offer invoicing services to entrepreneurs and market this so-called “light entrepreneurship” as a kind of low-threshold path to entrepreneurship, where entrepreneurs can test out the feasibility of their business ideas, for example. The invoicing service takes care of matters related to invoicing and taxation on behalf of the “light entrepreneur” and transmits the payment for their work. Taxation is generally handled centrally by the service, which decreases the rate of work carried out in grey areas. There has, however, been uncertainty related to insurance.

Debtors in enforcement take advantage of invoicing services when attempting to avoid the seizure of their income. Some invoicing service providers offer the option to withdraw income as virtual currency. Invoicing services can be used to get around a disqualification from engaging in business operations, because a “light entrepreneur” is considered a salaried person rather than an entrepreneur when it comes to taxation.

In the sharing economy, goods are exchanged for remuneration

In the sharing economy, anyone can share an available or underused resource they own with others in exchange for remuneration using a digital platform. The platform is maintained by professionals, but the people offering their time, services or property on the platform are typically private individuals operating in non-professional capacity. The uncertainties related to interpreting the position of the employer are the same in the sharing economy as in other forms of the platform economy.

False entrepreneurship seeks to avoid employer obligations

False entrepreneurship is when an employment relationship is disguised as a practice of trade with the goal of avoiding the obligations laid down in employment, social welfare and tax legislation. The line between entrepreneurship and employment becomes blurred, and the risks of entrepreneurship are transferred to the employee. False entrepreneurship also exploits the digital platforms offered by the platform economy.

For example, in contractor obligation monitoring, the employer’s status is often concealed because in all sectors other than construction, the Contractor’s Obligations and Liability Act applies only to employers. False entrepreneurship has also been observed in the case of foreign operators, for example, who apply for work permits for entrepreneurs.

The transformation of work is not slowing down

New ways of working are growing at an increasing rate and, at the same time, there are now more different platform solutions available on the market. Digital platforms are provided by both Finnish and foreign operators.

A typical  “light entrepreneur” using the services of an invoicing company is a self-employed person who offers a service, such as cleaning, transport or construction, via a digital platform. They are not listed in the prepayment register and do not have their own trade name. Usually, their remuneration is based on the amount of work the person has carried out, and does not require expensive investments in devices. This kind of work can also be a person’s secondary work or a risk-free opportunity to test out a new business idea.

In the platform economy of the future, work will become fragmented into small units, and, in its current scope, no statistical information is available on the phenomenon. Based on the number of customers registered with the biggest companies providing invoicing services, there are already estimated to be several tens of thousands of “light entrepreneurs” in Finland.

Self-employment is not always a choice

As the amount of work carried out via platforms increases,  working with invoicing companies and services can lead to uncertainty about the legal status of a person: should the work be considered practice of trade, or work carried out in an employment relationship? In unclear situations, taxes and social insurance payments can go unpaid, which can have consequences for the person’s retirement.

People who otherwise have a weak position in the labour market can also be forced into entrepreneurship against their will. Foreign workers and asylum seekers can be hired for various tasks with entrepreneur status, which means that the responsibility for handling the employer’s obligations is transferred artificially to the employee. Compensation for work can be less than the minimum wage as set in the collective agreement, and, in the worst case scenario, the practices can fit the description of employment discrimination in the form of extortion, for example.

New ways of working pose challenges for official monitoring measures

New ways of working create challenges for the authorities when it comes to interpreting whether work is being carried out by an employee or an entrepreneur according to the current legislation. In individual cases, the line is not always clear.  In some situations, authorities have different interpretations of a person’s legal position. That said, authorities also collaborate when investigating individual cases related to the status of employers.

Communication about the employers’ and entrepreneurs’ obligations set by employment, social welfare and taxation legislation is the most effective way to prevent the grey economy.

The Ministry of Economic Affairs and Employment is currently working with other ministries and public authorities to establish a website for operators in the sharing economy that aims to provide guidance about the existing legal obligations.