Pseudo-independence: what you need to know

The use of freelancers or external service providers is currently trending. However, companies must be careful not to take advantage of situations of "pseudo-independence," or they risk incurring various financial and legal consequences.

What is pseudo-independence?

The concept of pseudo-independence, also known as false independence, refers to a situation where a worker is considered independent, but in reality is under the authority and control of an employer, as if he or she were an employee. For example, a person who is hired as an external consultant by a company but who works exclusively for the company and must comply with its rules, such as working hours or being physically present on its premises.

In these pseudo-independent situations, the worker may be subject to directives and controls from the employer, without benefiting from the social and legal protection afforded to an employee. Moreover, the worker may not have the right to work for other clients or negotiate particular working conditions with the employer.

Criteria for evaluation

Pseudo-independence is not defined in Swiss law. However, there are various criteria to determine whether a person is actually independent or pseudo-independent. These include the duration and frequency of the collaboration between the worker and the employer, the nature of the activity, the degree of autonomy of the worker, and the financial relationship between the two parties.

In practice, the criteria of economic dependence and power of instruction are decisive for the evaluation of a situation by the compensation funds. If the independent contractor derives 50% of their income from a contract with a client, they are already economically dependent on that company. From the point of view of compensation funds, this is therefore a case of pseudo-independence. The same applies when the freelancer claims less than three different clients.

It is important to note that the designation of a worker as self-employed in a contract does not hold significant weight in the evaluation of the situation. This is true even if the contractor assumes responsibility for the services provided by the worker. Likewise, an independence certificate issued by the AVS, or registration with AVS and regular payment of contributions, are not sufficient criteria for determining true independence.

What are the implications for companies?

Employing workers with pseudo-independent status can have significant legal consequences. The company in question could be prosecuted for non-compliance with labor and social security laws if the relevant authorities discover a situation of pseudo-independence.

An infringing company can be ordered to pay fines and back wages or social security contributions for up to five years to the workers involved. In addition, workers could also sue the company for violation of their rights as employees, such as the right to social benefits, paid vacations or protection against unfair dismissal.

A company found guilty of engaging in pseudo-independent practices may be subject to a thorough investigation by tax, social, and labor authorities, which may include a review of employment contracts, pay slips, tax and social security filings, and other documents related to the employment of workers. Additionally, a company involved in a pseudo-independent situation may suffer significant damage to its reputation and credibility with employees, clients, or business partners.

What are the implications for workers?

A worker misclassified as a self-employed worker may lose certain rights and protections that they would normally be entitled to as an employee. For example, they may not be covered by unemployment, accident, or disability insurance.

In addition, they may be subject to higher taxes. Self-employed workers typically have to pay their own social security contributions, while employees benefit from a distribution of contributions between themselves and their employer. Moreover, a pseudo-independent worker may not have the same protections as employees in terms of paid leave, payment of salary in case of sickness, accident, pregnancy, military service, or protection against unfair dismissal. If a worker discovers that they are employed under a pseudo-independent status, they may file a complaint with the competent authorities to assert their rights and obtain fair compensation.

It should be noted that employees who engage in independent activities on a part-time basis are subject to the AVS and are only required to register with a compensation fund if their earnings from such activities exceed CHF 2,300 per year.

The guidelines

Companies that hire external service providers are advised to request a self-employed certificate from the compensation fund to which the service provider is registered. Depending on the nature and duration of the work required, it may be worthwhile to conclude an employment contract. It is also possible to use a payroll company that provides payroll management services, employment contract administration, and regulatory compliance. Alternatively, one can prioritize external service providers who have their own company (a corporation or a limited liability company), and use it to invoice their work.

If there is any doubt, it is recommended to consult a lawyer or legal expert to avoid any pseudo-independence situation and the potential consequences associated with it. A lot of useful information can also be obtained from the relevant compensation funds. 


Last modification 13.04.2023

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