Self-employment or employment? Avoiding problems during inspections

As the state looks for ways to consolidate public finances, inspection authorities naturally focus on areas where revenue may be lost. Improperly structured B2B arrangements, known as disguised employment, are one such area and face increasingly frequent and rigorous inspections. For IT businesses, where working with contractors is common, it is therefore essential to understand the line between a legitimate business relationship and disguised employment.

Case study: how (not) to do it

Imagine a successful IT company with a turnover of over EUR 3 million that develops software solutions for corporate clients in Slovakia and abroad. It employs 5 key people in its internal team (management, HR), but the core of its development team consists of 20 self-employed contractors.

Current set-up:

• All developers (internal and external) have a joint morning stand-up at 9:00, where they report on their work and receive tasks for the day.
• A project manager (a company employee) directly manages and supervises the work of all contractors.
• Each contractor has been given a company laptop and access to internal systems.
• The contracts with contractors do not allow work to be delegated to a third party – personal performance is required.
• Invoicing is set as a monthly flat fee corresponding to the “hours worked”.

Although this model is flexible for the company, for the Labour Inspectorate it is a textbook example of dependent work. An inspector would probably conclude that this is not a relationship between two independent businesses, but illegal employment.

How to structure B2B arrangements lawfully: 5 key steps

The difference between a lawful B2B relationship and disguised employment lies not in the name of the contract, but in how the relationship works in practice. The Labour Code defines dependent work as work performed in a relationship of superiority and subordination, personally, according to the client's instructions, on its behalf and during working hours set by it. To avoid risk, focus on these 5 areas:

1. Pay is linked to results, not time. Instead of invoicing a monthly flat fee or hours worked, set the fee for a specific piece of work. Invoice for a delivered module, a completed project or a clearly defined output. This shows that you are paying for results, not for the contractor's presence.
2. The contractor organises their own work and time. Coordinating deadlines is fine, but directly managing daily tasks is not. The contractor should be free to decide when and where to work, as long as they meet the agreed deadlines and goals. They should not be bound by internal attendance rules or fixed working hours.
3. The work does not have to be performed exclusively in person. A genuine business has the right to delegate part of an assignment to a subcontractor. Allow the contractor (at least contractually) to use a third party to perform tasks (with your prior consent). If the contract insists on exclusively personal performance, this is a strong indicator of dependent work.
4. The contractor uses their own tools. Ideally, the contractor works on their own hardware and software and bears the related costs. If they absolutely need access to company tools (e.g. specific software), this should be formally addressed in a lease or loan agreement, ideally at a market rate.
5. They are not presented as “part of the team”. The contractor should not be formally included in the organisational structure, have a company business card with a job title, or be bound by internal benefits and rules intended for employees. They are an external supplier, not a subordinate colleague.

Practical checklist for assessing risk

The more “yes” answers, the safer your collaboration model.

Question for assessing the arrangement	Yes / No
Is invoicing linked to a specific output (a piece of work, a project) rather than time?
Can the contractor assign part of the work to another supplier (use subcontracting)?
Can the contractor decide when and where to work (rather than being tied to 9-to-5 in the office)?
Does the contractor bear their own business costs (e.g. their own equipment, software)?
Is the contractor not managed and supervised daily like an internal employee?
Can the contractor (even theoretically) work for other clients at the same time?

What are the risks and penalties of getting it wrong?

If an inspection authority concludes that the arrangement is disguised employment (illegal employment), the consequences are serious for both parties.

• A high fine for the company. The Labour Inspectorate may impose a fine of EUR 2,000 to EUR 200,000. If two or more people are illegally employed at the same time, the fine is at least EUR 5,000. This is not a symbolic penalty, but an amount that can seriously threaten a company's financial stability.
• Back payment of contributions and taxes. This is often the biggest financial burden. The company must pay all social security and health insurance contributions (both the employer's and the employee's share) and income tax on employment income for the entire period of the arrangement, including penalties. If the length of the arrangement cannot be proven precisely, the law presumes that it lasted at least three months.
• Exclusion from public procurement and state aid. A company that has breached the ban on illegal employment cannot apply for state subsidies and aid for five years. For companies that rely on public procurement or grants, this can be an existential problem.
• “Contractors'” claims to employee benefits. If the relationship is reclassified as employment, the contractor retroactively becomes an employee. This opens the door to additional claims, such as compensation for untaken holiday, overtime pay or even severance pay when the arrangement ends.
• A fine for the contractor. An individual performing illegal work also commits an offence and faces a fine of up to EUR 331. Although this amount is lower, it is still an unpleasant penalty.

Conclusion

B2B arrangements are legitimate, but structuring them incorrectly brings serious legal risks. It is important that the reason for a B2B relationship is not to circumvent contribution and tax obligations. If an arrangement shows the hallmarks of dependent work in practice, any financial advantage is only apparent and, in the event of an inspection, leads to high fines and back payments.

For companies that build on stability and long-term collaboration and take on a high level of responsibility towards their clients, standard employment is a more suitable and legally secure choice.

One example is bart.sk, which employs most of its team under standard employment contracts and considers this the foundation for building long-term relationships. Particularly for projects with high confidentiality requirements (NDAs) and responsibility for sensitive data, employment provides a firmer legal framework for accountability. Unlike a self-employed contractor, an employee acts on behalf of the employer, which bears full responsibility towards the client. Choosing employment is therefore not outdated, but a practical decision for companies focused on the quality and sustainability of their services.

When does a B2B arrangement in IT start to look like “employment”?

If a contractor works long-term for a single client, on a fixed schedule and under direct management, the risk of reclassification increases. The most sensitive situations are those where the B2B form is used primarily to circumvent employment law rules.

Which hallmarks of dependent work are most problematic during an inspection?

The most damaging are superiority and subordination (who gives instructions, who approves holidays), fixed working hours, mandatory personal presence and working “as an internal team member”. Assigning tasks in a way typical for internal employees is also risky.

How can you manage delivery (deadlines, quality) without signs of superiority?

Focus on managing results: define outputs, acceptance criteria, milestones and SLAs. Instead of “daily instructions”, use the backlog as an agreed list of deliverables and communicate through milestone status updates. Code review and QA should be part of the acceptance of the work, not people management.

Is a monthly flat fee or hourly billing automatically a problem?

No, but “hour budgets” without a clear result look like working time. It is safer to combine a fixed fee for delivery (a feature, a module, a sprint package of outputs) with a variable component linked to scope or change requests. If hours are unavoidable, link them to specific deliverables.

Can a contractor use a company laptop, email and internal systems?

Yes, if this is justified by security and access requirements. Minimise “employee” features: state that the equipment is provided temporarily for the purpose of performing the contract, address liability for the equipment and clearly distinguish access rights from internal benefits.

Why is the option of substitution or subcontracting important?

If, in practice, the contractor is not allowed to use a substitute, this strengthens the impression of personal performance as with an employee. Realistic substitution (at least for part of the work) or subcontracting, with rules for NDAs and security, supports the B2B nature of the arrangement.

What should the contract contain to make a B2B arrangement “defensible”?

Describe the subject matter as services or a piece of work, the method of delivery and acceptance, liability for defects, the supplier's own tools and its organisation of work. Address communication, escalations, change procedures, IP and confidentiality. The contract must reflect reality – during an inspection, practice is what counts.

What should you have ready for an inspection (minimum evidence)?

Contracts and amendments, orders and acceptance reports, demonstrable outputs (release notes, commits), invoicing linked to deliverables, milestone communications and internal rules for working with contractors. A short internal checklist and training for the people who assign work to contractors are also useful.