EU | Employment Tax | Agreement on the proposed European Commission’s Platform Worker Directive – will this change the employment tax and immigration landscape of the industry?

3 July 2023

Agreement on the proposed European Commission’s Platform Worker Directive – will this change the employment tax and immigration landscape of the industry?

Last month, EU ministers agreed on the Council’s general approach for a proposed Directive aimed at improving working rights for platform workers within the EU. One of the primary impacts of this would be to introduce a legal presumption that self-employed workers in this sector are employed. 

With millions of workers in the EU currently falling within this category, organisations need to act fast in order to understand if and how this applies to their workforce. 

This article outlines what this could mean from an employment tax, social security and immigration perspective for those impacted – and importantly, what organisations can be doing now to prepare. 

The background

In recent years digital labour platforms have grown rapidly – driven by consumer trends towards quick and on demand services, as well as workers opting for more flexible working arrangements, or taking advantage of ways to earn additional income. Covid-19 accelerated these trends – resulting in more than 28 million individuals in the EU currently working on digital labour platforms, with predictions that this will grow to 43 million by 2025. 

Whilst the majority of platform workers are genuinely self-employed, there are estimates from the European Council that approximately 5.5 million workers could in fact misclassified, when based on the substance of the relationship, they should be considered as employed – with the associated benefits employment grants (such as the right to a minimum wage, paid leave and social protection). There are also concerns about the fairness and accountability of algorithm management within the industry for matters such as equal pay between men and women and discrimination. 

Increasingly, national authorities are facing difficulties in trying to enforce the protection of workers rights in the sector – due in large to the cross-border and often opaque nature of digital labour platforms, meaning authorities often do not have access to data on where work is being performed and/or by whom.

In light of this backdrop, the Platform Worker Directive amendments, voted in favour by the EU parliament earlier this year, aim to ensure: 

i)  that platform workers can have the opportunity to hold their correct employment status; 

ii) fairness and accountability in algorithmic management, and; 

iii) greater awareness, transparency and traceability of platform work. 

These changes build upon specific obligations relating to platform workers under the Transparent & Predictable Working Conditions Directive. They are also in line with the broader direction of travel we have seen globally over recent years – across all industries – where organisations face increasing obligations to ensure compliance of their total workforce – inclusive of their contingent labour. This Directive further adds to that pressure – and reiterates the importance for organisations to have visibility of their whole labour supply chain. 

What are digital platforms?

Digital labour platforms provide a commercial service, which uses automated systems (or algorithmic management) to match the supply of work and the demand for work, typically via an online platform, such as a website or app. 

Well known examples of these are ride-share, delivery and domestic services, which use the platform to provide physical services. However, other sectors such as data-coding and design may operate solely online. 

A platform worker is an individual who uses such platforms to access individuals or organisations in order to provide services in exchange for payment. The Directive will apply to individuals performing platform work within the EU, irrespective of where the platform is hosted. 

What does this mean for digital platforms?

A central component of the draft Directive is that appropriate procedures for determining employment status must be in place and that all platform workers have the right to claim the (rebuttable) presumption of an employment relationship. These measures are intended to counteract the incorrect classification of employment status. 

The  presumption of employment status will apply, if the current proposal is approved, where the platform exerts control and direction over the performance of work. This is assessed where three out of seven criteria are met, including factors such as the platform: establishing levels of remuneration; implementing rules regarding conduct and appearance; controlling working hours and periods of absence, and/or; restricting the worker from building their own client base or working for clients; amongst other specifics. 

This presumption will be taken into consideration for administrative or judicial proceedings to determine the employment status of the person, but based on the current wording, will not automatically apply to tax, criminal and social security proceedings. 

However, as individual countries look to implement the Directive, they may include additional tax and social security requirements into their own national law – which could have significant knock-on implications from an employment tax, social security and immigration perspective. For example: 

• Organisations may need to register in new jurisdictions for employment tax and social security reporting.
• As potential employers, additional employer social costs may need to be factored into financial planning. 
• Whilst not allowed under the current proposal, there is a risk individual countries could invoke retroactive back payments in the area of tax and social security, in the worst case over multiple years.
• The potential tax impacts to workers net pay, could lead to renegotiation of contracts, or potential loss of talent – both of which have operational and cost implications to engaging organisations. 
• Potential employers may need to apply for licences to sponsor employees to obtain work permission and/or assess visa types for existing and new employees, undertake right to work checks.

Such implications are likely to have a substantial impact on digital platforms with workers operating in the EU over the short to medium term. 

What do digital platforms need to do?

We expect the European Council to approve the Directive early in 2024. Following which, member states will have two years to implement the Directive into their national law. Given the potential scale, tiers and geographical spread of labour supply chains, this doesn’t provide much time for organisations to prepare for the implications effectively. 

In the first instance, platforms should work through a review to understand the potential impact this creates – for example:

• What parts of our operations will fall under the criteria of operating in the platform industry?
• Who is our contingent workforce that will need to be assessed?
• Where are they based and what are they doing?
• Which of these could have a misclassified status?
• What would the cost and impact of that be? 

Platforms can than work to implement an efficient and compliant operating model, which may include: 

• Tracking local variances in how the Directive is being implemented across jurisdictions. 
• Restructuring workforce operating models to mitigate risks and to ensure workers are classified appropriately. 
• Implementing new payroll models to meet compliance requirements.
• Understanding and completing appropriate tax registrations.
• Understanding new visa obligations, immigration licences and right to work checks.
• Implementing controls for onboarding and assessing worker status. 

Vialto Partners

In the build up to the implementation of the Directive, our global team is working with organisations to deliver technology enabled solutions to assess tax impacts in the short term, implement effective governance models in the medium term, and outsource downstream employment tax and immigration obligations for the future. 

For a deeper discussion on how we can help, please reach out to your Vialto Partners point of contact, or alternatively: 

Conor Tobin, Director – Contingent Workforce Lead: c.l.tobin@vialto.com

Ash Majithia, Partner – Global Employment Tax Leader: ashish.majithia@vialto.com

Claire Pepper, Partner – EMEA Immigration Leader: claire.pepper@vialto.com

Mathias Schmitt, Partner – EMEA Employment Tax Leader: mathias.schmitt@vialto.com

Vialto Partners have contingent worker tax specialists in more than 45 locations – who work with organisations to effectively manage total workforce strategy and compliance.

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Further information on Vialto Partners can be found here: www.vialtopartners.com Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.

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Further information on Vialto Partners can be found here: www.vialtopartners.com

Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.

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