On 2 February 2023, the European Parliament voted in favour of amendments to the European Commission’s Platform Worker Directive that would introduce a legal presumption of employment for self-employed platform workers and greater transparency regarding how artificial intelligence is used in this sector.
The directive does not only apply to platform work companies, but may also apply, for instance, to Employers of Record (EORs)/Agents of Record (AORs), as well as self-employed contractors and gig workers in Europe engaged via staffing companies.
Based on the directive, persons currently considered self-employed may qualify as workers and as a result, local employment and tax laws would apply to them. This could mean that entire business models may have to be adapted. Companies may already need to take action, considering the potential impact to their business and the time any changes may take to implement.
This article aims to alert companies, enabling them to take timely action when necessary, by setting out what exactly the directive entails, which companies are or may be covered, what the impact of the directive will be and what steps can (and should) be taken now.
The European Council is expected to approve the proposed directive in early 2024. Once approved, EU member states will have two years to implement the directive into national law.
Directive objectives and features
The directive primarily aims to improve the working conditions of platform workers. Their employment status must be correctly determined. In addition, the directive introduces more transparency regarding the operation of the algorithms used in platform work.
To ensure that platform workers have the right employment status, the directive introduces a legal presumption that the platform worker has an employment contract and is thus a worker and not a self-employed person. The platform, however, will first get the opportunity to rebut the legal presumption. To do so, the platform must be able to demonstrate and prove two points:
- The worker is free from control and direction of the digital labour platform. One indicator of such control, for example, would be the ability to prevent the person performing platform work to work for any other third party.
- The worker has his or her own business or independent profession, in which he or she normally does the same type of work as he or she does for the platform. To assess whether the person does indeed own a business, one can look at whether investments have been made in the business by, for example, promoting the company's services or buying business equipment.
However, the legal presumption will not have any effect before the date when the member states transpose the directive into national law. Contractual relationships entered into before that date -- and still ongoing on that date -- are therefore not affected by the legal presumption.
The directive also introduces additional rights and obligations to ensure that more transparency is in place regarding the use of algorithms in platform work. For instance, platforms will be obligated to inform platform workers about the operation and the results of the algorithm being used. The operation of the algorithm on working conditions also must be tested. Platform workers will have to know which actions are monitored, evaluated and rewarded and on what grounds automatic decisions are generated, e.g. on the distribution of work. Finally, digital labour platforms will be required to report platform work performed in a member state to the competent authority.
Who will the directive apply to?
The directive covers all persons performing platform work in the European Union, regardless of where the platform is hosted. To assess the existence of platform work, only a contractual relationship between the individual and the digital labour platform is needed, and not necessarily a contractual relationship between the individual and the recipient of the service. Moreover, activities such as processing payments, which companies focused on payroll services perform, can be considered platform work.
A digital labour platform exists when:
- A commercial service is provided, (partly) through electronic means, such as a mobile app or a website;
- The recipient of the service requests the commercial service; and
- The commercial service involves the organisation of work, meaning that demand and supply for labour are matched. The location of or the name the contractual relationship is given do not matter.
The definition is very broad; thus, many companies may qualify as digital labour platforms. What are the implications of this broad definition?
Included (or possibly included) in the definition
- Providers of a service, such as transport of persons or goods or cleaning, which mainly involves bringing together labour supply and demand.
Well-known companies such as Deliveroo, Just Eat and Uber will most definitely fall under the definition of a digital labour platform, as would companies that have a similar set-up. In such cases, for example, an order is placed via a mobile app, after which the platform designates the nearest rider to pick it up and deliver it to the customer.
- Staffing companies, staffing platforms and (other) intermediaries.
Staffing companies, staffing platforms and other intermediaries also may meet the definition of a digital labour platform. To do so, however, they must provide their services (at least in part) by electronic means. If that is the case, staffing companies and platforms will be labelled a “digital labour platform.” This would have significant consequences, particularly for companies that frequently use self-employed consultants through intermediaries, such as in IT or life science industries. Those companies may have to make adjustments, because their staffing costs could rise considerably.
- EOR or AOR
An EOR/AOR is an organisation that serves as an individual’s legal employer for tax purposes while the individual performs work at a third-party company. They deal with payroll services, for example. Does an EOR/AOR match supply and demand for labour so it can be said that they “organise the work performed by individuals”? They are less likely to play a role in bringing together the supply and demand of labour. However, not only the contractual name given to the relationship but also the actual situation is considered in determining if a platform is a ‘digital labour platform’.
Not included in the definition
- Providers of non-profit services.
- Providers of a service whose primary purpose is to exploit or share assets.
In this respect, the directive names short-term rental of accommodation or reselling goods. Companies such as Airbnb, Booking.com or Vinted will therefore not fall under the definition.
- Online platforms that merely provide means for contacting service providers.
An online platform that provides the means by which the service providers can reach the end-user, for example by advertising offers or requests for services or displaying available service providers in a specific area, without any further involvement, is not a digital labour platform. This type of online platform does not match supply and demand for labour. This applies, for example, to a platform that only displays the details of carpenters available in a specific area, thereby allowing customers to contact the carpenters to use their services on demand.
What is the directive’s impact?
When the directive enters into effect, it is likely to have the following consequences:
- All digital labour platforms must be properly managed and keep a proper business administration to comply with the explanation and information obligations.
- Every person performing platform work is entitled to claim the legal presumption of an employment relationship, unless the digital platform can successfully rebut this presumption. Upon successfully establishing an employment contract, the worker will be entitled to all benefits offered by local employment law, including employment protection, a minimum wage, certain minimum rights, entitlement to minimum vacation days, etc..
- Classifying a person as a worker instead of a self-employed individual would also have other impactful consequences, including for social security contributions and work permits.
- If an individual is considered a worker, the digital labour platform must comply with a significant number of additional EU regulations, such as the directive on transparent and predictable working conditions, the directive on work-life balance for parents and carers and the working time directive.
- If the digital labour platform works with large numbers of people who have been misclassified as self-employed, the platform's business model will have to be significantly adjusted if the platform intends to work only with genuinely autonomous persons.
- Digital platform operators will be considered employers and hence will need to comply with all relevant tax and social security formalities. This includes, but is not limited to, first-day notifications of the employees in the country of work and the registration of the company as an employer. Depending on the legislation of the country where the activities are performed, the platform may also need to start deducting withholding taxes as well as employee social security contributions on the amounts payable to the workers. In addition, they may also be liable to pay employer social security contributions. When the workers perform their activities in more than one country, the implications will need to be evaluated on a case-by-case basis.
The directive also has other, less direct but equally serious consequences. For instance, digital labour platforms may be reluctant to disclose any information about the algorithms they use for competition-related reasons. After all, these algorithms are often at the heart of their business model. In addition, because of the broad definition of a digital labour platform, it may not be easy to adapt the business to an employee-only model. For staffing companies, this could mean that they would be better off providing their commercial services other than through digital means.
How can BDO help?
Companies should give this directive due consideration as soon as possible, given that the timeline for its implementation is relatively short and that the time needed to make significant adjustments to business models, as well as preparing for other likely consequences, such as applying for work permits, may be considerable.
BDO can work with you to determine to what extent the directive may impact your business and to proactively prepare for the changes that are likely to come. Some initial questions we can help you with include:
- Does my organisation meet the definition of a digital labour platform?
- Does my organisation meet the criteria to rebut the legal presumption?
- What are the financial, legal and tax consequences for my organisation if the directive enters into effect?
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