Independent Contractor & Employment Guidelines in Norway
Contractor length allowance
No limitations to a genuine independent contractor exist if the contractor has multiple clients.
What makes someone an employee
Norwegian law defines the notion of employee. In the Working Environment Act, an employee is an individual who works in the service of another person.
Independent contractors aren’t statutory defined. The Supreme Court has drawn up the following guidelines to determine whether a person is an employee, cf. HR-2013-630-A section 38:
- Employees make their labour services available and may not use assistants.
- Employees submit to the employer’s management, and the employer controls the work process.
- The employer provides work space, machines, equipment, work materials, or other aids that are necessary to carry out the work.
- The employer bears the risk of the consequences resulting from the work performed.
- Employees receive remuneration in the form of salary.
- The relationship between the parties has a stable character and is dependent on resilient to certain deadlines.
Employee vs contractor
Under law, independent contractors aren’t considered employees and are therefore not subject to the same regulations and protections. An independent contractor isn’t covered by the provisions of the Working Environment Act.
Employees must comply with the company’s working hours and be provided with the necessary tools for work, while contractors are free to organize their daily schedule as they see fit and must use their own tools.
Employees have a permanent task for which they receive regular monthly salary, whereas contractors are called upon for a specific work assignment and are usually paid lump sum remuneration upon completing the task according to the contract.
Employees are declared and registered with various institutions — notably, the NAV Aa Register and the tax authorities — by their employer who pays the relevant social security contributions and tax on their behalf. On the contrary, independent contractors must personally register as self-employed independent contractors and pay their own tax and social security contributions, which is a different process. Independent contractors are subject to the income tax and can deduct their professional expenses from their professional income.
Employees are eligible for unemployment allowances paid by the unemployment fund in case of their dismissal. Independent contractors are also protected against this risk, but on less favourable terms. Employers are obligated to provide pension and health care to employees, while independent contractors pay for such coverage themselves.
Employees are heavily protected from unfair dismissal. Independent contractors don’t receive the same level of protection from termination. However, they’re protected from abuse. Employers must respect the notice period; otherwise, they must compensate the contractor for breaking the contract and pay for the time left over.
Penalties for Employee Misclassification in Norway
The re-characterization of the relationship entails heavy legal, financial, and administrative consequences for the employer who misclassifies employees as contractors. The burden of proof lies upon the independent contractor, who must demonstrate the existence of a subordinate relationship.
The penalties for misclassification include the following:
- Payment of holiday pay, taxes and social security contributions, including potential penalty taxes
- Retroactive payment of salary, benefits, social security contributions, and back taxes
- Payment of overtime hours, bonus schemes, and other benefits applicable to the company’s arrears policy
- Payment of any sums related to a breach of employment contract
- Economic loss coverage of up to the two years’ annual salary potentially awarded against the company in case of termination of the relationship with the independent contractor now considered as an employee