Your Remote Contractors Are Actually Employees (And That’s a Problem)

The Malta Test

Malta's legal test, S.L. 452.108, provides one of the clearest frameworks for understanding employment classification. If a worker meets 5 or more of these 8 criteria, they're automatically classified as an employee. Let's be honest about how most remote workers measure up:

1. 75% or more of income is derived from one client over 12 months. During the pandemic, some people managed to juggle multiple full-time positions simultaneously (wow!). But that’s not your typical remote accountant whose contract explicitly prohibits working for competitors.
2. Client determines what work is performed, where, and how. If you’re assigning tasks, setting deadlines, and dictating how the work gets done - Congrats! You’ve just described an employer-employee relationship. True contractors tell you (not vice versa) how they’ll deliver the outcome.
3. Uses equipment, tools, or materials provided by the client. A pilot can’t show up with their own Cessna Citation CJ4 and announce they’ll be flying today’s route to Frankfurt. They use the company aircraft. Same principle - if your workers are logging into your software licenses, typing on company laptops, and accessing your proprietary systems daily, they’re using tool supplied by you.
4. Subject to working time schedule or minimum work periods. “Please be available 9:00-17:00 Malta time for team collaboration” might sound reasonable. But it’s also called a work schedule. Contractors generally work whenever they want, as long as they meet the deadline.
5. Cannot sub-contract or send a substitute. Imagine your remote developer calls in “Hey, I’m taking a long weekend. My dad will cover my coding tasks today.” Absurd, right? That’s because you hired them specifically. That’s a hallmark of employment. Genuine contractors can typically send substitutes to complete the work.
6. Integrated into the production process, organization, or hierarchy. Weekly team meetings, quarterly reviews, reporting to a department head. Contractors don’t typically participate in these structures. They submit deliverables and invoices, not attend your all-hands meetings.
7. Activity is a core element of the client's business objectives. If they’re performing functions that directly drive your revenue or core operation, not providing ancillary consulting, they’re doing employee work.
8. Performs similar tasks to existing employees. Or tasks your employees performed before you restructured and called it optimisation. Renaming the arrangement as outsourcing does not change the legal classification.

These criteria, with variations, apply across jurisdictions. Most cross-border remote workers easily meet 5 or more. Hence, a "contractor" label will offer zero legal protection when the facts point to employment.

The Risks

Financial Consequences

Retroactive reclassification: When employment is deemed to have started from the first day of the relationship. Authorities will back-calculate all unpaid obligations from day one. Potentially years of accumulated liability.

Social security contributions: Both employer and employee portions you never paid must now be remitted. In the Netherlands, this means wage tax of 36.97% to 49.5%, plus 18.5% employee insurance premiums. All calculated retroactively, with compounding interest and penalties.

Tax penalties: The Netherlands imposes 50% fines for intentional violations and 25% for serious negligence. Germany exposes offenders to substantial fines and potential imprisonment for “Scheinselbstständigkeit”. The UK imposes unlimited fines plus up to two years imprisonment for wilful misclassification (luckily it rarely gets that far).

Employment benefits owed: Vacation pay backdated to day one. Sick leave entitlements. Pension contributions. Notice period calculations. Severance pay. Everything, retroactively calculated.

Fines for non-compliance: Spain's €79 million penalty against Glovo for violations between 2018 and 2019, roughly 15% of their annual expenditure, sent shockwaves through the platform economy. Labour inspectorate fines are now calculated per worker in some jurisdictions, not per company.

Operational and Reputational Risks

Timing of complaints: Contractors rarely complain while the relationship works well. But when it ends, through termination, redundancy, or disputes. They may hire counsel and assert they were employees for multiple years, creating retroactive claims for full employment rights.

Reputational damage: Court proceedings do become public record. This can easily result in intensified industry scrutiny. Investors start asking uncomfortable questions. And recruiting future talent gets significantly harder when your company becomes known for worker misclassification.

Time and resources: Legal defence costs add up quickly. Executive time gets consumed by cleanup efforts. Audits and investigations consume resources. And your HR team are overwhelmed by reclassification processes.

These aren’t theoretical risks you can ignore. Spain criminalized false self-employment in 2022 (Glovo’s CEO faced criminal charges). Dutch tax authorities explicitly announced no more warnings as of January 2025. The UK Supreme Court has ruled decisively against employers claiming contractor relationships. This is the new enforcement reality. And remember, it’s not just corporations using AI to streamline processes these days. Authorities are too. Making it easier than ever to spot bogus hiring structures.

The Evidence

Courts across Europe have ruled in favour of workers challenging their contractor status:

• Uber v Aslam (UK Supreme Court, 2021): Drivers were found to be workers, not contractors. The court held that contract wording "cannot defeat reality."
• Pimlico Plumbers v Smith (UK Supreme Court, 2018): Worker status was confirmed despite "self-employed" label. Control and personal service obligations were decisive factors.
• Deliveroo (Dutch Supreme Court, 2023): Riders were confirmed as employees through "substance over form" analysis.
• Uber driver (French Cour de cassation, 2020): The relationship was requalified as an employment contract based on an established subordination link.
• Roamler crowdworker (German Federal Labour Court, 2020): Crowdworkers may be considered employees if there are sufficient direction and control.
• Ryanair v Lutz (UK Employment Appeal Tribunal, 2023): A pilot hired through an agency and personal service company structure was found to be an agency worker/employee, not self-employed.

There’s an interesting pattern here. Courts will look beyond paperwork and rule by operational reality. Control, integration, and economic dependence are decisive factors. Labelling it as "self-employed", provides no protection when the facts indicate employment.

Interestingly, all Maltese cases that I found, where workers contested contractor status, resulted in losses for the workers. This suggests either that Maltese courts take a more conservative approach or that authorities enforce worker claims "less aggressively" (least to say) compared than in Spain, the Netherlands, France, and other jurisdictions where such claims commonly succeed. Remember, the contractor/employee may take the company to court in their country of residence, more on that in my future articles.

Conclusion

The bottom line is simple: reality over paperwork! You don’t choose status; your working arrangements do. Meaning, if the working relationship looks like employment, it probably is employment. What the contract says is irrelevant. Cross-border remote workers who’re hired as "contractors" are, in many cases, actual employees under applicable law, and at times, both laws will apply – company’s country employment test and the employee’s, so you may face and fail at two tests. While "contractor" arrangements may be cost reducing in the short term, it creates high long-term liability.

Proper cross-border employment compliance does add complexity. Registering as a foreign employer, running local payroll and managing reporting requirements. Yes, it's more work. Hard work at times. But this complexity is far less damaging than retroactive reclassification of contractors, who've been working for years. And way less costly than court proceedings and legal battles, reputational damage, or even criminal liability.

The choice is yours. You either address compliance proactively, or face enforcement reactively, with compounding penalties.

What's Next

If you're currently employing remote workers abroad, or planning to, and have questions about your compliance situation? Feel free to reach out! Cross-border employment is complex, but the right structure will protect both you and your employees.

Author: Deniss Berezins I EMCS HR & Payroll Services | Cross-Border Employment Compliance (Malta/EU/EEA)