Contractor misclassification has become a serious risk for employers in both the Netherlands and the United Kingdom. Tax authorities now enforce the rules with renewed energy. Therefore, hiring contractors without proper checks invites payroll back-charges and fines. This guide explains IR35 in the UK and Wet DBA in the Netherlands. Moreover, it compares both frameworks side by side. Finally, it shows how to avoid the misclassification trap when scaling teams across borders. Both governments have signposted further tightening in 2026. Therefore, treat misclassification as a board-level risk, not a finance footnote.
What is contractor misclassification?
Contractor misclassification happens when a worker should legally be an employee, yet the company pays them as a contractor. As a result, the company avoids payroll tax, social charges and employment rights. However, both the UK and the Netherlands now actively pursue these arrangements. The penalties hit hard.
Two flagship laws drive enforcement. IR35 governs the UK approach. Wet DBA leads in the Netherlands. Both target the same risk: disguised employment. In other words, a person works like an employee but invoices like a freelancer. Therefore, employers must check the substance of every contractor relationship. The label on the contract no longer protects either side.
The risk is highest in IT, construction, healthcare and creative industries. These sectors lean heavily on contractor labour. Therefore, both HMRC and the Belastingdienst focus their audits there. Smaller employers should not assume they sit below the radar either.
IR35 and off-payroll working in the UK
IR35 is the UK’s anti-avoidance tax framework for off-payroll working. It applies when a contractor works through their own limited company. HMRC checks whether the worker would be an employee without that intermediary. If yes, the engagement falls inside IR35. Therefore, PAYE and NICs apply.
From April 2021, medium and large private-sector clients will decide IR35 status. They issue a Status Determination Statement to the contractor. Public sector rules already worked this way from April 2017. Smaller clients still let the contractor’s company decide.
HMRC offers the CEST tool to test status. However, tribunals often disagree with CEST outcomes. Therefore, careful contract drafting and working-practice reviews matter most.
The cost of getting IR35 wrong is high. Companies face unpaid PAYE, employer NICs, interest and penalties. Furthermore, contractors face tax adjustments too. Disguised employment cases can also trigger employment rights claims.
Wet DBA: the Dutch misclassification rulebook
Wet DBA is the Dutch law that decides whether a worker is a real zzp’er or a hidden employee. It replaced the older VAR system in 2016. From 1 January 2025, the Belastingdienst enforces Wet DBA in full. Therefore, every contractor relationship now sits under the microscope.
The Belastingdienst applies three tests. First, does the worker personally perform the work? Second, do they receive payment in return? Third, does the hirer exercise authority over them? If all three apply, the relationship looks like employment.
Model agreements (modelovereenkomst) used to provide comfort. However, the Hoge Raad’s Deliveroo ruling raised the bar. The whole reality of the relationship now matters more than the contract.
Penalties bite. Hirers face payroll tax corrections, social premium adjustments, late-payment interest and fines. Wet DBA enforcement targets sectors with heavy contractor use, including construction, healthcare and IT.
How do IR35 and Wet DBA compare?
IR35 and Wet DBA both target disguised employment, but their mechanics differ. IR35 focuses on tax flowing through an intermediary company. Wet DBA looks directly at the underlying relationship between hirer and worker. Therefore, employers operating in both markets need two separate compliance playbooks.
| Feature | IR35 (UK) | Wet DBA (NL) |
| Trigger | Contracting via personal service company | Any contractor engagement |
| Decision-maker | Hirer (medium or large) or contractor (small) | Hirer and contractor jointly |
| Status test | Mutuality, control, substitution | Personal labour, pay, authority |
| Tool | CEST | Modelovereenkomst (now weaker) |
| Enforcement body | HMRC | Belastingdienst |
| Penalties | PAYE, NICs, interest, fines | Payroll tax, premiums, fines |
Off-payroll working rules add another UK layer for medium and large hirers. Therefore, plan compliance around both regimes if you hire across borders. Both regimes share one thing: they look beyond the contract. Working patterns, supervision and exclusivity decide outcomes. Furthermore, both authorities increasingly share data with peers across Europe. As a result, multi-country contractor strategies need joined-up oversight.
How can employers avoid the misclassification trap?
Employers avoid the misclassification trap by treating contractor status as a live compliance topic, not paperwork. First, audit existing engagements. Second, fix contracts and working practices together. Third, keep documentation sharp. Therefore, your IR35 and Wet DBA risk drops sharply within a few months.
Practical steps for 2026 include:
- Run a status review of every long-term contractor relationship
- Issue clear Status Determination Statements for UK roles inside IR35
- Refresh Dutch modelovereenkomst templates after the Deliveroo ruling
- Separate true projects from open-ended work
- Train hiring managers on disguised employment red flags
- Consider Employer of Record support for borderline cases
Sponsorship costs, VAT treatment and pension obligations all shift if a contractor turns out to be an employee. Therefore, build the misclassification check into onboarding, not into the post-mortem after a tax audit.
Avoid the misclassification trap with Octagon. Our team helps international employers stay compliant with IR35 in the UK and Wet DBA in the Netherlands. Moreover, we offer Employer of Record, payrolling and contractor compliance support across both markets. Talk to Octagon today and protect your business from disguised employment risk.
Frequently asked questions
What is contractor misclassification in the UK?
Contractor misclassification in the UK happens when someone works through a limited company but really acts as an employee. IR35 then applies and HMRC charges PAYE plus NICs. Disguised employment also opens the door to employment rights claims and tax-tribunal disputes.
Is Wet DBA still active in the Netherlands?
Yes, Wet DBA is fully active in the Netherlands. From January 2025, the Belastingdienst resumed full enforcement after years of paused fines. Hirers now face payroll tax corrections and penalties when contractor relationships look like hidden employment under the law.
How does off-payroll working differ from IR35?
Off-payroll working is the formal name for the reformed IR35 rules from April 2017 onward. The hirer takes responsibility for status decisions instead of the contractor. The two terms describe the same UK regime, but professionals use them in slightly different contexts.
What counts as disguised employment in the Netherlands?
Disguised employment in the Netherlands occurs when a contractor works under the hirer’s authority, performs the work personally and gets paid wages. The Belastingdienst then treats the relationship as employment under Wet DBA, regardless of what the contract says on paper.
Can one contract cover IR35 and Wet DBA at once?
No, one contract cannot safely cover IR35 and Wet DBA. The two systems test different elements of the working relationship. Therefore, employers using contractors in both countries draft separate local agreements, run two status reviews and document working practices for each jurisdiction independently.
