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Self-employment as an independent contractor is a popular income model for many individuals. The Covid pandemic has prompted an increase in the number of Austrian individuals working as independent contractors. 

Austrian law distinguishes between two types of employment status classification: employee and freelancer/contractor (there are multiple categories within the independent contractor classification – see below). Depending on the individual’s classification, this can have significant implications for companies looking to hire independent contractors in Austria. For the hiring company, engaging with independent contractors may be legally and financially risky, especially given the possibility of an independent contractor becoming re-classified as an employee of the hiring company. 

As in many countries, if the real substance of the company-contractor relationship proves to effectively be an employment relationship, the hiring company may suffer legal and financial penalties (including payroll taxes). It is therefore important to leverage an employment service partner like Worksuite when hiring in Austria in order to ensure that independent contractors fall under the correct working relationship with your business.

As in many countries, there is no strict definition of employees and independent contractors in Austrian law. However, individuals are generally considered independent contractors if they:

• Are not subject to the hiring company’s operational rules
• Can choose their own working hours or schedule
• Can choose their own place to work from (unless the work is site-specific)
• Provide their own equipment to carry out assigned tasks 
• Do not work under direct supervision, directives, or instructions
• Are paid on the basis of time spent on work, not for deliverables
• Are not subject to disciplinary procedures

In particular, an individual’s personal ‘dependence’ on the employer – which usually implies economic dependence too – is typically taken as the hallmark of being an employee. 

It is worth noting that unlike the employee-contractor distinction in many other countries, Austrian independent contractors typically do not (or would not be expected) to hire their own employees nor work for multiple clients. For this reason, these independent contractors are often referred to as ‘dependent employees’, even though in legal terms they are self-employed independent contractors. 

Austria has four main categories of independent contractors: 

• Liberal professional (Freiberuer): These independent contractors operate under a freelance contract (Freier Dienstvertrag). This category includes doctors, architects, and lawyers.
• New self-employed (Neue Selbständige): So-called ‘new self-employed’ (Neue Selbstständige) independent contractors operate under a service contract (Werkvertrag). This tends to include artists, writers, scientists, and academics. 
• Self-employed via free / regulated business license (Freie Gewerbe / Reglementierte Gewerbe): This category includes independent contractors who require a license to operate, such as IT professionals, financial advisors, and construction workers.
• Independent contractor (Freie Dienstnehmer): These contractors typically work for clients sequentially, with each contract being a specific period of time.

Regardless of the category, the individual has to register at their local Economic Chamber (Wirtschaftskammer), along with registering for freelance income tax, health insurance, and social security.

There are two primary engagement models for working with independent contractors in Austria:

A. Direct engagement: Under this model, the hiring company engages directly with the independent contractor and establishes a direct contract for the provision of services. The hiring company then pays the independent contractor directly, in accordance with the terms of the contract.

B. Third party: These firms come in two forms and both are specially designed to vet and engage freelancers compliantly as either contract employees or independent contractors on your behalf.

• Agency: Here, the hiring company engages with a staffing agency, which in turn supplies one of its own contractors to deliver the contracted services. The hiring company pays the staffing agency directly, in accordance with the terms of the contract. The contract is therefore between the hiring company and the staffing agency, while the agency pays the independent contractor through a separate contractual arrangement.
• Umbrella company: Austrian independent contractors can also work through an umbrella company. This turns a ‘self-employed’ individual into a legal ‘employee’ of the umbrella company and therefore helps avoid complications around tax and other issues. The contractual relationship is between the umbrella company and the client, with the umbrella company running payroll and administration for the independent contractor. The umbrella company invoices the client directly, while paying the contractor as a standard employee. Umbrella companies levy a fee on the contractor to cover their costs.
• Employer of record (EOR): Like an umbrella company, an EOR can also act as the independent contractor’s legal employer, while the hiring company is effectively a customer of the EOR. However, unlike the limited scope of an umbrella company, an EOR’s responsibilities are wider-ranging and can include all aspects of payroll, taxes, and HR (including onboarding and offboarding).
• Hiring partner: The hiring company can also work with a hiring partner who helps them vet potential independent contractors, set up contracts, ensure the contractor is properly classified, onboard and manage contractors, and pay contractors. 

Companies hiring independent contractors in Austria should avoid making payments directly through their payroll system. Beyond these guidelines, there are no specific lawful requirements related to paying independent contractors in Austria. The contract should stipulate the preferred payment method agreed upon by both parties.

Self-employed independent contractors are liable for their own income tax, which they pay on an annual basis. Independent contractors are taxed on earnings above EUR11,000 per year if they have a single income, or above EUR12,000 per year if they have multiple incomes. Independent contractors also pay 27.68% of their annual profits towards social security contributions, which are also tax-deductible. Social security contributions are paid on all earnings up to EUR71,820. Earnings beyond this level are social security-free. 

Independent contractors whose income is above the earnings threshold (Unfallversicherung) are required to register with the Austrian health insurer (Krankenversicherungsträger) in order to be covered by pension insurance and accident health insurance, along with registering for unemployment insurance to receive unemployment benefits (Arbeitslosengeld) in case of bankruptcy. Independent contractors who have multiple employment relationships, each below the marginal earnings threshold (Unfallversicherung), can also receive sick pay and maternity pay if their total income is above the threshold. However, they do not need to register for unemployment insurance and do not receive unemployment benefits.

We can simplify hiring full-time workers in Austria by acting as the Employer of Record (EOR) on your behalf, handling everything from contracts, onboarding, documentation, payroll, benefits, and workforce management. Reduce your time-to-hire by 90%, slash your overheads, and remain fully compliant.

• Quickly find, hire, and onboard talent in Austria without setting up your entity
• Prevent expensive legal, contractual, or tax mistakes in Austria
• Manage contracts, payroll, and global tax forms all in one Worksuite