Benefits of payrolling for freelancers

With payrolling you are basically employed by the payrolling company, but on a daily basis. This means that for the days you have worked, you have the status of an employee, not of the self-employed. In that sense, payrolling is like working for an interim company, but the difference is that with payrolling you are in charge of finding your own client.

Payrolling companies in Belgium were originally meant for performance artists, whose irregular gigs made it difficult for them to keep up paying the social security contributions under the self-employed statute. Using a payrolling company the artists only had to pay the social contributions when they were actually working, while it also provided them with a minimal social safety net.

In the meantime, this type of freelance work framework expanded to other professions and profiles as well, although it is true that it is mostly people working in creative industry who use these services.

The advantages of payrolling

The main advantage (or disadvantage, for some people) of using payrolling is the fact that you are an employee and as such enjoy the (almost) full range of benefits available to employees:

• The right to unemployment allowance (note that there are specific conditions related to acquiring this right)
• Paid holidays
• Sick days
• Holiday allowances (single and double)
• End-of-year bonus
• Family benefits
• Invalidity insurance
• Work accidents insurance
• Pension contributions

You should be aware, however, that you only accrue these rights on the days that you are actually working. This means that some of the benefits will be paid out pro rata, based on the actual days of full-time work.

Payrolling is also an interesting option for those who are thinking of starting a side business next to their regular job, but don't want to take on the full administration or just want to give it a try before going for the statute of partially self-employed (zelfstandige in bijberoep/independent a temps partiel). Be warned however that the Belgian income tax will be calculated on your total income, so make sure you set some money aside for when the tax time comes.

Another obvious advantage is also that you only have to pay your social security contributions for the days that you have actually worked. This might be interesting if you have a partial or full-time employment elsewhere where your social contributions are already paid for in full.

The disadvantages of payrolling

Before deciding to go with this option, you should be aware of the two major drawbacks of working through payrolling companies:

• Working through a payrolling company means a hefty amount of your income gets cut off immediately at the source

The first point is something that many people who have starting via payrolling feel as the most painful. You agree on a sum with your client and are already looking forward to finally affording that new computer that you need. But suddenly, your bank statement shows that only a third of what has been agreed on, has made it to your account. What has happened?? Well, Belgium happened. But let's have a look at it in detail.

Since you are effectively working as an employee, your social security contributions are calculated as such. This means they are much higher than for the self-employed (per day).. You of course also have many more benefits than the self-employed (see above), but it is sometimes difficult to remember that as you are crying over how much money has been lost.

Additionally, you are paying an advance tax on your income, of course. The amount of that will depend on what you declared as expected income at the start of your work. You will usually start at the lowest tax bracket, but we advise moving to the higher one as you earn more to avoid nasty surprises come tax calculation time.

Finally, the payrolling company also takes its cut on your income as an administration fee.

The solution to this predicament is of course that you need to make sure you get paid enough to have enough left over after all the contributions and fees have been taken out of your sum. You can always ask your payrolling company to help you calculate your optimal fee.

One annoying thing when working through a payrolling company is that your client sees how much money you are paid out by the payrolling company, so they might use that as a negotiating tactics for your future contracts.

• You cannot claim as many expenses on your tax return as the self-employed

As a self-employed person you have the right to claim a whole range of costs as your business expenses, however, when working through a payrolling company you can only claim what people who are in a regular employment can claim. It is not surprising then that the profiles that mostly use payrolling are those professionals who do not have a lot of operating costs.

How it works

With payrolling all the administration is taken care of by the payrolling company. You sign a contract with them and enter the data of your employer. When you agree on a fee with your client, you inform the payrolling company of the amount and of the days you have worked and they take it from there.

Basically the invoices of your clients are sent out by the payrolling company, who deducts social contribution and their own fee and then pays the money to your bank account. The money you receive is net amount, the only thing you will need to think about is any additional income tax.

At the start of each year, the payrolling company will provide you with the form 281.10 stating your total annual income.

In Belgium, there are two main payrolling companies for the creative sector: SMart works with an annual fee, while Tentoo charges a fee-per-payment.