> "False self-employment is a situation in which somebody registered as self-employed, a freelancer, or a temp is de facto an employee carrying out a professional activity under the authority and subordination of another company. Such false self-employment is often a way to circumvent social welfare and employment legislation, for example by avoiding employer's social security and income tax contributions."

Could you kindly explain how this definition of "false self-employment" is in any way relevant to the situation I just described in my original comment? I'm struggling to see it myself.

What about the specific situation I described implies circumvention of social welfare, or employment legislation, for example?

A company wants an employee, they plan on treating this person as an employee. However the company doesn’t want to pay the additional costs required by regulation. Payroll taxes, unemployment insurance, dealing with tax withholding, overtime where applicable, family leave requirements etc…

So they hire a contractor instead and pay them as a 1099 contractor, or the contractor sets up an LLC and they pay the LLC, or an S-corp.

Doesn’t matter how they pay them, if they treat them as an employee (there’s a 20 part test) they are a de facto employee and it’s false self-employment.

It's the LLC's or S-Corp's responsibility to deal with everything you've mentioned, not your client's. Your client is simply purchasing a service from your LLC or S-Corp, with a contract. The contract must not stand in violation of your local tax and employment laws.

It's a standard case of one company (a third-party) purchasing the services of another (a company you simultaneously both own, and are employed at).

This is an incorrect interpretation of the law.

The IRS will look at this situation and determine either the owner of the LLC is a de facto employee or not.

Whether they are billing though an LLC or not is not one of the factors.

Here’s a quick read about the topic: https://www.trimprulaw.com/an-individual-who-has-an-llc-is-a...

“Just because an individual which is engaged by a business has an LLC, does not mean that the DoL will classify that person as an independent contractor.”

You are looking at US->US relationship, making the same error as folks elsewhere with NL->NL relationship etc. The question is US->NL relationship etc. You are applying labor laws of one country into an international relationship.

> Your client is simply purchasing a service from your LLC or S-Corp, with a contract.

And if that's a fiction, a judge will see straight through it. Ask a lawyer if you don't believe us. I can think of several examples in the news lately in my country of residence.

> "And if that's a fiction, a judge will see straight through it."

I never claimed that "pro forma" contracts used for laundering illegitimate business relationships are somehow legal. This feels to me like an entirely separate issue, and I'm not sure how it's related to anything we've discussed so-far?

You can own a company, and simultaneously be the only employee in that company. Your client enters into a contractual agreement to purchase services from your company. Your company must comply with all local laws and regulations as part of your employment in that company. Your company charges the client a fee which, down the line, covers all of the business expenses associated with the work being done (including any taxes that need to be paid, overtime, insurances, pension, social security, etc). I'm still, to this moment, not sure what makes any of this illegal or illegitimate?

There is a 20 part test that covers whether you are considered an employee of the engaging company.

Whether the engaging company pays you directly or pays an LLC you own is not part of that test.

If the IRS or a local government decides that you are being treated as an employee of the company, they will ignore the intermediate LLC.

Think about your argument for a second. If it holds true, employment laws are useless.

Single owner LLCs are pass through entities and they have no obligations to pay minimum wage, overtime, unemployment insurance etc…

If your interpretation of the law stood, every company would simply require each employee to form an LLC and pay each employee as an independent contractor.

In fact many companies do try this, and the IRS and state departments of labor go after them for it regularly.

> "Single owner LLCs are pass through entities and they have no obligations to pay minimum wage, overtime, unemployment insurance etc…"

Perhaps an LLC (which is a pass-through entity) is the wrong structure to use here then. Perhaps a C-Corp would be more suitable?

Here's one example of what I'm referring to: https://www.altinn.no/en/start-and-run-business/planning-sta...

> "If your interpretation of the law stood, every company would simply require each employee to form an LLC and pay each employee as an independent contractor."

But that's exactly how companies hire external contractors today, so I'm not sure why you're suggesting there's anything wrong here?

The reason companies don't require each and every employee to form an LLC is because it makes things more difficult for everybody - not because it's illegal. Direct employment is much easier to manage, hence it's more popular. I don't see your point?

No the reason is because it’s illegal. You can’t engage someone in an employee employer relationship and pay them as an independent contractor.

>much easier manage

This is patently false. Contractors are much much easier to manage.

It is perfectly legal to hire contractors. There is nothing wrong with this. What you can’t do is hire a contractor and treat them as an employee.

There is a legal difference. The IRS has a 20 part test.

That's within a single country. There is a qualitative difference between cross-border business relationships and intra-country ones.