• Adrian Tüscher, Partner |
  • Gaurav Bhagwanani, Expert |

Due to the trending gig economy, employers often like to engage workers as so-called freelancers or independent contractors. Nonetheless, freelancers and independent contractors often qualify as employees from a legal perspective, so their remuneration is generally subject to social security contributions.

Upon a subsequent qualification as employees, the hiring party (i.e. employer) may retroactively be liable for social security contributions on already paid remunerations. Especially start-ups and smaller companies often neglect this fact when hiring personnel. 

Thus, a company and their company officers (incl. potentially its founders) may be at risk later.

This article summarizes who is at risk and when.

Who is exposed?

Generally, it's the employer's duty to pay any owed social security contributions to the competent authorities. However, if the authorities cannot recover the owed social security contributions from the employer (e.g. a legal entity), its company officers may subsidiarily be personally and jointly liable for such social security contributions.

Primarily, individuals holding formal officer positions, e.g. members of the board of directors or managing directors, qualify as company officers. Nevertheless, individuals who virtually act in a formal officer position by substantially influencing the company’s decision-making process (e.g. by making decisions reserved for formal officers) may also qualify as (factual) company officers (e.g. managers, directors, founders, etc.).

The company officers are principally liable for the time during which they actually hold a (factual) company officer position and have the power to dispose of company assets and execute payments. Hence, they may also be liable for any social security contributions owed at their time of joining the company.

When does damage occur?

In case social security contributions owed cannot be recovered from the employer, be it due to factual or legal reasons, the authorities suffer damages. Typically, this is the case when an employer goes bankrupt (factual), but also when the general five-year statute of limitations has passed for the levy of the social security contributions owed (legal). Further, namely interest, administrative and dunning fees also count as damages.

What is considered unlawful conduct?

The damages must be caused by unlawful conduct. A breach of social security rules (e.g. payment and accounting duties) may suffice. In practice the due deduction of social security fees (employee's share) from an employee's remuneration as well as the timely and due payment of all social security contributions (employee's + employer's share) to the authorities are the main duties. In addition, simultaneously a company officer's duty must have been breached (e.g. financial control and financial budgeting duties) for the conduct to be deemed unlawful. 

The unlawful conduct must then be causal for the damages under the applicable standard.

When is a company officer at fault?

A company officer is at fault if they committed an unlawful conduct either intentionally or with gross negligence. Generally, if an unlawful conduct is established, the fault is presumed. However, a conduct may be justified under certain conditions, which may prevent liability.


Unlawful conduct and fault must be assessed based on the circumstances. However, the following (case law) examples may provide some guidance:

Unlawful conduct and fault:

  • In general, if social security contributions have been deducted from remuneration by the employer but not paid to the competent authority;
  • Company (officer) must be aware (or is in reasonable doubt) that they need to pay social security contributions on remuneration, but does not inquire regarding such duty with authorities in detail;
  • Company (officer) pays social security lump-sum fees based on substantially lower declared salaries but does not immediately report actual salaries at the end of an accounting period.

Unlawful conduct, but potentially no fault:

  • Non-payment of due social security contributions to prevent extremely difficult financial situation for the company, i.e. prioritizing other substantial obligations (e.g. employee salaries and supplier fees), while social security fees can still be paid in due course;
  • Non-payment of due social security contributions to prevent a production collapse by first paying suppliers for material.


The authorities typically vigorously enforce the personal liability of company officers. Thus, it's essential to comply with all relevant social security rules to avoid personal liability as a company officer.

Company officers in smaller companies have heightened control and observation duties (and may rather be at fault) as opposed to company officers of larger companies, especially with involved payroll providers / departments. Hence, especially company officers of start-ups and smaller companies must be careful when hiring personnel, ensuring that social security contributions owed are paid. Overseeing payments on a regular basis and launching frequent inquiries, internally and with the authorities, is crucial

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