Criminal defence in cases of bogus self-employment and withholding and misappropriating wages

What does withholding and misappropriating wages mean?

§ 266a StGB protects the interest of the social security institutions in the complete and timely payment of social security contributions. Although classified as an offence against property, the provision has far-reaching consequences in social security law. The statute distinguishes three basic constellations:

Paragraph 1 – Withholding of employee contributions Under § 266a (1) StGB, any employer who does not remit the employee’s share of social security contributions to the collecting agency when due is liable to prosecution. The offence is structured as a pure omission offence: the mere failure to remit the contributions when due fulfils the offence – irrespective of whether the net wages have actually been paid.

Paragraph 2 – Withholding employer contributions through deception § 266a (2) StGB covers two scenarios: first, the withholding of employer contributions by providing incorrect or incomplete information to the collecting agency, and second, the unlawful failure to notify the agency when required. Both scenarios presuppose qualified misconduct, i.e. deliberate deception or active concealment, not merely non-payment.

Paragraph 3 – Embezzlement of wage components § 266a (3) StGB concerns the misappropriation of parts of remuneration that the employer retains in trust for a specific purpose (for example contributions to employee savings schemes or occupational pension schemes) but does not pay to the third-party recipient and fails to inform the employee of this without undue delay.

In practice, the main focus is on withholding employee social security contributions (§ 266a (1) StGB). The mere failure to remit withheld contributions when due is sufficient. Whether the net wage was paid to the employee is irrelevant.

§ 266a StGB – Elements of the offence and social security status

An employer is any person to whom an employee owes work performance within a relationship of personal dependence. For the classification under social security law, § 7 (1) SGB IV is decisive. This provision determines whether there is dependent employment. Social security law does not attach contribution obligations to the label of a contractual relationship, but to its actual implementation.

Typical indicators of dependent employment are:

• Obligation to follow instructions regarding time, place, duration and type of work
• Integration into the client’s operational organisation
• Use of the client’s infrastructure and equipment
• Absence of own entrepreneurial risk and own business premises
• Remuneration that does not depend on entrepreneurial success

The basis for calculating social security contributions is the gross remuneration. If no clear statutory or contractual provisions on the remuneration exist, gross earnings – and thus the amount of damage – are often determined by gross-up from net to gross or by estimation. Errors at this stage can have a significant impact on the alleged contribution arrears and on confiscation, and are therefore a central field of defence.

Bogus self-employment as a key criminal risk

Constellations in which persons are formally designated as self-employed but are in fact dependent employees are often chosen to circumvent labour law and social security obligations – in particular mandatory social security contributions, but also rules on working time or co-determination.

Bogus self-employment occurs in virtually all sectors. A common constellation is the deployment of ostensibly “self-employed” contractors where the facts actually amount to labour leasing. EU citizens are frequently employed as bogus self-employed, especially as caregivers, domestic workers or in construction, sometimes also to circumvent minimum wage regulations.

The suspicion of bogus self-employment may arise in particular where supposed freelancers are subject to instructions, integrated into the business organisation or invoice on an hourly basis.

The status determination procedure under § 7a SGB IV offers the opportunity to clarify social security status at an early, preventive stage. The Federal Court of Justice (BGH) has expressly emphasised that using this procedure can significantly reduce the risk of criminal prosecution (BGH decision of 13.12.2018 – 5 StR 275/18).

In addition to criminal liability for withholding wages under § 266a StGB, administrative fines may be imposed for breaches of social security reporting and contribution obligations. In practice, however, those involved often err about the correct classification as employees or self-employed. This may amount to a mistake of fact which can exclude intent (§ 16 (1) StGB).

How are withholding and misappropriation of wages detected?

Investigations are often triggered by notifications from social security institutions, audits under § 28p SGB IV or checks by the customs authorities’ Financial Control of Undeclared Work. In addition, discrepancies in payroll accounting, conspicuous subcontractor chains or reports from former employees may lead to initial suspicion.

In the course of the investigation, authorities regularly examine business records, payroll documents, contracts and internal correspondence. Searches pursuant to §§ 102, 103 Code of Criminal Procedure (StPO) are possible. The public prosecution office cooperates closely with social insurance carriers and customs.

The amount of damage is usually determined by grossing up from net to gross pursuant to § 14 (2) SGB IV. Calculation errors can considerably influence the alleged extent of the offence and the court’s confiscation decision – and are therefore a key starting point for defence.

If you receive a summons or your business premises have been searched: Do not make any statements on the matter and contact a criminal defence lawyer immediately.

Sanctions and ancillary consequences

The penalty under § 266a (1), (2) StGB is imprisonment of up to five years or a fine. In particularly serious cases – especially in the case of large-scale withholding for gross personal enrichment, the use of forged documents or offences committed as a member of a criminal organisation – the penalty ranges from six months to ten years’ imprisonment.

For defendants, the consequences often go well beyond the principal sentence. In addition to imprisonment, the following ancillary consequences are possible:

• Confiscation of saved expenses and unlawfully obtained benefits pursuant to §§ 73 et seq. StGB
• Professional ban in serious cases pursuant to § 70 StGB
• Entry in the Central Trade Register
• Exclusion from public procurement procedures pursuant to § 21 Act to Combat Undeclared Work
• Exclusion from appointment as managing director pursuant to § 6 (2) GmbHG in the event of a conviction to a term of imprisonment of at least one year

Managing directors of legal entities, such as a GmbH, can be personally liable to prosecution under § 266a StGB in conjunction with § 14 (1) no. 1 StGB, as they exercise the employer function as legal representatives. This also applies to de facto managing directors and so-called straw man managing directors who actually exert controlling influence.

The obligation to pay employee contributions also exists in economically difficult situations; self-inflicted insolvency generally does not relieve from liability.

In addition to the criminal proceedings against individuals, fines can be imposed on the company under the Administrative Offences Act (OWiG).

Criminal defence in cases of withholding and misappropriating wages – counsel and representation by Galen Rechtsanwälte

The lawyers at Galen Rechtsanwälte advise and defend clients nationwide in white-collar criminal proceedings. We have extensive forensic experience in complex economic cases and in representing both individuals and companies.

Early legal advice is crucial. The earlier we are involved, the greater the scope for strategic action.

Our lawyers examine the investigation files and assess the legal requirements of the offence. We develop a defence strategy that takes into account both criminal law risks and economic implications.

We offer personal and individual consultations. Please feel free to contact us to arrange an appointment.