What is chain liability and how do you manage the risk?

Chain liability (Chain Liability Act, Wka) makes a contractor liable for payroll taxes failed to be remitted by their subcontractor. Outsourcing creates a chain in which every link is liable for payment by the next. You can limit this risk, among other things, with a G-account (blocked account), through which you deposit the payroll taxes directly and can obtain exemption from liability.

A company is not automatically liable: for that to happen, there must be an error, damage, and a connection between the two. The non-payment of payroll taxes is such an error. Contractors often work through subcontractors, and under the general rule, each subcontractor would only be liable for the payroll taxes of their own employees. That cannot be the intention — which is why the Wka was introduced, as part of the Collection Act 1990.

What is chain liability?

The Wka makes the main contractor liable for the payment of payroll taxes by the subcontractor. At the same time, the subcontractor may further outsource work without the risk of non-payment increasing. This creates a chain in which each link is liable for payment by the subsequent links. There are only limited exceptions, for example, if the subcontractor performs the work largely within their own company.

When does the Wka apply?

Chain liability applies only to contracts for work, but the Wka defines this more broadly than the Civil Code: it concerns all situations in which a contractor, outside of an employment relationship, performs work of a tangible nature on commission for a price (an obligation of result).

• Work of a tangible nature is not only construction, but also road construction, cleaning, or repair work. Non-tangible work includes, for example, giving a lecture or performing.
• The payable price is deliberately broad so that it also covers a management contract.
• Payroll levies include wage tax, national insurance and employee insurance contributions, and the income-dependent Health Insurance Act contribution.

How do you manage the risk?

Contractors run a risk when engaging a subcontractor, but can limit it. A legal form with limited liability is advisable. Additionally, the subcontractor can open a G-account (blocked account), into which the contractor deposits the payroll taxes due—with the permission of the Tax and Customs Administration and the bank. An indemnity against liability can be linked to this, provided that invoicing, payment, and administrative requirements are met.

One of those requirements is that the records contain the data of the persons who performed the work. To this end, the subcontractor transfers personal data, which raises privacy questions: the contractor and the subcontractor must agree on when, how, and in what manner that data is shared and processed.

Frequently Asked Questions

To whom does chain liability apply?

For the contractor, who is liable for the payroll taxes of (sub)contractors in the chain. It applies to contracts for work of a tangible nature for a price.

What is a G-account?

A blocked account into which the contractor deposits the payroll taxes for the subcontractor. Provided the requirements are met, this can result in exemption from liability.

Does the G-account cause privacy problems?

Possible. Personal data of the workers must be shared for the indemnification. Therefore, specify in the contract how that data is shared and processed.

Advice on chain liability

Chain liability is complex, and a G-account requires attention to privacy. The legal experts at MKB Juristen draft a contract for services with the correct agreements. View our expertise in corporate law or schedule an intake meeting .