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I wouldn’t say he’s not contributing, I’d say he doesn’t have employees. Same would be true if he has his “team” on 1099 in the US.

Outside of any moral questions, the risk here is that the government may decide your group of happy startup contractors are in fact employees, and then you’re in for some massively distracting and expensive restructuring (at best) or legal sanctions and maybe losing your team (at worst).

So yeah, it’s easier, but that’s because it’s cheat mode, not because he’s American. You could use any offshore company for the same thing.

There are lots of laws over if your employee is a contractor or full-time. Many, _many_ companies butt heads with local labor boards who decide that a given employee is actually full-time and thus entitled to a bunch of different protections.

Many regulations either don't exist in Europe or are under-enforced. For instance, Germany did not outlaw insider trading until ~2003. There's a strong chance that an American hiring a contractor in, say, Romania will simply not be prosecutable while an American hiring a contractor in America will be. There's some legal term of art for this that I can't recall off-hand.

You have to admit though that maternity leave from day one which often comes with obligations like keeping the position open (so you have to fire someone who has already being doing the job for a year+ if the mother comes back) is a ridiculous requirement. Sure, it makes sense for a huge employer where those things are just cost of doing business and you can afford to hire enough people to cover for that. It absolutely kills small businesses though.

Fortunately people find ways around those laws and governments in developing countries don't care much but it puts you in position to fight the law from day one. The culture in Europe needs to change if we want people trying their hands on small businesses more.

I own a small successful business. I will never hire any employees. That's why I avoid working with anyone in my country and will not open an office. Frankly I would prefer to close shop and enjoy the rest of my life in an unproductive way than to deal with the burden of government regulations when it comes to employing people.

Hiring someone just for them to go on maternity leave after 2 months and then coming back (or not, not allowed to ask when) in 1/1.5/2 years and me being forced to find replacement while keeping the position open? Seriously, for a company which would have at most several employees and where everyone has their distinct role?

The problem (and this extends to many policies in the US as well) is that it’s deceptively easy to offload the cost of welfare benefits to employers. Paid maternity leave is just welfare for new mothers. I’m not saying that’s a bad thing, but it is what it is. But paying someone not to work is welfare.

However the government handing out welfare checks is not very popular. Even taking welfare brings up images of government cheese. Often middle class people won’t avail themselves of these programs even if they qualify.

So from a policy perspective we solve this by making the employer administer the welfare program and call it an “employment benefit”. Now it goes from a source of shame to a marker of status. Benefits are something enjoyed by middle-class professionals.

This all works out fine for large companies, where the law of large numbers makes these costs statistically predictable and easy to hedge. But it’s a huge unmanageable risk for small business. If you’re in a four person startup and one person goes on paid maternity leave for a year, your company is pretty much dead.

Well, in Europe you don't pay the whole salary during the leave (details depend on the country but it's something like you pay for one month and then the government pays from social security fund) you just have obligations like keeping the position open.

This has many problems though anyway as it just offloads most of the financial burden but doesn't offload the organizational one. It also doesn't make any sense to make the employer responsible for maternity leave as it doesn't make sense to make them responsible for healthcare (which Europe gets right). If you're someone who wants to pay above market rates then you're a target as maternity leave depends on your salary. The problem is difficult because we need a system in which having children at young age isn't a career suicide. Maternity leave as implemented in Europe is definitely not it as the incentives are to first get to a decent salary and only then have children.

One idea which I think makes sense is to allow children to have % of their taxes to go to their parents directly. Allow children to opt out to punish especially shitty parents. This I think aligns the incentives pretty well (to have children while young, to take good care of them, to educate them etc.)

Since when is "the system" the thing that is supposed to win? To me, it seems more like the system is cheating the startup.

There's validity in working around or gaming systems so that a company has a chance of growing and thriving. The tactics used (contractors instead of employees, etc.) are perfectly legal. People are getting paid per an agreement, and they spend their income in their country/society, which disperses the benefits. A startup saddled with year (or two) long maternity leave and other such extreme requirements would make the risk too high.

These regulations create a regulatory capture situation where only large, established, or very well financed businesses can survive. Kudos to the agile and clever startups that find ways to make it, regardless. One should be on the side of the people, not the system.

I usually forgive Americans for not knowing this, but 'the system' is something we've built up together to help ourselves and organize ourselves. Unemployment is a statistically calculable fact, so we can plan for it.

That systems tend to start living their own lives is of course the challenge, because indeed the point of this system is not the system, but to help ourselves. Like democracy, it requires indefinite maintenance, upgrades and changes. But that does not mean it's bad, it means people are a hard problem.

As a sweeping generalisation: Europe has chosen to value more stable employment opportunities with lower potential upside over highly volatile employment opportunities with larger potential upside. America has chosen the opposite. You're speaking as if there's an absolute truth in which model is better, but as we're finding in this very thread, American people are coming to Europe to build businesses (and Europeans are going to America to do the reverse).

I won't rehash what brnt has said in their reply, but I will echo their sentiment: The System is me and my friends and my family and my co-workers working together to provide healthcare and education and security to each other. I pay taxes for that reason.

Does cheating the system just mean you disagree with it, or do you maintain that he's breaking the law? Or that regulators aren't aware of this practice? I'm not sure what cheating means here: usually it means breaking the rules, but that's not happening based on what he described.

What he's doing is not legal, and legally tax avoidance, in a lot of European countries.

What he's describing is known as a disguised employee/employment, and they or all their workers (probably their workers if they're operating as 'companies') might suddenly find themselves open for massive tax bills for unpaid employment taxes in their country.

On top of that, this setup is open for the disguised employees being able to sue the company for unpaid holiday + benefits.

Probably never get noticed at that scale though. And can't say for certain as he hasn't listed the country, but if this was happening in the UK, I'm 90% certain it'd be classified as tax avoidance in the UK, and all the 'employees' would be on the hook for something like 14% employer national insurance contributions. The big problem HMRC would have is that no-one's paying the employer NIC, and as his employees are officially the companies, they'd be on the hook for it.

Every country within Europe is different in some capacity so it's difficult to say with absolute certainty that he is breaking the law -- the language in my comment was vague because I'm mostly addressing the spirit of his behaviour, rather than the law. That said, certainly in my European country he would be open to issues with the tax authority if he were to attract their attention.

The United States is very permissive when it comes to employment, the majority of states could be described as "anything goes" (relative to Europe) and so dodging employment taxes is pretty much fair game... whereas in Europe a lot of regulation exist very specifically to address companies organising their business in this way. I'd be very surprised if he didn't face significant fines (I don't know of any examples of this behaviour leading to prison terms, but significant fines are very common and serve as a deterrent).

I strongly disagree with your point, but it is well-articulated and I also felt the need to upvote given the LISP syntax.