Engaging Independent Contractors in Serbia: What Employers Need to Know

The need for external collaborators is an integral part of modern business. A company may need an expert for a specific project, additional manpower for a limited period, or a person who will occasionally perform certain tasks. In such situations, establishing an employment relationship is not always the only possible solution.

The Labour Law of the Republic of Serbia, as a central regulation in the field of labour law, foresees several forms of work outside the employment relationship. However, the fact that a certain business need can be temporary or project-based does not mean that the employer can arbitrarily choose any contract.

For each model there are certain conditions and restrictions. That’s why the selection of the contract should start with an analysis of the real business need: what work will be performed, for how long, how independent the hired person will be and what the cooperation will look like in practice.

A properly structured engagement can be a flexible and legal solution. A wrongly chosen contract, on the other hand, can open labour law, tax and inspection issues that could often have been avoided before the start of the cooperation.

What does engagement outside an employment relationship mean?

The Labour Law distinguishes employment from special forms of work outside employment.

An employee who enters into an employment relationship concludes an employment contract and exercises the rights that belong to him on that basis, including rights related to salary, working hours, holidays, absences and termination of employment, for which the law prescribes special conditions and procedures.

When working outside the employment relationship, the legal position of the hired person is different. The scope of rights and obligations depends on the type of contract, special regulations and specifically contracted relationship.

The Labor Act regulates temporary and occasional jobs, employment contracts, professional training and development, and supplementary work.

That is why it is not enough to just sign a document called a “work contract” or “temporary and casual work contract”. The subject of the contract and the way the work is actually performed should correspond to the legal purpose of the chosen model.

Which Forms of Engagement Outside Employment Are Available?

The appropriate model depends on the type and duration of the work, the status of the person being engaged and the way in which the cooperation will be organized.

• Contract on temporary and occasional jobs

The contract on temporary and occasional jobs is intended for jobs that by their nature are time-limited and do not last longer than 120 working days in a calendar year.

Such a contract can be concluded with an unemployed person, an employee who works part-time to full-time and a beneficiary of an old-age pension. The law also enables the engagement of a member of a youth or student cooperative in accordance with the regulations governing cooperatives.

An important nuance is that the limit of 120 working days should not be simply interpreted as an annual limit linked exclusively to a specific person. According to the published opinion of the competent ministry, the limitation refers to the duration of each specific job. This means that the nature of the job must be such that its need does not last longer than the legal period.

This is precisely why it is not enough to terminate one contract after 120 days and continue the same work under a new contract. If the business need has a permanent character, another legal basis for engagement should be considered.

The employer should therefore ask a simple question before concluding this contract: is the job itself really temporary or occasional or does the company actually have a permanent need for someone to perform it?

• Part contract

The work contract is one of the most commonly used forms of employment outside the employment relationship, but also one of the models that are most easily misused.

According to the Labour Law, the employer can conclude a work contract for the purpose of performing work that is outside of his activity, and the subject of which is the independent production or repair of a certain thing or the independent performance of a certain physical or intellectual work.

It is important that the term “jobs outside the employer’s activity” is not identified only with the predominant activity registered in the APR. In the published opinions of the Ministry of Labor, a broader approach is taken, according to which the subject of the work contract should not be jobs that the employer regularly performs or can perform as part of its activity.

A work contract is therefore primarily focused on a specific job or result, and not on the continuous provision of work to the employer.

For example, a manufacturing company may need to hire a professional photographer to create corporate photos for a new website. If photographic services are not part of its activity, and the subject of the contract is a clearly defined result, such engagement may, by its nature, correspond to a work contract.

The situation would be different if the same company hired a person under a work contract to perform daily, long-term tasks that are an integral part of its business activity and function as part of the regular work organization.

Then the problem is not only in the name of the contract. The problem is that the chosen legal model may not correspond to the work that is actually done.

• Contract on supplementary work

Additional work is intended for a person who already works full-time for one employer.

Such an employee can conclude a contract with another employer on additional work for a maximum of one third of full time. The contract is concluded in writing and it regulates monetary compensation and other rights and obligations based on work.

This model can be practical when, for example, a company needs an expert for a few hours a week, and he is already employed full-time by another employer.

Additional work, however, is not a universal alternative to an employment contract. The basic prerequisite is that the person already has a full-time job with another employer.

• Professional training and improvement

A contract on professional training can be concluded for the purpose of completing an internship or taking a professional exam when this is provided by law or regulations as a special condition for independent work in the profession.

A contract on professional development is related to professional improvement, acquisition of special knowledge and abilities or specialization in accordance with the appropriate program or special regulations.

Their purpose is therefore not to serve as a simpler way of engaging a person who will be entrusted with the regular performance of work at the employer.

Employment or Independent Engagement: Where Is the Line?

For the employer, the question of what the cooperation actually looks like is often more important than what the contract is called. This issue is part of a wider system of labour law for employers in Serbia, which includes employment contracts, internal acts, work organization and other rights and obligations of the employer.

There is no single isolated criterion on the basis of which any engagement could be automatically declared an employment relationship or work outside of an employment relationship. It is necessary to analyze the specific legal basis, the legal conditions for its application and the way in which the work is actually carried out.

Special attention is required for collaborations in which a person performs the same tasks every day for a long period of time, works according to a schedule determined by the employer, receives detailed instructions on how to perform the work and is functionally included in its organization.

The degree of independence of the collaborator, the way of controlling the work, the fact whether a specific result is expected from him may also be important. or continuous work, the use of the employer’s equipment, the place of work and the permanence of the business need.

None of these elements should be viewed in complete isolation. The essence is that the chosen contract must correspond to the legal and factual structure of the specific engagement.

That is why the approach according to which it is sufficient to conclude a contract outside the employment relationship and thereby exclude all issues from the field of labour law in advance is an unnecessary risk for the employer.

What obligations does the employer have?

Working outside the employment relationship does not mean working outside the tax, social and other systems regulations.

For the contracts that the Labor Act regulates as forms of work outside the employment relationship, certain formal conditions are provided, including the written form for the mentioned models engagements.

In addition to the contract itself, it is necessary to correctly determine the tax treatment of compensation and obligations related to contributions. They are not the same for all contracts and may depend on the legal basis of the engagement, the type of compensation and whether the person is already insured on another basis.

This is especially important for work contracts and other contracts based on for which the agreed fee is realized. The regulations on pension and disability insurance expressly recognize certain persons hired on those grounds as insurers of independent activities when they are not insured on another basis.

That is why the tax and status aspects of the engagement should be checked before the first payment, and not only when the question of calculation arises.

The employer should lead it also takes into account the regulations on safety and health at work. The fact that a certain person is not employed under an employment contract does not automatically mean that there are no obligations towards him in this area.

Depending on the type of work, additional issues may be relevant, such as protection of confidential information, access to data, intellectual property rights or responsibility for work results.

The most common mistakes of employers

One of the most common mistakes is choosing a contract according to which model works. administratively simpler, instead of according to the actual nature of the work.

A typical example is a work contract that is used for the continuous performance of work from the employer’s activity. Even a precisely drawn up contract cannot eliminate non-compliance if its subject does not correspond to the legal conditions for that type of engagement.

A similar situation exists when temporary and casual jobs are used for a need that is not actually temporary. The statutory 120 working days should not be seen as a mechanism by which a permanent business need can be formally “reset” every year.

The problem can also arise when the subject of the contract is imprecise. If the work to be performed, compensation, deadlines, responsibility, the way to terminate cooperation and other important issues are not clearly regulated, the possibility of different interpretations increases later.

In the case of collaborators who have access to business information, databases, creative materials or software, it is necessary to consider confidentiality, data protection and rights to work results.

Tax obligations should also not be treated as a subsequent administrative issue. The method of hiring directly affects the calculation and obligations that may arise for the payer and the hired person.

What are the risks of misclassification?

When the legal basis does not correspond to the actual way of working, the dispute can be opened at several levels.

The labor inspectorate can examine whether the regulations under its jurisdiction are respected and whether the hiring is organized in accordance with the law. The tax authority can check the correct calculation of taxes and contributions, while in the event of a dispute before the court, the content of the contract, the method of its execution and the rights claimed by the engaged person can be considered.

Depending on the circumstances of the specific case, the consequences may include additional tax and contribution obligations, misdemeanor liability when the legal requirements for it are met and the costs of possible court proceedings.

The goal of the correct choice of contract is therefore not only formal compliance. A well-structured relationship reduces the possibility that the employer and the associate later interpret the nature of their rights and obligations completely differently.

How should the employer choose the appropriate model?

The safest approach is for the business need to determine the contractual model, and not the other way around.

Before concluding the contract, it should be determined whether the need is temporary or permanent, whether a specific result is expected from the associate or continuous performance of work and whether the work is part of the employer’s activity.

It is equally important to consider how the work will be organized. Does the associate independently determine the way to perform the task or will he work daily according to the company’s organization and schedule? How long will the cooperation last? Where is the work done? Who provides the funds for the work? Is there a clearly defined result?

Answers to these questions often point much more precisely to the appropriate model than the name of the contract form that the company already uses.

When is it necessary to consult a lawyer?

Legal analysis is especially useful when the cooperation needs to last longer, when the same person is continuously engaged, when there is a dilemma whether a certain work can be the subject of a work contract or when the business need does not clearly correspond none of the typical models.

Extra caution is justified when the company plans to hire a larger number of people according to the same model. Then a wrong assessment is not only a problem of an individual contract but can become a systemic risk.

Legal support is therefore most useful before the start of engagement. The goal is not only to draw up a contract, but to determine whether the planned method of cooperation corresponds to the legal basis that will be specified in the contract.

How to Structure Engagement Outside an Employment Relationship Properly

Engagement outside the employment relationship can be a completely legal and effective way of organizing work. However, work contracts, temporary and casual jobs, additional work and other models are not interchangeable.

The real question is therefore not which contract is the simplest, but which contract corresponds to the specific job and the way in which it will actually be performed.

JPLAW assists employers in selecting an appropriate engagement model, assessing whether the planned organisation of work matches its legal basis and drafting contracts tailored to the specific cooperation.