Little Known Hiring Secrets Finally Revealed! Who To Hire In Serbia – Regular Employees or Registered Entrepreneurs?
Entrepreneur vs. Company Employees – Think Twice About Hiring an Entrepreneur!
Research has shown that every third person in the world is thinking about starting their own business. There are many reasons – dissatisfaction with the current job, dissatisfaction with the relationship between business and life activities, etc.
On the other hand, if you’re an employer, you’ve probably thought about the advantages of hiring an entrepreneur.
Therefore, in the rest of the article, we will draw your attention to the main distinctions between the position of an employee and the position of an entrepreneur in the hope that we will help you choose the most favorable solution for you.
First of all, both the employee and the entrepreneur can be part of the organization of one company. Employed persons conclude an employment contract with the company (employer), while entrepreneurs conclude a contract on business and technical cooperation with the company (principal).
Given that their relationship with the company is based on different contracts, their position within the organization is also different. This difference is most evident in the tax treatment of income and unilateral termination of contracts.
Different tax treatment of income
It is known that the employer bears the cost of the gross amount of wages based on the employment contract. Gross salary is the sum of the amount paid to the employee (net amount of salary), personal income tax, and contributions for pension, disability, and social insurance.
On the other hand, if the company concludes a contract on business and technical cooperation with the entrepreneur, it will pay them the agreed amount of compensation on that basis, while the entrepreneur will be obliged to pay tax on income from self-employment, as well as pension, disability, and social insurance.
If the entrepreneur calculates the amount of taxes and contributions as a flat rate, that amount is, as a rule, significantly lower than the amount of taxes and contributions calculated on earnings. In practice, this fact has often led to the conclusion of simulated labor contracts. Namely, companies from sectors that employ on average better paid occupations (e.g. IT companies) did not conclude employment contracts for persons who work for them (in their premises, on their computers, etc.), but rather asked them to establish flat-rate taxed entrepreneurship, and concluded contracts on business and technical cooperation with them.
In response to the practice described above, the Personal Income Tax Law introduced an independence test consisting of 9 criteria that will be applied when evaluating each contractual relationship between the principal and the entrepreneur:
- Does the principal determine the entrepreneur’s working hours or are the entrepreneur’s vacations and absences dependent on the principal’s decision and the entrepreneur’s compensation is not reduced in proportion to the time spent on vacation?
- Does the entrepreneur normally use the premises provided by the principal or do they carry out work in the place designated by the principal for the purposes of performing the work entrusted to him?
- Does the principal provide or organize professional training or training for entrepreneurs?
- Did the principal hire the entrepreneur after advertising in the media the need for the employment of physical persons or by hiring a third party who usually deals with finding persons suitable for employment, and whose service resulted in the employment of that entrepreneur?
- Does the principal provide the equipment needed for the regular work of the entrepreneur?
- Does the entrepreneur obtain at least 70% of the total revenue in a period of 12 months from one principal?
- Does the entrepreneur carry out tasks from the principal’s activity, and for the tasks performed in this way, their contract does not contain a clause according to which the entrepreneur bears the usual business risk for the work delivered to the client of the principal?
- Does the contract with the entrepreneur contains a ban on the entrepreneur providing services based on a contract with another principal (non-competition clause)?
- Does the entrepreneur perform paid activities for the same principal continuously or intermittently for 130 or more working days in a period of 12 months?
If it is determined that at least five of the nine mentioned criteria are fulfilled in a specific case, the income that the entrepreneur receives from that principal will be taxed as “other income” at a higher tax rate, and not as income from self-employment.
the reverse of the medal or as it’s oftentimes said aroundhere Every Medal Has Two Sides
An employer may terminate an employee’s employment contract only if there is one of the justified reasons prescribed by the Labor Law, and in compliance with the prescribed procedure. Otherwise, the employer leaves room for the initiation of court proceedings by the employee due to illegal dismissal.
On the other hand, the same rules do not apply to the contract on business-technical cooperation. The principle of freedom of contract applies here, so it also applies to the conditions for contract cancellation. If, however, the conditions for cancellation have not been agreed upon, the general rules for contracts stipulated by the Law on Obligations will be applied, with the fact that the court will interpret ambiguities in the contract in the way that suits the weaker contracting party, i.e. entrepreneur.
P.S. Bearing in mind that both the position of an employee in the company and the position of an entrepreneur have their advantages and disadvantages, we suggest that before concluding any contract, you consult with an expert in labor law who will help you assess all legal risks and not make any mistakes along the way.
For more information on this or any other legal, tax, or business topic, feel free to write to us at [email protected] at any time or call us at phone number +381113281914 every working day from 08:30 to 16:30.