How to Convert Independent Contractors to Employees in Serbia

Serbia’s technology, engineering and business services sectors attract international companies seeking skilled professionals without establishing a local subsidiary. Many initially engage Serbian specialists as independent contractors, particularly software developers, IT consultants and other professionals working remotely for overseas businesses.

However, an arrangement that begins as independent consulting can evolve into a permanent position within the client’s organisation. When a contractor works primarily for one company, follows its working schedule, uses company equipment and performs duties under direct supervision, the relationship may create tax and employment law exposure.

Serbia has a specific nine-criteria independence test (test samostalnosti) for registered entrepreneurs. The test determines whether payments from a particular client qualify as income from independent business activity or must be taxed differently.

Separately, Serbia’s Labour Law regulates employment relationships and the circumstances in which companies may engage individuals outside formal employment.

Acumen International helps international companies convert independent contractors into employees in Serbia through appropriate Global Employer of Record (EOR) arrangements. We manage employment contracts, payroll, statutory contributions, employee benefits and ongoing HR administration, subject to the applicable Serbian legal requirements.

Last reviewed: November 2026

Independent Contractors and Employees Under Serbian Law

Serbian law recognises several forms of work engagement, each with different contractual, tax and social insurance consequences.

Registered entrepreneurs

An individual may operate as a registered entrepreneur (preduzetnik), providing services to clients through an independently registered business.

Some entrepreneurs qualify for lump-sum taxation (paušalno oporezivanje), while others maintain accounting records and calculate tax under the applicable rules.

A registered entrepreneur may provide genuine independent services to Serbian or foreign clients.

However, registration as an entrepreneur does not automatically establish that every client relationship qualifies as independent business activity for tax purposes.

Employees

An employee enters into a formal employment relationship under Serbia’s Labour Law.

The employer must conclude a written employment contract, register the employee for compulsory social insurance and meet the applicable payroll and employment obligations.

Employees receive statutory protections concerning remuneration, working hours, annual leave, employment termination and other employment rights.

Other forms of work engagement

Serbian legislation also permits certain engagements outside standard employment, including service contracts, temporary and occasional work, supplementary work and professional training arrangements.

These categories have specific legal conditions and cannot be used interchangeably.

For example, a service contract under the Labour Law is intended for qualifying work outside the employer’s business activities, while temporary and occasional work is subject to statutory restrictions.

The correct arrangement depends on the nature of the work and the applicable legal requirements.

Official reference: Government of Serbia – Labour Law and other laws regulating employment.

Serbia’s Nine-Criteria Contractor Independence Test

Serbia introduced the contractor independence test in March 2020 to address arrangements in which registered entrepreneurs effectively operate as substitutes for employees.

The test is established under the Personal Income Tax Law and applies to qualifying relationships between an entrepreneur and a client, referred to as the principal.

It assesses the practical and commercial characteristics of the engagement.

If at least five of the nine statutory criteria are satisfied, the payments from that principal are treated as other income rather than income from independent business activity.

The test is applied to the relationship with the particular principal, including relevant related parties.

The nine independence criteria

Each criterion has a specific statutory definition. The table summarises the principal considerations rather than replacing the legal wording.

The five-out-of-nine rule

An entrepreneur who satisfies five or more criteria in relation to a particular principal fails the independence test for the relevant tax treatment.

For example, consider a Serbian software developer who:

• Works according to the client’s prescribed daily schedule.
• Uses equipment supplied by the client.
• Receives more than 70% of annual income from that client.
• Is contractually restricted from serving other clients.
• Works for the client for more than 130 days during a 12-month period.

These circumstances could satisfy five separate criteria.

The actual assessment must still consider the precise statutory definitions and evidence.

Does failing the independence test automatically create employment?

No.

The independence test is a tax-law mechanism.

Failing it changes the tax classification of qualifying payments. It does not, by itself, establish a formal employment relationship under Serbia’s Labour Law.

Employment classification and contractual obligations must be assessed separately.

This distinction is particularly important for international companies deciding whether to continue a contractor arrangement, modify its commercial terms or establish formal employment.

Official reference: Serbian Tax Administration – Tax guidance for self-employed individuals, April 2026.

What Happens When a Contractor Fails the Independence Test?

Where the independence test is failed, qualifying remuneration from the relevant principal is treated as other income under the applicable tax rules.

This can result in additional personal income tax and pension insurance contribution liabilities.

Tax consequences

The relevant income can become subject to:

• Personal income tax at the applicable rate for other income.
• Pension and disability insurance contributions.
• Interest and other consequences where liabilities were not correctly reported or paid.

The calculation and reporting obligations depend on the circumstances, including whether the principal is established in Serbia or abroad.

Serbian and foreign principals

Where the principal is a Serbian entity, the applicable withholding and reporting responsibilities may fall on the payer.

Where the principal is foreign, the entrepreneur may have direct reporting and payment obligations under the relevant rules.

The distinction must be examined for the actual arrangement.

Historical exposure

A company that has engaged a contractor for several years should assess whether the statutory criteria were met during earlier periods.

A subsequent conversion to employment does not automatically resolve outstanding tax liabilities associated with the previous engagement.

Commercial implications

A failed independence test can also affect the economic assumptions behind the contractor arrangement.

The cost of engaging the professional may be materially different from the original invoice amount once the applicable tax treatment is considered.

Companies should therefore compare the cost of continued contracting with the full cost of formal employment.

Employment Classification Risks Beyond the Independence Test

The independence test is not the only legal consideration.

Serbia’s Labour Law regulates employment contracts and the circumstances in which individuals may perform work outside employment.

A company must assess whether the proposed contractual arrangement is legally appropriate for the duties being performed.

Continuous operational work

A contractor may initially be engaged for a defined assignment but later assume permanent responsibilities within the organisation.

Where the individual performs continuing work under the company’s management, the company should review whether the arrangement remains appropriate.

Direct supervision

A contractor who receives detailed instructions about daily activities, working hours and internal responsibilities may be operating under employment-like conditions.

Commercial clients can legitimately specify deliverables and quality standards. The distinction concerns the extent of managerial control and the nature of the working relationship.

Work within the company’s ordinary activities

The nature of the services matters, particularly where the company uses contractual forms that Serbian law restricts to specific categories of work.

Contractual labels

Describing an agreement as consulting or independent services does not resolve the legal position if the actual arrangement differs from the written terms.

The company should assess both the tax independence test and the applicable labour law requirements.

Common Contractor Arrangements That Require Review

Software developer integrated into an engineering team

A Serbian developer invoices an overseas technology company but participates in its regular development cycles, works under an engineering manager and follows the same working arrangements as internal employees.

The company should assess the independence criteria and whether the ongoing engagement is appropriate under Serbian law.

IT consultant working for one principal

An IT specialist receives nearly all annual income from one international client.

Income concentration is one independence-test criterion, but it does not automatically mean that the entrepreneur fails the test.

The other criteria must also be examined.

Marketing specialist with several clients

A marketing consultant independently provides services to several businesses, determines working hours, uses their own equipment and bears commercial responsibility for agreed deliverables.

These circumstances may support independent business activity, provided the full statutory assessment is satisfied.

Former employee engaged as a contractor

A company ends an employment relationship and subsequently engages the same individual as an entrepreneur to perform substantially similar duties.

This arrangement warrants careful review of the actual working conditions, tax treatment and relevant employment obligations.

Contractor becoming a permanent team member

A professional engaged for a short project may later assume a continuing role involving internal reporting, management responsibilities and ongoing business functions.

Formal employment may become a more appropriate model as the role develops.

When Should a Company Convert a Contractor into an Employee?

Conversion can be appropriate when the company requires a continuing employment relationship or when the contractor arrangement no longer reflects the way the professional works.

Common reasons include:

• The professional has assumed a permanent role.
• The company requires direct supervision and defined working hours.
• The individual works primarily within the company’s internal operations.
• The engagement presents material independence-test exposure.
• The company wants to provide statutory and supplementary employment benefits.
• The professional requires a formal employment relationship for immigration purposes.
• A business acquisition or restructuring requires clearer workforce arrangements.
• The company needs continuity for a critical technical or operational position.

The decision should consider the legal requirements, total employment cost and the company’s longer-term plans.

For international companies without a Serbian employing entity, an appropriate Global Employer of Record arrangement may provide a route to formal employment.

How to Convert an Independent Contractor into an Employee in Serbia

A contractor-to-employee conversion involves several distinct legal and administrative steps.

1. Review the current engagement

Assess the contractor’s registration status, commercial agreement, actual working arrangements and relevant independence-test criteria.

Where historical exposure may exist, determine whether additional tax or employment advice is required.

2. Select the employing model

A company with its own Serbian entity may employ the professional directly.

An international company without a local employing entity may consider an EOR arrangement.

The proposed model must comply with Serbian employment legislation, including applicable rules concerning agency employment and the supply of workers.

3. Determine the salary package

The contractor’s invoice amount should not automatically become the employee’s gross salary.

The company must assess:

• Expected net remuneration.
• Gross salary.
• Employer social insurance contributions.
• Statutory benefits.
• Expense reimbursements.
• Bonuses and other agreed benefits.
• Employment administration costs.

4. Prepare the employment contract

Serbia’s Labour Law requires a written employment contract before the employee begins work.

The contract must include the relevant statutory terms, including:

• Employer and employee details.
• Position and duties.
• Place of work.
• Employment commencement date.
• Contract duration, where fixed-term employment is justified.
• Working hours.
• Basic salary and applicable remuneration provisions.
• Relevant payment arrangements.

Indefinite employment is the standard form of employment.

Fixed-term contracts are permitted under statutory conditions, generally subject to a 24-month limit and recognised exceptions.

5. Close the contractor agreement

The parties should address the termination or expiry of the previous commercial agreement.

This can include:

• Outstanding invoices.
• Contractual notice requirements.
• Ownership of existing intellectual property.
• Confidentiality obligations.
• Access to systems and information.
• Any outstanding commercial disputes.

Where historical classification or tax exposure exists, the company should not assume that ending the agreement resolves it.

6. Register the employee

The employer must register the employee for compulsory social insurance through CROSO before the commencement of work.

The employer must also establish the required payroll and employment records.

7. Establish payroll and benefits

The employee becomes subject to Serbian salary taxation, social insurance contributions and statutory employment rights.

Payroll must reflect the agreed salary and the applicable tax and contribution rules.

8. Manage ongoing employment

The employer must administer salary payments, leave, benefits, employment documentation and changes to the employment relationship.

Under an appropriate EOR arrangement, Acumen International manages the formal employment administration while the client company directs the employee’s professional activities.

Official reference: Serbian Labour Law – Employment contracts and registration.

Payroll Costs When Converting Contractors to Employees in Serbia

Formal employment creates payroll and statutory contribution obligations that differ from independent contractor payments.

Employee and employer contributions

For 2026, the standard Serbian social insurance contribution rates are:

The actual contribution calculation depends on the applicable statutory minimum and maximum contribution bases.

Personal income tax

Employment income is generally subject to a 10% salary tax on the applicable taxable base.

The monthly non-taxable salary amount for 2026 is RSD 34,221.

Employment cost example

Assume the proposed gross monthly salary is RSD 250,000.

Standard employer social insurance contributions would be:

RSD 250,000 × 15.15% = RSD 37,875

The gross salary plus standard employer contributions would therefore total:

RSD 287,875 per month.

This excludes supplementary benefits, applicable reimbursements, equipment and EOR service fees.

It assumes the ordinary contribution rules and an applicable contribution base equal to the gross salary.

Contractor fees versus employee remuneration

A contractor’s invoice may cover business expenses, equipment, insurance and other commercial costs.

An employee’s gross salary is subject to payroll deductions, while the employer also bears statutory contributions and other employment obligations.

The company should therefore calculate the employee’s expected net income and total employer cost before agreeing on the conversion.

Acumen International prepares country-specific employment cost assessments and manages payroll through its Global Employer of Record services.

For preliminary comparisons, our Global Payroll Calculator can support employment cost planning.

Employee Benefits After Contractor Conversion

Formal employment introduces statutory rights that do not necessarily apply to an independent commercial services agreement.

Paid annual leave

Employees in Serbia are generally entitled to at least 20 working days of paid annual leave per calendar year.

Additional leave may be available under the employment contract or applicable employer rules.

Sick leave

Employees may qualify for salary compensation during temporary incapacity for work.

The applicable compensation rate and financial responsibility depend on the reason and duration of absence.

Maternity and childcare leave

Serbia provides statutory maternity and childcare-related leave, with associated rights and benefits.

Working time protections

Full-time employment generally consists of 40 hours per week.

Overtime and rest periods are subject to statutory restrictions.

Termination protections

Employment termination must follow legally recognised grounds and applicable procedures.

Qualifying redundancy dismissals can create severance obligations.

Supplementary benefits

Employers may provide additional benefits, including private health insurance, performance bonuses, professional development and additional leave.

Acumen International manages statutory and agreed supplementary benefits through its employee benefits services.

Converting IT Contractors into Employees in Serbia

Serbia’s technology sector includes software developers, data specialists, cybersecurity professionals, engineers and other technical roles.

International companies frequently engage these professionals through registered entrepreneur arrangements.

The independence test is particularly relevant where a professional works primarily for one client and becomes integrated into its internal operations.

Long-term development teams

A company may engage a developer for a defined software project.

As the relationship develops, the professional may take responsibility for ongoing product maintenance, internal systems or regular engineering work.

If the company begins controlling working hours, equipment and day-to-day activities, the engagement should be reassessed.

Intellectual property and confidentiality

Contractor-to-employee conversion should include a review of intellectual property rights covering work created before and after employment begins.

The company should also ensure that confidentiality, data protection and information security obligations are appropriately documented.

Retaining specialist capabilities

Formal employment can provide a clearer basis for long-term responsibilities, employee benefits, career development and continuity of work.

The commercial advantages depend on the professional’s circumstances and the company’s workforce requirements.

Acumen International supports eligible specialist employment arrangements in Serbia and other international markets.

Read our article on the benefits of a Global Employer of Record for further information about the employment model.

Converting Foreign Contractors into Employees in Serbia

Where the professional is not a Serbian national, the company must also assess immigration and work authorisation requirements.

Foreign nationals may need an appropriate long-stay visa, residence status or single residence and work permit before beginning employment.

Serbia’s single permit system combines residence and work authorisation for eligible foreign nationals.

A single permit can be issued for up to three years, depending on the approved circumstances.

A foreign national’s existing authorisation for independent business activity should not be assumed to cover a new employment relationship.

The appropriate status must be confirmed before the employment arrangement begins.

Acumen International combines EOR employment administration with global mobility and immigration services for eligible international hires.

Official reference: Welcome to Serbia – Employer obligations for foreign nationals.

Contractor Conversion During Acquisitions and Restructuring

Contractor arrangements can become an important consideration during business acquisitions, mergers and workforce restructuring.

Workforce due diligence

A buyer may identify individuals classified as contractors who perform essential functions within the target business.

The review should consider tax independence, employment status, intellectual property and the continuity of critical services.

Consolidating international employment

A company may seek to establish more consistent employment arrangements across several countries.

However, each jurisdiction applies its own employment and tax requirements.

A contractor arrangement acceptable in one country may not produce the same legal or tax outcome in Serbia.

Changes to operating models

Companies closing a local entity or changing their business presence may need to reassess how existing professionals will continue working.

The appropriate employment model depends on the company’s activities and the applicable legal requirements.

Acumen International manages eligible employment transitions through its international EOR services.

How Acumen International Supports Contractor-to-Employee Conversion in Serbia

Acumen International provides international employment services for companies converting selected contractors into employees.

Employment assessment

We review the proposed employment arrangement and identify the local contractual and administrative requirements.

Historical tax and employment exposure may require a separate legal assessment.

Local employment contracts

We manage the preparation and administration of employment documentation under the applicable Serbian legal framework.

Statutory onboarding

We manage employee registration and local employment administration.

Payroll and contributions

We calculate monthly salaries, income tax withholding and statutory social insurance contributions.

Employee benefits

We manage statutory and agreed supplementary employment benefits.

Immigration support

For eligible foreign nationals, we manage employment-related immigration requirements.

Ongoing HR administration

We manage employment changes, payroll adjustments, statutory documentation and formal termination administration.

International account management

Clients work with a single provider for international employment requirements across more than 190 countries.

The client company continues to direct employees’ professional work under the agreed service arrangement.

Frequently Asked Questions About Contractor Conversion in Serbia

What is Serbia’s contractor independence test?

It is a tax-law test consisting of nine statutory criteria used to assess whether a registered entrepreneur operates independently of a particular principal.

How many criteria cause a contractor to fail the test?

Where at least five of the nine criteria are satisfied, qualifying payments from the relevant principal are treated as other income under the applicable tax rules.

Does failing the independence test automatically make a contractor an employee?

No. The test determines tax treatment. Employment status and contractual obligations must be assessed separately under Serbian labour legislation.

Does the independence test apply to foreign clients?

Yes. The test can be relevant to Serbian entrepreneurs providing services to foreign principals. The applicable reporting and payment obligations depend on the circumstances.

Does the test apply to registered companies?

The independence test specifically concerns qualifying entrepreneurs, including lump-sum-taxed entrepreneurs. Engagements with incorporated companies require separate assessment under the relevant legal and tax rules.

Is receiving 70% of income from one client enough to fail the test?

No. Income concentration is one of the nine criteria. The statutory five-criteria threshold must be considered.

Does working for a client for 130 days automatically mean employment?

No. The 130-working-day threshold is one criterion under the tax independence test, not an automatic employment classification rule.

Can a foreign company convert a Serbian contractor into an employee without establishing a subsidiary?

An appropriate Employer of Record arrangement may provide a solution, subject to Serbian employment and agency-work requirements.

What is the standard employer social contribution rate?

The standard employer social insurance contribution rate is 15.15% of the applicable contribution base.

Does converting a contractor resolve previous tax liabilities?

No. A new employment arrangement does not automatically remove liabilities associated with the previous contractor engagement.

Can Acumen International convert IT contractors into employees in Serbia?

Yes. Acumen supports eligible contractor-to-employee transitions, including employment contracts, payroll, statutory registration, benefits and ongoing administration.

Convert Independent Contractors to Employees in Serbia with Acumen International

Serbia’s contractor independence test makes the distinction between genuine independent business activity and employee-like engagements particularly important for international companies.

The nine statutory criteria address working arrangements, equipment, training, income concentration, commercial risk, exclusivity and the duration of the engagement.

Where a contractor’s role has developed into a continuing position within the company, formal employment may provide a more appropriate basis for the relationship.

Acumen International supports contractor-to-employee conversion in Serbia through eligible Global Employer of Record arrangements.

We manage employment contracts, statutory registration, payroll, social insurance contributions, employee benefits and ongoing HR administration.

Your company retains responsibility for the employee’s professional activities and business objectives.

Official Sources and Further Reading

• Serbian Tax Administration – Independence test and self-employment taxation, April 2026
• Government of Serbia – Labour Law and other employment legislation
• Serbian Labour Law – Employment contracts and statutory registration
• Welcome to Serbia – Obligations of employers
• Serbian Central Registry of Compulsory Social Insurance