- Overview: Serbia
- Global HR Compliance
- Global PEO and Payroll
- Work permit for hiring expats via PEO
- Expand without a company set up
- Contractor vs. Employee: Which Is Better?
How to Convert Contractors to Employees in Serbia?
Deciding whether to engage employees or independent contractors can be challenging. To help you make an informed decision, we have created a free ‘Employee vs. Independent Contractor’ Checklist.
Designed to be used by companies engaging the remote workforce in Serbia, the checklist is the best way to define why and in what cases companies should onboard new hires or convert existing contractors/freelancers into employees without missing any crucial aspects.
What Our Clients Are Saying?
I’d like to share my experience dealing with Acumen International company.
Speed & responsiveness: Very prompt in response to my first inquiry about converting contractors into employees to follow-up questions.
Completeness of information: I like how detailed the estimates and the transparency make us feel more confident about where the money goes.
Overall experience: I am pleased and impressed with how fast they respond to my inquiries. We can trust the company to employ the contractors we want to keep.
Quah Shen Dee,
People Success Officer
I have always found Acumen International very supportive, professional, and helpful. They pay salary on time and are always ready to sort out any issues.
I must admit I truly enjoy my time as an Acumen International employee and feel like they care about me as an individual. I have a dedicated manager that provides me with detailed explanations when it’s needed. Payments are always prompt, and the entire team does its best to respond to any of my questions.
I highly recommend Acumen International to anyone that requires their services.
Hiring Independent Contractors: Save Money & Avoid Legal Pitfalls
In the era of remote and on-demand work, hiring independent contractors can be a great way to save money and increase workforce flexibility. Instead of hiring full-time employees, you can bring in contractors as needed to complete specific tasks or projects.
However, many IT and on-demand companies classify their service providers as independent contractors. By doing so, these businesses avoid many responsibilities that come with an employment relationship, such as ensuring workers are paid fairly under employment laws (minimum wage, PTO (paid time off, overtime pay), providing mandatory benefits, reimbursing business expenses, and withholding payroll taxes, unemployment insurance taxes, and workers’ compensation insurance.
Although there is no single test to determine whether a worker is an independent contractor, written agreements between the parties are not always straightforward. Different tests may apply, and compliance can be complicated because different purposes may exist.
Independent contractors are not entitled to the same protections as employees, and misclassifying them can entail serious consequences.
Contractors vs. Employees: Knowing the Difference
There are a few key factors that tax authorities use to determine whether an independent contractor is actually a full-time employee in disguise. If it is found that they are indeed an employee, both the contractor and their employer may be required to pay back income, VAT, other taxes, and social security contributions. They might also be liable for unpaid overtime, taxes, insurance premiums, damages, civil penalties, and interest. To avoid this outcome, employers and contractors need to understand the difference between employees and independent contractors.
In many cases, it will become necessary to examine all the facts to determine whether a person is an employee or an independent contractor. Numerous factors affect this decision; however, the following are some of the most important:
- How the parties treat each other.
- The amount of control exercised by the principal over the details of how the work is done.
- Whether payments are made by time or by results.
- Whether the work is part of the regular business of the principal.
- Whether the contract was entered into as a means of carrying on business or for any other commercial purpose.
- Whether the work requires special skills and initiative and whether a such skill is peculiar to any trade, business, or calling.
- The length of time for services to be provided, and more.
Employment Tests to Determine the Accurate Worker Status
The gig economy has created a whole new landscape regarding employment law. The old lines between independent contractors and employees are becoming increasingly blurred when classifying workers. To make an accurate determination, experts must consider various factors, including control, substitution, and mutuality of obligation. Other important considerations may also come into play. Ultimately, the key question is whether the worker is an integral part of the client’s business or if they are working on their own behalf.
1. Scope of Control
Independent contractors (freelancers) are professionals who provide services to companies under contract. They may work remotely or on-site and are typically distinguished from employees based on the degree of control exercised by the company. In general, the more control a company has over an individual, the more likely that person is an employee rather than an independent contractor.
If the client provides explicit instructions on completing a task, including what should be done, when it should be done, and where it should be done, this is referred to as “how, what, when, and where” testing. In these cases, the workers are usually controlled by the client and would therefore be considered employees.
One of the key distinctions between employees and contractors is that employees are typically required to complete the work that “comes down the pipe,” as stipulated in their job description.
A high degree of control over the contractor’s work or schedule might also help show that they are more like employees than independent businesspeople.
2. Substitution Options
The employment relationship is built on two key concepts:
- that the employee is an individual and not a legal entity;
- that the employee cannot be replaced.
The employment contract is personal to the individual, based on their skills, experience, and identity. The employer hired them because of these qualities, which are essential to the contract.
It is implied that a worker given the right to substitute for themselves and to have work assigned to someone else is not providing a personal service and is not an employee. This would suggest that the employer can quickly replace the contractor, indicating that they do not need such a contractor personally for their business.
Also, suppose the employer has the right to assign work to someone else. In that case, it means they control how many people work for them at one time and when which would mean the contractor is not considered to be working under an employment contract but under a contract of service.
3. Mutuality of Obligation
The concept of mutuality of obligation means that both an employer and employee have specific duties and responsibilities to each other. An employer is obligated to provide work for their employee while the employee is required to complete the assigned work.
Suppose a worker is not focused on a specific project and has to do any task allocated by the client. In that case, there is probably mutuality of obligation, and the worker is not seen as an independent contractor by tax authorities.
4. Entrepreneurial Risk Burden
When examining the rights and responsibilities of an independent contractor, there is often confusion over what classifies one as an employee. Financial risk is the most crucial distinction between an employee and an independent contractor. If a contractor can make a profit or a loss, i.e., financial risk, this would suggest that the contractor is independent. Otherwise, they may be considered an employee.
Indicators of Employment Status
Other indicators of employment status include:
- whether the worker is taking on financial risk,
- whether the worker is providing their own equipment,
- whether the worker is in receipt of employment benefits,
- whether the worker can profit from their work,
- whether the worker has the right to terminate the contract.
- whether the work performed requires special skills and initiative.
- the permanence or exclusivity of the relationship with the employer company.
OECD, Commentary on Article 5
Whether a person is independent of the enterprise represented depends on the extent of the obligations that this person has vis-à-vis the enterprise. Where the person’s commercial activities for the enterprise are subject to detailed instructions or to comprehensive control by it, such person cannot be regarded as independent of the enterprise. Another important criterion will be whether the entrepreneurial risk has to be borne by the person or by the enterprise the person represents. An independent agent will typically be responsible to his principal for the results of his work but not subject to significant control with respect to the manner in which that work is carried out. He will not be subject to detailed instructions from the principal as to the conduct of the work. The fact that the principal is relying on the special skill and knowledge of the agent is an indication of independence.
How to Prevent Employee Misclassification Risk in Serbia
As the world becomes increasingly interconnected, it is not just businesses growing more internationally. Now more than ever, individuals are taking advantage of improved communication technologies to work from home offices in their own country or homes in other countries. While this can benefit the workers, it also brings new challenges for employers and the organizations that hire them.
One of these challenges is the possibility of misclassification—the failure of a country to recognize a worker as an employee rather than an independent contractor. In many countries, independent contractors are not afforded the same workplace protection and tax benefits as employees, which can lead to significant financial exposure and risk for companies based in those countries that hire such workers.
Another challenge faced by companies with globally distributed teams is that they may have difficulty complying with local labor law requirements, such as proper payroll management and employee onboarding procedures). And because there is no single global labor law or standard tax code, each country has its own set of employer requirements that must be adhered to by multinationals looking to hire remotely in those countries, including Serbia This can add to significant overhead costs for global organizations—costs and risks that might be avoided altogether if outsourced at the outset.
The Case of an IT Freelancer You Most Certainly Want to Avoid in Serbia
Here is the litigation you would want to avoid… One American company worked with a Slovakian IT freelancer for approximately three years. The American HR director decided to contact Acumen International to employ this freelancer so that they would be in compliance with labor laws and avoid future misclassification issues.
The finance department of this US company did not approve of our offer to employ the Slovakian freelancer as it seemed higher than what they were currently paying the freelancer. An employee misclassification case did not seem imminent, so they decided not to act.
Half a year later, the company contacted us to employ a Slovakian freelancer. Our offer got approved, but the freelancer refused to sign our employment agreement. In this half-year, the relationship between the freelancer and the US company went sour. The freelancer decided to go to the labor authorities instead. We never heard the ultimate verdict, but from communication with the HR director, we understood that they risked owing social security taxes, vacation, severance payment, and additional fines totaling about seventy thousand euros.
Acumen International: a Global PEO for Local Employment Solutions in Serbia
If you’re looking for a comprehensive solution to managing your employee needs globally, then Acumen International, a global Professional Employer Organization (PEO), is likely the best option for you. Acumen Global PEOs offer a wide range of services like on-site customer support, deep expertise in local and international employment laws and regulations, and compliance assistance. An experienced global PEO can serve as an extension of your HR team, providing a knowledgeable and reliable resource for all things related to employment in 190 countries. This can free up valuable time and resources so that you can focus on running your business.
Acumen International helps solve the frustrations faced by leaders of technology companies looking to expand globally quickly but cannot or do not want to take on the liability, costs, burden of direct employer status, or other risks associated with operating in individual countries. International employers can also use our global resources to test a new market quickly before establishing a local legal entity.
- Immediate service coverage in 190 countries, including Serbia.
- Both a single point of contact and a dedicated account manager for your project for all target countries.
- A single contract for all in-country services (employment, immigration, legal, etc.)
- Intellectual Property protection in Serbia.
- A single PEO provider assumes full responsibility for your international employees in multiple countries.
- Payments are made within the UK or to the UK bank company account.
- Fully compliant and standardized procedures and reporting systems.
- Standard payroll breakdowns for all target countries.
- As soon as we receive your request for a project in any country, we will send you a payroll breakdown and offer within 2 working hours.
- Full 100% fee money-back guarantee for employee or contractor payment delays.
- Tailored and 100% compliant employment contract drafts.
- No need to set up a new entity in every country where you have operations. You are not required to hire local employees or worry about local compliance requirements.
- The ability to scale your business quickly by hiring employees in multiple countries without having to set up a new entity in each country.
- A single point of contact for all employment-related questions and concerns.
- A single point of contact for all tax compliance questions and concerns.
- No need to worry about managing multiple payroll systems, tax filing requirements, or employee benefits programs across multiple countries since everything is handled by Acumen Global Employer of Record (EOR).
- Less time spent on recruitment, evaluation, onboarding of globally distributed teams of professionals, or a learning curve.
- On-site customer support and in-depth knowledge of local business culture.
- Local managers speak your language in Serbia.
5 Benefits of Hiring and Payrolling Foreign Employees vs. Independent Contractors in Serbia
- Engaging and paying foreign talent via a global PEO solution is about 30% cheaper than engaging in-house.
- Saves around 50% of costs compared to working and paying through your entity.
- With the help of employment, employee loyalty grows by 47%, which is why you can retain the top minds long-term.
- Legal foreign employment eliminates 95% of legal, financial, and business risks. Also, using this service, you can get flexibility and take up more projects of different duration. You can start a bare-bones operation in Serbia with just one or a couple of employees and easily add any headcount as you move along.
- Less time spent on recruitment, evaluation, onboarding of globally distributed teams of professionals, or a learning curve.