Employment contract or civil contract: which is more profitable and when?

Concept and types of civil law type of document

A civil law contract (CLA) is an agreement that can be concluded between a FL and a LE, a FL and a FL, a LE and a LE. This document records the emergence of labor relations, their changes and termination. The concept of GPA is disclosed in Article 420 of the Civil Code of the Russian Federation. The clauses of the agreement can be changed at the request of the parties, if this does not contradict the law (according to Article 421 of the Civil Code of the Russian Federation). The agreement differs in its content:

• Transfer of property (for example, purchase and sale).
• Execution of certain works.
• Provision of services.

The conclusion of the agreement is regulated by Article 432 of the Civil Code of the Russian Federation. GPD includes a contract (Article 702 of the Civil Code of the Russian Federation) and a contract for the provision of services for which remuneration is expected (Article 779 of the Civil Code of the Russian Federation).

Insurance premiums under the GPC agreement

Working under a civil contract, an organization has the opportunity to save on the amount of insurance premiums paid.

1. Payments under the GPC agreement do not need to be charged insurance premiums in case of temporary disability and in connection with maternity in accordance with subparagraph 2 of paragraph 3 of Article 422 of the Tax Code of the Russian Federation. The savings are not very big, but still. At regular rates, the savings will be 2.9%.
2. Payments under the GPC agreement do not need to be charged insurance premiums against industrial accidents and occupational diseases.

The amount of savings depends on the tariff established for the company, and the maximum, in rare cases, can be 8.5%.

Contributions to the Pension Fund and medical contributions under civil contracts are calculated in the same way as under employment contracts in accordance with paragraph 2 of Article 425 of the Tax Code of the Russian Federation.

If the GPC agreement provides for the payment of an advance, insurance premiums must be calculated and paid during the period of accrual of remuneration, and not after signing the act. This procedure is established by the provisions of: paragraph 1 of Article 421, paragraph 1 of Article 424, paragraphs 1 and 3 of Article 431 of the Tax Code of the Russian Federation. Explanations on this topic were given in the letter of the Ministry of Finance dated July 21, 2017 No. 03-04-06/46733.

How does a GPA differ from a standard agreement?

The following are the differences between a civil law contract and an employment contract:

• When drawing up an employment contract (ET), you must issue an order to hire an employee, as well as fill out a personal T-2 card. A civil agreement does not imply the execution of other documents.
• In case of TD, the employee must hand over the work book to the employer. It is filled in accordingly. The GPA does not require entering information into the work book.
• With TD, from a legal point of view, there are two sides to the relationship: the employee and the employer. With GPA, this is the performer and the customer.
• TD has an individual character. It is concluded with one employee. Work under the contract must be performed by one specialist. Services under a civil agreement can be delegated to third parties.
• The subject of TD is work in a certain specialization, performed on the basis of the company’s staffing table. The subject of the GPD is services that must be performed within a given time frame.
• An employment contract involves consideration of the employee’s work over a long period of time. The emphasis is on continuous activity. The civil agreement specifies the specific work to be performed by the specialist. The emphasis is on the results of activities. If the result is unsatisfactory, the customer may terminate the contract.
• The employment contract implies a standard salary payment: twice a month. A person receives funds in any case; payments are not determined by the result of work. The salary should not be less than the minimum wage. With GPA, the payment procedure is specified in the agreement. For example, an employee may request payment in advance. Alternative options are transfer of funds after the work is completed, payment in installments. Payment will depend on performance results. Based on the results of the service performed, a report is drawn up. The amount of the performer's remuneration is determined solely by the agreement. It may be less than the minimum wage.
• In case of TD, the employee is obliged to obey the local regulations of the company and carry out the orders of his manager. Under GPA, the performer does not have to obey the internal charter. He determines the order of his work independently.
• According to TD, the products of an employee’s intellectual work belong to the employer. With GPA, until payment is made, they are the property of the performer.
• An employment contract is usually concluded for an indefinite period. The civil contract must indicate specific deadlines.
• With TD, the employee has the right to paid leave. He can also go on sick leave, during which benefits are paid. With GPD, the performer can rest at any time if this does not affect the results of the work. Vacation is unpaid, as is sick leave.

We can say that GPD involves working on a freelance basis. Usually it is compiled with “freelance artists” working with several customers at once.

Labor and civil contract

There really aren't many options. Any business, when interacting with individuals, is guided by the Labor Code (LC) or Civil Code (CC). Accordingly, employees can be registered either under an employment contract (ET) or under a civil law agreement (CLA). Let's start with definitions.

An employment contract (EA) is an agreement between an employee and an employer establishing mutual rights and obligations. According to the TD, the employee undertakes to personally perform the work required by the position he occupies. The employer, in turn, undertakes to provide the employee with work, provide him with the necessary working conditions and pay wages.

A civil law agreement (civil agreement) is a type of agreement in which the parties, without entering into an employment relationship, determine the result of work, property relations and other issues of interaction (contracts, paid services, copyright agreements, etc.).

Employment contract or GPC agreement: what is the difference?

Online accounting for a new business: calculate salaries, taxes and insurance premiums in one window

Details

The main criteria for recognizing a relationship as an employment relationship:

• internal labor regulations have been established;
• constant salary;
• the labor function is indicated (work by position, profession, specialty);
• systematic performance of the same work;
• equipped workplace;
• unspecified deadlines for the execution of the contract;
• mention of subordination to employees on staff;
• bonuses;
• granting leave;
• assignment on a business trip and guarantees associated with it.

For more information on this topic, read the article “GPC Agreement without errors: rules for registration, taxes and fees.”

For whom are these criteria important?

I. For the Federal Tax Service and the Pension Fund of Russia

The tax authorities are interested in recharacterizing the GPC agreement into a TD, as this leads to additional taxes. The most frequently considered situations are when a company enters into a GPC agreement with an individual entrepreneur. Employers are often cunning, wanting to save on personal income tax payments: they offer their employees to register as individual entrepreneurs and draw up a civil process agreement with them.

However, as judicial practice shows, the controllers’ arguments are not considered by the court in cases where there are no obvious signs of an employment relationship, and the employee himself declares in court that he intended to enter into a GPC agreement with the employer as an individual entrepreneur. Citizens have the right to manage their labor opportunities at their own discretion.

II. For labor inspection and Social Insurance Fund

Under the GPC agreement, remuneration is not subject to disability insurance premiums and contributions for insurance against industrial accidents and occupational diseases (except for cases where the agreement stipulates that such contributions are paid). It is interesting for two funds to recognize such relations as labor relations: FSS - for calculating contributions, penalties, and fines; labor inspectorate - to collect fines for violation of employee rights.

III. For the workers themselves

If the civil law contract in fact regulates the labor relations between the customer and the contractor, then the employee can file a claim in court to recognize the civil law contract as an employment contract. His motivation in this case is clear - to receive the guarantees and benefits required under the Labor Code. There is a high probability that the court will take into account the plaintiff’s arguments and re-qualify the contract. The most dangerous situation is when the employee himself goes to court.

To avoid controversial situations, the employer needs to correctly formulate the terms of the contract and competently build relationships with the contractor.

GPC agreement: risks of retraining into an employment contract

Art. 15 of the Labor Code of the Russian Federation does not allow the conclusion of GPC agreements, which actually regulate labor relations between the employee and the employer. The same article gives a clear definition of the concept of “labor relations”.

Labor relations are relationships based on an agreement between the employee and the employer on the personal performance by the employee for payment of a labor function (work according to the position in accordance with the staffing table, profession, specialty indicating qualifications; a specific type of work entrusted to the employee) in the interests, under management and control the employer, the employee’s subordination to the internal labor regulations while the employer provides working conditions provided for by labor legislation and other regulatory legal acts containing labor law norms, a collective agreement, agreements, local regulations, and an employment contract.

An individual who was a performer under the specified agreement has the right to apply to the court for recognition of the relationship as an employment relationship in the manner and within the time limits provided for the consideration of individual labor disputes.

In Art. 19.1 indicates several ways to reclassify civil law relations into labor relations:

• on the basis of a written application from an individual who is the executor under the contract,
• on the basis of an order from the State Tax Inspectorate that has not been appealed to the court;
• if the individual who is the executor under the contract applied directly to the court;
• based on materials sent by the State Tax Inspectorate, other bodies and persons having the necessary powers for this purpose in accordance with federal laws.

Pavel Orlovsky , Elba service expert

Advantages and Disadvantages of the Standard Agreement

An employment contract is the most common form of agreement between parties to a working relationship.

For an employee

It is beneficial for an employee to enter into a TD for the following reasons:

• Guarantee of salary receipt in the amount established by the contract.
• Upon completion of the probationary period, the specialist is included in the company's staff.
• The employee receives the entire list of guarantees: dismissal benefits, salary twice a month, various guarantees for employees with children, annual paid leave.
• An employee has the right to demand that the employer provide comfortable conditions for himself.
• Rights to social and health insurance, payments for which are made by the employer.
• The employee is accrued length of service, on the basis of which the funded part of the pension is formed.

However, not all employees strive to conclude an employment contract, as it is not without its drawbacks. In particular, under this agreement, the employee is “tied” to the company. He must act within the framework of local regulations: come to work on time, carry out all the instructions of the employer, go on vacation according to the staffing schedule.

For the employer

The employer may require the employee with whom the TD is concluded to fulfill his duties:

• Compliance with internal regulations.
• Carrying out instructions from the employer.
• Notice of dismissal 2 weeks in advance.

Important! If an employee violates the regulations, the employer has the right to impose punishment: disciplinary action, deprivation of bonuses, dismissal.

The manager, based on the TD, can demand a lot from the employee, but he must give in return all the necessary guarantees:

• Timely payment of wages not lower than the minimum wage.
• Contributions to various funds.
• Providing paid leave.
• Benefits for employees with children.
• Providing maternity leave.

If the employer does not provide social guarantees, the employee has the right to file a complaint with the labor inspectorate.

Legislation

In accordance with Part 4 of Art. 11 of the Labor Code of the Russian Federation, the rules of the relevant legislation apply to relationships that arose on the basis of a civil contract (for example, a contract), were associated with the use of personal labor, and were subsequently recognized as labor.

Art. 56 of the Labor Code of the Russian Federation:

An employment contract is an agreement between an employer and an employee, according to which the employer undertakes to provide the employee with work, ensure working conditions provided for by labor legislation and other acts, the contract, and pay the employee wages. In turn, the employee must directly perform his duties in the interests and under the direction of the employer.

Art. Art. 703, 720 of the Civil Code of the Russian Federation:

A contract agreement is concluded for the manufacture or processing of a thing or for the performance of other work with the transfer of its result to the customer. The customer is obliged to accept the work.

Pros and cons of a civil contract

Civil contracts are becoming increasingly popular. And there are reasons for this.

For the employer

GPA is characterized by the following advantages:

• The employee has obligations. He must complete the work efficiently and on time.
• There is no need to set up a workplace, provide a social package, or make contributions to health and social insurance.
• Tax benefits. In particular, there is no need to pay unified social tax.
• The employer does not pay for the work process, but exclusively for the result.

However, GPA is not without its drawbacks:

• It is impossible to control the work of an employee.
• It is difficult to hold an employee accountable for violating the routine.

GPA does not imply great responsibility on the part of the employer, but it also lacks tools for control over employees.

Signs of labor relations:

• the relationship is based on an agreement between the employee and the employer regarding the personal performance of a labor function for a certain fee; such a function may be provided for in the staffing schedule;
• the employee acts in the interests of the employer, as part of the work team;
• the employer manages the work process and exercises control;
• internal rules have been established in the team, employees can be subject to certification;
• working conditions are created by the employer and instructions are provided at the workplace;
• work is regulated by labor legislation, collective and individual agreements;
• internship possible.

Why is GPA attractive?

At first glance, a civil contract for an employer has several clear advantages:

• the employer is not obliged to provide the employee with guarantees and compensation provided for by the Labor Code of the Russian Federation (payment of sick leave, provision of vacations, including educational ones, increased pay for overtime work, work on weekends and holidays, etc.);
• the employer has the right not to maintain personnel documentation for such an employee (work books, personal cards and personal files, orders, etc.);
• it is easier to terminate a civil labor contract than a labor one; the Civil Code of the Russian Federation does not contain any prohibitions;
• the employer does not pay social benefits, insurance contributions to the Social Insurance Fund, does not spend money on creating working conditions or compensation, and therefore saves;
• an employee on a GPD bears full financial responsibility for damage caused to the customer, in contrast to an employment contract, where the employee’s financial liability is limited - it is difficult to recover from him an amount exceeding his salary.

What's the catch

It would seem that the choice is obvious - GPA is both simpler and more profitable. However, there is no need to rush. At the end of 2013, Federal Law No. 421-FZ of December 28, 2013 introduced into the Labor Code a direct ban on the use of civil contracts to regulate labor relations (Part 2 of Article of the Labor Code of the Russian Federation). This does not exclude GPA with an individual, but seriously limits the rights of the employer. The employer must very clearly distinguish with which employee he has civil legal relations, and with which he can only have labor relations. Even within an organization, employees with whom an employment contract has already been concluded can perform work under a GPC contract, but they should not coincide with his main job function.

The features of an employment contract are indicated in three articles of the Labor Code of the Russian Federation (Article , , Labor Code of the Russian Federation), but they are very vague and can separately appear in the GPA. Therefore, the type of document should be qualified based on a set of characteristics.

Kontur.Personal will help you correctly draw up employment and civil contracts.

To learn more