The modernization of the economy through the development of information technology affected the human role in work environment. While artificial intelligence breakthrough stays in the focus of the world largest employers, human factor undoubtedly remains highly ranked both in production and service businesses.
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Employers in Serbia face legal issues when engaging employees and managers, outsourced workers and leased employees on a daily basis. They are familiar with engaging employees for indefinite period of time based on employment contract. However, significantly fewer employers are aware of the legal possibilities of engaging employees in Serbia through flexible forms of work. Apparently, both employers and employees are not acquainted with all the options of hiring that exist under the Serbian legislation. Thus, it is always recommended engaging lawyer that is specialized in employment law, because this could ensure legal certainty and better tax treatment anytime when dealing with employment issues in Serbia.
Let us give you an overview of standard forms of engagement of the employees in Serbia, on one hand, and alternatives that could fit better in modern industries such as IT industry, on the other hand.
INDEFINITE-TERM vs. FIXED-TERM EMPLOYMENT CONTRACT
Before we begin with the alternative forms of workforce engagement, it is necessary to point out that basic act which governs employment in Serbia is Employment Act. Employment Act is applicable to the both domestic employers (residents, companies incorporated in accordance with the law of the Republic of Serbia) and to the foreign employers (non-resident companies as well as branch offices established in Serbia by companies with headquarters out of Serbia), to both natural persons and legal entities. Among other, it stipulates establishment of employment on the basis of indefinite-term and fixed-term employment contract.
The indefinite-term employment contract, also known as “permanent employment”, engages employees that do not have a predetermined end date to employment. Namely, the basic difference between indefinite-term employment contract and any other form of workforce engagement is in terms of reasons for termination of employment. In the event employment contract for indefinite period of time is concluded, the Employment Act prescribes situations for termination of employment. Although the termination of indefinite-term employment contract is only one of the many differences between this contract and other flexible forms of employment, this question represents very complex topic that we will not specifically address in this blog, since it deserves special attention. Therefore, it will be addressed in one of the following blogs.
On the other hand, fixed-term employment contract represents exception to the indefinite-term employment contract, establishing an employment relationship with predetermined duration. Namely, reasons for conclusion of this contract are justified by the employer’s need to conduct certain job within certain period of time or by the occurrence of an unforeseen event. It lasts until the project is done or unforeseen event exists no more, but no longer than 24 months. Additionally, the employer can also conclude fixed-term contract with employee that lasts longer than 24 months, but only if it is necessary to replace a temporary absent employee, in case of work on a specific project, with foreign citizen until the validity of work permit, in case of employment with a newly established employer, as well as with an unemployed person who lacks up to five years to fulfill one of retirement conditions.
FIXED-TERM EMPLOYMENT CONTRACT IN MODERN INDUSTRIES
Among all the reasons for conclusion of fixed-term employment contracts, two particularly stand out: work on a project and work before a newly established employer. These two are the most interesting in respect to modern industries, particularly in the IT industry in Serbia where newly established employers run their own start-up companies.
Employers running start-up companies, whose job consists mostly of performing tasks or providing services for foreign companies (outsourcing), have the opportunity to legally engage workforce to work just on a project at the very beginning of their business activities, while they still have limited access to financial resources. Taking into account start-up companies bear high level fail risk, the Employment Act allows newly established companies to limit the duration of employment with new employees to 36 months but only if those employment relationships are establishes in the first year since company incorporation.
It can be concluded that the legislator had in mind modern businesses and their needs, therefore it prescribed alternatives for newly established companies to limit duration of employment relationship, following contemporary trends in business.
ALTERNATIVE AND FLEXIBLE FORMS OF WORKFORCE ENGAGEMENT
Fixed-term employment contract is by no means the only flexible form of workforce engagement available according to Serbian legislation. Taking into account new professions and needs of both employers and employees, the legislator stipulated the possibility of so-called “work outside employment relationship” on the basis of the: contract on temporary and periodical jobs, service agreement, contract on vocational training and internship, as well as additional employment contract. First of all, bear in mind these types of agreement are barely governed by the law, therefore it is on the contracting parties to define their contractual relationship in detail, which can be tricky in many ways. Also, these contracts are free of many limitations that are imposed on regular employment relationship, including the financial aspect which affects the tax treatment of the salary.
What is the “contract on temporary and periodical jobs”?
The contract on temporary and periodical jobs is primarily designed for employers and employees to perform jobs that do not require more than 120 business days engagement of workforce in a calendar year. Employers can conclude this type of agreement with an unemployed person, a part-time employed person and retired persons. For instance, this agreement is regularly concluded in agriculture, where employers engage seasonal farmworkers (which may be even migrant agricultural workers that need work permit) in accordance with the specific legislative. This topic will be elaborated in our next blogs.
Why employers should consider contract on vocational training and internship?
The contract on vocational training and internship is being concluded for completing the internship (traineeship) or taking a professional exam. So, this type of agreement is intended for persons who enter into employment relationship for the first time and need training or exam to be prepared for the future role in the company. Thus, employers or their HR offices dealing with process of workforce planning, should definitely consider using this agreement for specific work positions prescribed in the rulebook on organization and systematization of jobs. From our experience, the complexity of governing these agreements requires the assistance of the lawyers specialized in the employment law, because the omissions may leave deep legal and financial consequences for employer.
When employer should conclude service agreement?
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Service agreement is concluded for the performance of jobs which are outside employer’s regular business activities, which include production or reparation of particular item, performance of a particular physical or intellectual work. In other words, these are jobs which have no connection with the main activities of the employer.
Is it possible to engage person who is already employed with another employer?
The answer to this question is definitely YES. Namely, the Employment Act stipulates additional employment contract as the supplementary work of employees who already have full-time job with another employer, but who need additional income. Therefore, employers are allowed to hire these employees to the maximum of one-third of full-time working hours.
AND THAT IS NOT ALL…
esides engagement of employees outside the employment relationship, the employers are also allowed to negotiate other flexible forms of work as probation work (rehearsal), part-time jobs, management agreements, as well as the employment relationship established for performing activities outside the employer’s premises (including the so-called “work from home jobs”) which is particularly applicable in the IT industry. Workforce solution agencies also play their role at the market when it comes to the flexible work forms. These topics, including the foreign citizen’s engagement and work permits, deserve special attention and will be elaborated in one of the following blogs.
Forms of workforce engagement need to be regularly adjusted to the needs of the labor market. We are currently witnessing an inadequate response of the legislator to the changes at the labor market that led to the introduction of the so-called “test of independence”, which will have major impact on the IT industry and every other entrepreneur which perform tasks in the form of outscoring.
