An individual can perform works at the company on the basis of labor contract as well as civil-law contract (hereinafter − CLC). The difference between them and when they should be applied is in the following.
Main differences
It is important to distinguish between labor and civil-law contracts. Because, performing works, providing services in accordance with the labor contract, it is necessary to comply with labor law requirements, but when the conclusion of the CLC it is necessary to be guided by the civil legislation for performance of certain work or the provision of any services.
It should be considered the main peculiarities of each type of the contracts.
According to the labor contract:
- an employee performs work determined by the agreement;
- an employee is accepted for employment (position) included in the staff schedule of the company to perform certain work (functions) under specific qualification, profession, position;
- conclusion is officially registered by the order of the employer on the acceptance of the employee for employment (at his/her application);
- an employee complies with the corporate labour policy;
- an employer is obliged to pay wages to the employee and provide working conditions and social guarantees necessary to perform work, provided for by the labor legislation, collective agreement and agreement of the parties.
Civil-law contract is an agreement between the company and the person to perform certain work (contract for work and labour, contract of delegation etc.), he subject of which is the provision of certain working result, but there are no any employment relationships under the labor legislation.
In the case of performance of works (services) on the basis of CLC:
- the result of the work is paid but not the process of labor;
- the result is determined when the completion of the work;
- the result is officially registered by the acts of acceptance of executed works (services);
- the payment is made on the basis of acts;
- an individual who performs work (provides services) is not subject to the internal labor policy of the company, independently organizes his/her work and performs it at his/her own risk;
- the company is not obliged to comply with labor legislation.
Thus, the main feature distinguishing the employment relationship from the contracting is that labor legislation regulates the process of labor activity, its organization, and according to the civil law contract, the purpose is to obtain certain material result. The contractor, in contrast to the employee is not subject to the internal labor policy, he/she should independently organize and perform the work.
If the fact of acceptance of a person for employment under certain qualification, profession, position is not established; his/her rights and responsibilities are not explained and he/she is informed against acknowledgement about conditions of employment etc., such contract could not be considered as labor. It was noted in the decision of the High Specialized Court of Ukraine for Civil and Criminal Cases of 05.02.2014, in case № 6-48920св13.
Requirements for procedure of payment for labour
According to the Labour Code (hereinafter − the Labour Code) and the Law of Ukraine “On the payment for labour” of 24.03.1995, № 108/95-ВР (hereinafter − the Law on payment for labour), under a labor contract, the employer should pay a salary to the employee. Moreover, the payment should be carried out regularly on working days, and at least twice a month within period of time not exceeding 16 days, and not later than 7 days after the end of the period for which payment is made (Art. 115 of the Labour Code, Art. 24 of the Law on payment for labor).
It should be paid the sum not less than the minimum wage for the most simple, unskilled labor, which was carried out by the employee within the monthly norm of working time (Art. 95 of the Labour Code, Art. 3 of the Law on payment for labor).
In contrast to the employment contract, remuneration according to CLC should be established exclusively by the agreement of the parties. The legislation does not provide for restrictions on the minimum or maximum amount of remuneration and the terms of its provision. Under CLC it is paid not the labor process but its final result, which is determined after the end of work and issued by the act.
Taxation of payments under contracts
The following is necessary according to the labor contract with an employee:
- to withhold the personal income tax (hereinafter − PIT) from wage at the rate of 18%;
- to withhold the war tax from wage at the rate of 1.5%;
- to accrue the unified social contribution (hereinafter − USC) for wages in the amount of 22%.
When the incomes calculation in the form of wage, the base of personal income tax is defined as the accrued salary reduced by the amount of the tax social benefit if available (sec. 1 of para. 164.6 of TCU). The war tax is to be withheld from accrued wages without charging a tax social benefit.
If the base of USC accruing does not exceed the minimum wage established by law for a month, for which the income is received, the amount of USC is calculated as the product of the minimum wage established by law for a month, for which the income (profit) received, and the rates of the unified contribution (para. 5 of Art. 8 of the Law on USC).
According to CLC with an individual, who is not an entrepreneur:
- the personal income tax should be withheld from the amount of remuneration at the rate of 18% (the tax social benefit is not applied in this case);
- the war tax should be withheld from the amount of remuneration at the rate of 1.5%;
- the USC should be accrued on the amount of remuneration in the amount of 22%.
In the case of taxation of remuneration under CLC it should be also be noted that for persons performing work (providing services) under CLC, the deadline of which exceeding a calendar month, the USC is to be accrued on the amount, which is determined dividing the remuneration paid for work performance on the number of months for which it to be accrued.
In case if USC is concluded with an entrepreneur on a general taxation system, the company should not withhold and pay the personal income tax as well as the war tax. But this is only under the condition that the individual submits a copy of a document that confirms:
- state registration in accordance with the law as a business entity;
- compliance of executed works (provided services) with activities identified in the information from the Unified State Register of legal entities and individuals –entrepreneurs (hereinafter – USR), that is copies of extracts from the USR (for the USC).
For the entrepreneurs on the unified tax, the works (services) should comply with activities identified in the register of payers of the unified tax for groups 1 and 2 (sub-para. 165.1.36 of TCU), and with activities identified in the USR (for group 3).
Thus, if work is performed by the entrepreneur within the framework of business activity, the company customer should not pay PIT, USC and the war tax from the remuneration under CLC.
