For employers, one of the most well-known forms of employment is hiring through an employment contract. However other, less common types of legal relationships are also available to engage the right person for the necessary work. In the following, we will briefly the employment relationship, engagement within the scope of a contract for personal services, and simplified employment.
The Employment Relationship
One of the most commonly used forms of engagement is the employment relationship, which means employment based on an employment contract established according to the rules of the Act I of 2012 on the Labour Code (hereinafter referred to as: "Labour Code")
The subjects of the employment relationship are:
- the employer, and
- the employee (worker), who must, as a general rule, be a natural person aged 16 or over.
An employment relationship is established through an employment contract concluded between the employer and the employee.
The employment contract must always be set out in a written form. If this is omitted, only the employee can claim the invalidity of the employment contract, within 30 days of commencing work.
The mandatory elements of the employment contract are:
- specification of the employer and the employee,
· the salary (wage),
- the scope of work (position).
A probationary period can be included in the employment contract, but it is not compulsory. The maximum duration of the probationary period is 3 months.
The commencement of the employment relationship (the first day of work) must be specified in the employment contract. If parties fail to incorporate this detail into the contract, the day following the signing date of the contract shall be deemed as the commencement of the employment relationship.
The duration of the employment contract can be:
- indefinite, or
- fixed-term.
The employer is obliged to inform the employee in writing, within 7 days of commencing work, about the most important rules concerning the employment relationship, including but not limited to the person exercising employer's rights, the specific tasks related to the position (typically by providing a so-called job description), and the method of wage settlement.
The employer is obligated to report the employee with the tax authority no later than on their first working day, and declare and pay the applicable taxes on the monthly payroll. Certain changes, such as unpaid leave, changes in working hours, or the scope of work, must also be reported regularly. In case of foreign employees, it is necessary to first apply for a social security number (TAJ). Typically, these reports/requests can be submitted electronically.
Employers are required to deduct 15% personal income tax and a total of 18.5% social security contributions from the gross wages of employees. In addition, there is also a social contribution tax that is borne by the employer, the rate of which is 13% of the employee's gross wage (however, this is not deducted from the wage itself, but is an additional burden on the employer).
Based on the employment contract:
- the employer is obligated to employ the employee and pay wages.
- the employee is obligated to perform work under the employer's directions.
The employer is not entitled to withhold or proportionally reduce the payment of wages on the grounds of inadequate job performance. In case it is not based on statutory provisions (e.g., tax or social security regulations) or enforceable orders (e.g., an obligation to pay child support), any deduction from wages is only possible on the basis of a written agreement between the employee and the employer.
The employer is obligated to ensure the necessary conditions for performing work. However, parties may agree in the employment contract that the employee is responsible for providing certain tools necessary for work. The employer must also ensure the requirements for safe work that does not jeopardize health of the employee, which includes, for example, the provision of free medical fitness examinations.
One of the most important characteristics of an employment relationship - in contrast to a contract for personal services - is the establishment of a hierarchical, subordinate relationship between the employee and the employer. This hierarchical relationship manifests primarily in the broad authority of the employer to issue instructions, which includes the ability to instruct the employee on any aspect of work, including its manner, location, and time.
This broad authority to issue instructions also encompasses the fact that the employee can only refuse to follow instructions under limited circumstances, including:
- being obliged to refuse if following it would directly and seriously endanger the life, physical integrity, health of another person, or the environment, or
- being entitled to refuse if following the instruction would violate employment-related regulations or would directly and seriously endanger the employee’s own life, physical integrity, or health.
The obligations of the employee include:
- appearing at the location and time specified by the employer in a condition suitable for work,
· being at the disposal of the employer during working hours,
· performing the job in person, with generally expected expertise and care, in accordance with applicable rules,
· exhibiting behavior consistent with the trust necessary for the performance of their scope of work,
· cooperating with their colleagues.
Working time is defined as the duration between the start of work, as defined by the employer, until the end of work, and includes the term of carrying out preparatory activities and closing tasks related to work.
The working time is typically determined by the employer in the following ways:
- Daily working hours: Daily 8 hours (standard full-time working hours) or shorter part-time hours.
- Working time banking: The employer prescribes working time based on the standard work schedule within a longer, specific calendar period as irregular working hours, distributing the required working hours unevenly on any day of the week. As a general rule, the duration of working time banking is typically 16 weeks, but in certain cases, it can extend to 6 months or 26 weeks.
The employer is entitled to schedule work. This right can be delegated to the employee in writing (through the employment contract), which results in the so-called flexible working time.
Wages:
- Base Wage: It must be determined as a fixed amount in the contract, broken down to a specific time unit (hour, month). It must comply with the current minimum wage and guaranteed minimum wage requirements.
· Performance Based Wages: It is paid to the employee based on precisely defined performance requirements. It can be in addition to the base wage or may stand alone, but in the latter case, it can only be applied if the employment contract explicitly specifies that the employee is exclusively entitled to performance based wages.
- Wage Supplements: These are in addition to the salary applicable for regular working hours. They include shift supplements, night shift supplements, holiday supplements, as well as any overtime pay.
The employment contract can only be modified based on the mutual agreement of the parties, in writing.
The employment relationship terminates:
- by mutual agreement of the parties,
· due to the death of the employee,
· with the employer's dissolution without a legal successor,
· if the employer taking over the given economic unit is not subject to the Labour Code, or
- in case of a fixed-term employment relationship, upon the expiration of the agreed-upon term.
The employment relationship can also be terminated unilaterally by the parties by means of a termination with notice, or a termination with immediate effect. It is important to note that in most cases, the employer is only allowed to terminate the employment relationship with justification, specifically relying on one of the lawful grounds stipulated in the Labour Code. In case of termination with notice, the employment relationship only ceases after the minimum 30-day notice period has elapsed. If the employer terminates the employment relationship with notice, they are obligated to release the employee from their work related obligations for at least half of the notice period. After the period prescribed in the Labour Code has elapsed (at least 3 years), the employee becomes eligible for severance pay in the event of a termination by the employer.
Contract for Personal Services
Work can also be performed under a contract for personal services, concluded based on Act V of 2013 on the Civil Code.
Parties to a contract for personal services are:
- the principal (commissioner), and
- the agent (commissioned party), who can be not only a natural person but also a legal entity, such as a company or an individual entrepreneur.
Under the contract for personal services:
- the agent is obligated to perform the task entrusted by the principal,
- the principal is obligated to pay a remuneration to the agent.
The validity of the contract for personal services is not contingent upon it being concluded in writing.
The most important difference from an employment contract is that the relationship within the scope of a contract for personal services is not a hierarchical relationship but rather a relationship of parallel authorities, in which the principal's right to issue instructions is narrower compared to an employment relationship and the parties have greater flexibility in defining the content of the contract.
Under the contract for personal services, the principal is obligated to ensure the careful completion of specific tasks, but not the continuous performance of a specific scope of work. The agent may also be entitled to engage third parties to assist in completing the task, whereas an employee is obligated to perform work in person.
However, the principal is not subject to an employment obligation toward the agent.
Right of instruction:
The agent is required to follow the principal's instructions, but they have more flexibility:
- the agent is entitled to deviate from the instructions if it is absolutely necessary for the interest of the principal;
· in case of impractical or unprofessional instructions:
- the agent is obliged to alert the principal to this fact.
- if the instructions are maintained, the agent has the right to terminate or rescind the contract, or to fulfill the instructions at the principal's risk;
- the agent must refuse to comply with the instructions if it would lead to a violation of the law or a breach of a regulatory decision or endanger the life or property of others;
The remuneration is freely determined by the parties (in view of their parallel position), and the minimum wage and guaranteed minimum wage limits do not apply. Parties can also agree on the gratuitousness of a contract for personal services. The fee is generally due when the agent has completed the entrusted task (but parties can agree differently).
In contrast to wages, the remuneration based on a contract for personal services can be proportionally reduced due to non-contractual performance. The amount and method of paying taxes and social contributions related to such remuneration depends on various factors, including whether the contract for personal services was directly entered into with a private individual or not.
The remuneration usually includes the costs associated with performing the tasks, considering that the agent typically uses their own tools and equipment to complete the tasks.
The contract for personal services is linked to the parties themselves, so it terminates upon the death of either the agent or the principal. The relationship based on a contract for professional services can also be terminated by the parties, either unilaterally or by mutual agreement.
The contract for personal services can be terminated without notice based on the parties’ agreement. Unlike in an employment relationship, in case of unilateral termination by the principal, protective provisions such as exemption from work or payment of a severance pay will not apply.
Simplified Employment
The rules of simplified employment are established by the Labour Code and Act LXXV of 2010 on the Simplified Employment (hereinafter referred to as: “Simplified Employment Act”).
The purpose of simplified employment is to provide a faster and simpler option for employing labour, typically in short-term work situations, by allowing certain deviations from the provisions of the Labour Code in specific cases.
Similar to the employment relationship, the parties to a simplified employment are the employer and the employee.
Work that can be performed in simplified employment include:
- seasonal agricultural and tourism work, or
- occasional work.
The employment contract does not have to be in writing, and the parties can also enter into the employment contract using a standard employment contract template provided by law.
An employment relationship is established by fulfilling the statutory notification obligation.
A contract for simplified employment or occasional work is invalid if, at the time of its conclusion, there is already an employment relationship between the parties. Furthermore, the law prohibits the modification of an employment contract for the purpose of establishing an employment relationship for simplified employment or occasional work.
The daily working time can be scheduled unevenly even without using working time banking or a working time settlement period.
Daily Quota for Occasional Workers:
- in case of simplified employment for occasional work, the number of workers employed in simplified employment on any calendar day must not exceed:
- 1 worker in case of employers not employing a full-time employee subject to the Labour Code,
- 2 workers for employers employing 1 to 5 employees,
- 4 workers for employers employing 6 to 20 employees,
- 20% of the number of employees for employers employing more than 20 employees.
- The daily quota for occasional workers can be distributed unevenly across the days of the calendar year.
If the employer and the employee establish multiple employment relationships for seasonal work or seasonal and occasional work, the total duration of these employment relationships must not exceed 120 days in a calendar year.
Under the provisions of the Simplified Employment Act, different rules apply to personal income tax, social security contributions, and social contribution tax, resulting in lower employer tax liabilities. For simplified employment, the rate of taxes and contributions for each calendar day of the employment is as follows:
- for seasonal agricultural and tourism work: 0.5% of the minimum wage.
- · for occasional work: 1% of the minimum wage.
- for occasional work as a film industry extra: 3% of the minimum wage.
A person employed under simplified employment is not considered to have social insurance coverage but may be eligible for old-age pensions, accident-related healthcare services, and job-seeking benefits.