How to work with self-employed person: guide

In Russia the amount of self-employed persons increase every day, and now for business they are irreplaceable. However, to work with them all companies shall be very careful and should prepare the contract according to the law in case to avoid any kind of issues from Tax Authorities. It brings many advantages: no responsibility as an tax agent and social fees, which is really save time and sources of the company. But even here, in very easy way of co-work, there are some tax risks under the law, where business shall be especially careful.

Key risks: when the self-employed can be a staff member

Tax authorities monitoring the co-working processes between companies and self-employed as the hidden replacement of labor contract to civil contract can be a way to optimize taxes illegally. There are several criteria that highlight the infringement:

• organizational dependence: If the self-employed person totally addicted to the company rules (schedule, under the managers control, has the disciplinary responsibility), the working time is ruled by the company and not by the self-employed person – it’s the suspicious sign
• workplace dependence: self-employed person uses equipment, staff and other technical things, also the company provides all working environment – there are also very clear fact of labor contract
• Constancy and stability in relationships: monthly payments, fixed sum, working on certain work permanently (year and more) – also not the principles of the civil contract.
• Specificity of work: working as a qualified employee on the exact position – the common characteristic of a staff member, not an self-employed person

How the Tax Authorities can identify risks?

The tax authority uses modern digital instruments to analyze relationships between companies and self-employed persons.

The criteria of Tax Authorities evaluation:

• Time limits: work for more than 3 months in row
• Only one source of income: self-employed person has no other sources of income
• The usual payments from one company: all payments usually come from one company
• Mass transition to the self-employed status: ex-workers of the company started to be self-employed persons at the same time
• Time of the registration: verification from Tax Authorities – the company does not provide the services of the same specialists who were registered in the same period of time.

Criteria of the safe work:

• Contract: should include all value and characteristics of the work, time limits and the way of payment to avoid possibility of recognition as a labor contact
• Acceptance act of the work performed: after each payment act of the work performed shall be submitted
• Diversity of income sources: the self-employed person shall have other income sources, not only from one company
• Unique receipts: self-employed person shall have not only different clients, but also receipts shall be drafted not from the one client
• Status check: before the co-work with self-employed person be confident that he has an active self-employed status and didn’t work with the company last two years
• Preventive control: the check of new laws should be regular, company need to be keep in touch to the latest changes and should analyze and correct the decisions carefully

Consequences of laws avoidance:

Unlawful use of the self-employed status can lead to the sad result – Tax Authorities check, recount of Personal Income Tax, social fees, fines and penalty fees. Courts will support the Tax Authorities right to re-qualify civil contracts to labor contracts, if there is a fact of labor relationships. To understand new trends, the procedural law should be reviewed.