Recently, the Financial Administration of the Republic of Slovenia (hereinafter: FURS) published a position regarding the legal and tax treatment of natural persons who have a registered activity and work in a dependent relationship with an employer.
FURS states in its explanation that legal formal regulation of the relationship in which a natural person performs work for an employer in to the status of an independent entrepreneur (hereinafter: s.p.), if their relationship is actually a dependent contractual relationship, it is not legal. The employer must conclude an employment contract with a natural person who performs work for him in a relationship that has elements of an employment relationship.
This raises the question of when a business relationship has elements of an employment relationship. It is more often than not a matter of assessing individual cases, but it is essential that the employee performs work in a relationship of subordination to the employer, as part of the work process organized by the employer, who also bears responsibility for the success of the company. In general, an employment relationship is a relationship between an employee and an employer, which is voluntary, the employee participates in the employer’s organized work process, performs work for payment, personally, continuously and according to the instructions and under the control of the employer (Article 4 of the Employment Relations Act – ZDR-1). This means that it contains elements such as:
- Long-term work, undefined with deadlines for completion,
- establishment of subordination between worker and employer (the contractor receives work and instructions from only one client),
- execution of works and tasks is tied to a certain person, who must do the work personally,
- the worker is involved in a specific work process, usually at the employer’s headquarters and during the working hours that apply to other workers (8 hours),
- the worker uses the work equipment and other working resources of the company
- …
FURS states that in practice there are more and more frequent cases when natural persons register the status of limited liability company, even though they will continuously perform work under the contract for only one company or another business entity. In these cases, the work is carried out in the company’s workplaces, during the working hours that apply to other employees, 8 hours a day, with s.p. uses work equipment and other company resources (e.g. work tools, consumables, computer, company car, etc.), while not paying rent for the use of these resources. In addition, he performs the work under the instructions and under the supervision of the responsible person of the company, who enables him to work for his clients. S.p. in these cases, as a rule, he may not perform the same activity that the company is engaged in for his own account, nor for the account of any other legal or natural person, but only for the account and on behalf of the company (competition ban). He must perform the services himself and offer them to customers according to the company’s price list, and he must coordinate his absence from work with the company’s management. Payment is agreed after the effect on the basis of the issued invoice once a month. The company pays the s.p. income, which is its main and, in most cases, the only source of income.
In the described case, it follows from the nature of the relationship that s.p. in relation to its client (company) in a dependent relationship, even though according to its legal formal status, it is a private limited company, i.e. a natural person who, as a rule, should perform economic activity independently and independently.
The same applies to cases where employers pay their employees additional income based on invoices issued by these employees as s.p. FURS states that during the inspections, it was established that the concluded business cooperation contracts were only sham deals, in which the actual content differs from its form, as the employees actually performed the same work as specified in the employment contract, over regular work obligation. FURS found the same in cases where the workers were employed for a shorter working time and for a minimum wage, and at the same time had the status of s.p., on the basis of which the employer was issued a monthly invoice for the services rendered in a higher amount than the salary for the shorter working hours.
In all cases of the described violations, the employer may be fined by the labor inspector and obliged to enter into an employment relationship for an indefinite period with the worker/contractor, as well as to pay back taxes and contributions.