Benefits of civil contracts for the quarantine period.

If you are the owner of a business engaged in project design works, you can simply do not have necessity to give the employee functionality on full working day. In this case, you can take advantage of a simple mechanism for the conclusion of civil contracts with natural persons. For example, service contracts or contractor agreements.

During quarantine, when the majority of the enterprises has no possibility to work in full and to provide new employees with working conditions, business is forced to search for optimum ways of addressing the problems which are facing to it.

Today we will talk about the case when it is profitable to conclude such a contract with an individual and how it will help during quarantine.

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What the advantages of the civil contract?

The benefit is obvious: the business gets the result and the absence of a number of obligations on social guarantees and working conditions, and the individual receives payment (fee), while the enterprise is the tax agent of the executor/contractor.

The contractor contract implies that you order a specific job or service from the performer, indicate the period  for its execution, after which you accept the work done and pay for such service. At the same time, since the performer/contractor is not a part of your work team, he/she does it entirely by his own means, and you just get a desired result. 

Thus, you will be able, for example, to receive services for calling customers, searching new clients, recruiting personnel, checking the documentation and many other things, depending on specificity of your enterprise (that is, from delivery of documents to furniture assemblage).

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What problems can arise when working under the civil contract?

The most common problem is that regulatory authorities may accept this type of contract as improperly formalized employment relations - an employment agreement. And this will cause serious consequences: 

• Fine according to the Code of Ukraine on Administrative Offences (up to UAH 17,000); 
• Fine according to the Labour Code (up to 10 minimum wages - currently it is UAH 47,230); 
• And even criminal liability in certain cases (where the fine rate is already increased up to UAH 51,000). 

It should be noted that these fines are imposed for each unreported employment. So, this may result in a substantial sum of money even for medium or large businesses.

To avoid the abovementioned problems, we would like to give some advice on drawing up such contracts on the basis of our practical experience (including judicial practice):

• Make sure to specify the validity of the contract and the performance/service delivery time;
• The subject matter of the contract shall be as precise as possible and should not contain such wording as “to act as an accountant”. For example, you need a service for search of clients, but you can not prescribe “the Contractor must perform the functions of a sales manager”, but you can for example, the following provision: “The Contractor undertakes to make 500 calls against the customer database provide by the Customer. Each call duration shall not be less than 5 minutes”;
• Specify the exact price of the service provided and the payment procedure using the expenditure papers to close the service;
• The contract shall not contain any wordings, which according to the labor law may be interpreted as the rights or obligations of the employee (for example, the Contracor shall have no workplace or work schedule, vacation, etc.);
• If possible, it is worth concluding contracts with individual entrepreneurs, since in this case it is immediately clear that the activities of such contractors have an entrepreneurial nature and do not have the purpose of concealing the employment relations;
• Keep track of the number of civil contracts concluded with individual entrepreneurs, because if the absolute majority (80%) of the scope of work is carried out under civil contracts, and you do not have any or have very few hired employees - this may raises unnecessary questions that no one needs.

Keep in mind the peculiarities of civil contracts and no inspections will be threat to you. Thus, the companies that had problems with the bodies of the State Labor Service of Ukraine managed to establish their case in court using the abovementioned recommendations. 

If you adhere to the legal requirements, you can prove to the satisfaction of the court that the legal nature of your contracts has no focus on the establishment of legal labor relations, even if the inspectors, without understanding the situation, evaluated them initially wrong.

Our lawyers are always ready to provide you with legal assistance and support, as well as advice you in more detail or help with drafting of this type of contracts.