July 28, 2015 at 16:50Work with freelancers under a “by all the rules” contract, or what threatens the company with arranging relations with freelancers
Greetings to all readers of our blog! In our first article, we will talk about the peculiarities of registering relations with independent freelance freelance contractors in the Russian Federation.
As practice shows, most Russian companies, and especially IT companies, publishing houses, translation, advertising and PR agencies, attract freelancers to carry out work and provide services for their needs and the needs of their clients on a temporary or one-time basis.
Freelancer and distance / home worker: important differences
Quite often, the legal status of a freelancer is seen as a kind of variation in labor relations, although this classification is incorrect. Some people understand the term “freelancer” of remote (remote) and homeworkers. However, there are important differences between them:
- a freelancer can simultaneously perform work and provide services for an unlimited number of customers, while teleworkers and homeworkers can perform the same actions only for a limited number of employers, and then provided that each employer expresses his consent to the “parallel” employment your employee. The very possibility of obtaining such consent from employers is a relative rarity;
- teleworkers and homeworkers always perform work and provide services on the basis of labor contracts, while freelancers perform work and provide services to customer companies under contract contracts, the design and conclusion of which we discuss in this article.
Most freelancers in Russia operate as individuals, and not as individual entrepreneurs. This is primarily due to the fact that the freelancer is frightened by additional obligations for reporting, paperwork, accounting and tax accounting, as well as complex administrative procedures for terminating IP status. Well, no one canceled the fears about possible tax audits.
Freelancer Contract: Features
As an example, we will analyze a common situation - the involvement of a freelance software developer by a Russian legal entity. Suppose you need a freelance programmer to write the code for your company, and you have such a programmer. It would seem that the matter is small - you need to take and conclude a contract for the execution of work on the creation of program code. Important note: the contract should be specifically for the performance of work, and not the provision of services, since the performance of work involves receiving a result from a freelance artist in the form of a ready-made code (as well as transferring exclusive rights to such a code to you).
At this initial stage, most companies make a major mistake - they take the standard form of a contract from some information and legal system such as “Consultant Plus”, or simply download from the Internet the authorship of some “legal magician” (although, of course, legally literate forms are found, but very rare), and begins to work with the freelancer under this agreement, sending him instructions and wishes, at best, by e-mail. Moreover, in the vast majority of cases, companies do not take into account at least the following features of concluding a contract with a freelancer:
1. The contract, like all its annexes, including the terms of reference, must be drawn up in writing signed by the head of the company and the freelancer;
2. the contract must necessarily contain an explicit indication of the fact that the freelancer in relation to the customer is an independent contractor, and their relationship under the contract cannot qualify as labor;
3. if the contract is temporary, and not one-time (project) in nature, then its term must end with the delivery of a certain result of the work, and not after a certain time, while the terms for each intermediate stage should be no more than two months - this is necessary, to avoid possible re-qualification of the relationship between the customer and the freelancer in an employment relationship. It is very important that both parties understand: the freelancer has a final attainable goal, the finalization of which leads to the completion of the contract, without variations on the topic “payment per day / month of work, regardless of the result”;
4. The subject of the contract, again, should be the performance of a specific work, or the provision of a certain service on a reimbursable basis (for a fee), in our case, writing a program code for a computer under the corresponding working name, or a unique program code that implements certain functions;
5. The terms of reference must be included in the agreement by the application with the terms of reference (TOR), which describes in detail what, how and in what time frame should be done by a freelancer. If this is program code, the statement of work should contain, at a minimum, the programming language in which the code is written, the software environment and the operating system under which the code is written, the term for writing the code, the required functionality and other requirements, for example, prohibiting the use of open source software . If you decide to sell the source code to any third party, then in the absence of TK it will be difficult to transfer the exclusive right to the buyer.
6. the procedure for receiving and transmitting a code from a freelancer to a customer upon completion of work (on a physical medium; by e-mail; via an FTP server, etc.) and activating such acceptance and transmission on the basis of a written act or through a system for setting and receiving tasks (task manager, such as Redmine, MegaPlan, and other similar systems, provided that the company uses such a system and provides the freelancer with the customer access to such a system);
7. detailed responsibility of the freelancer for possible claims and claims regarding the written code, as well as a court in which possible claims against the freelancer regarding the work performed will be considered. This is a very important point - if a violation is detected, by default all claims will be sent to the ultimate copyright holder of the code, that is, the customer, and the freelancer can only be brought to justice in the manner of recourse. The choice of court is necessary to insure against significant violations of the terms of the contract by the freelancer (non-fulfillment or improper performance of work) and to consider cases where it is convenient for the customer, and not at the location of the defendant-freelancer;
8. the exact amount of the remuneration of the freelancer and the procedure for paying remuneration for the work performed by the freelancer, with details of the procedure for paying remuneration.
When registering a relationship with a freelancer, you should have at least three documents in writing signed by the freelancer - the contract itself, the statement of work and the acceptance certificate. Moreover, if there are several tasks, then you have to conclude with the freelancer additional TK and acts of acceptance and transfer. All this entails the need for constant signing of documents with a freelancer. If there are several freelancers, then the number of documents required for signing increases by a multiple of the number of freelancers. And you will also need to establish an exchange of signed documents between your company and a freelancer! The procedures for exchanging intermediate documents can be simplified by replacing paper documents with electronic ones, but this does not apply to the procedures for signing the text of the main contract. However,
Taxes, contributions and reporting - is it that simple?
Suppose your company nevertheless entered into a competently drawn up contract with a freelancer, and the freelancer performed the work exactly as required in the terms of reference. You received the code, checked it, were satisfied, and the time has come to pay the reward. At this point, your accounting department is faced with the need to withhold taxes and assessed contributions from the freelancer - almost the same as from the company's regular employees:
1. Your company, as a tax agent of an individual, must withhold 13% of personal income tax from the freelancer’s remuneration and transfer it to budget of the Russian Federation;
2. your company must deduct from the remuneration of the freelancer and pay contributions to the Pension Fund of the Russian Federation (22%), the Federal Compulsory Medical Insurance Fund (5.1%) and the Social Insurance Fund of the Russian Federation (2.9%).
Thus, your company is obliged to withhold and transfer to the budget and funds 43% of the remuneration of a freelancer under a contract. At the same time, the indicated taxes and contributions should be withheld and transferred by your company’s accounting department on a regular basis, and your accounting department for all such deductions and transfers for freelancers should keep and submit separate reports for each freelancer to the Federal Tax Service, PFR, FFOMS and FSS. It’s good if the freelancer performing the work of writing code is one, and you attracted him to only one project - but if the number of freelancers involved by the company starts to “catch up” with the number of full-time employees, and each of them regularly performs some work, then Your company will face a serious increase in the costs of accounting support for working with freelancers, including
Here you will reasonably point out to us that you yourself are aware of problems with work contracts, which are performed by individuals without IP status, and you can’t do anything about it anyway.
And we, in response, in the next publication, will tell you the story of the creation of our SOLAR STAFF service, which is designed to simplify the work with freelancers as much as possible , automate workflow and simplify the transfer of intellectual property rights, as well as reduce the tax burden and automate the procedures for paying remuneration to freelancers.
As practice shows, most Russian companies, and especially IT companies, publishing houses, translation, advertising and PR agencies, attract freelancers to carry out work and provide services for their needs and the needs of their clients on a temporary or one-time basis.
Freelancer and distance / home worker: important differences
Quite often, the legal status of a freelancer is seen as a kind of variation in labor relations, although this classification is incorrect. Some people understand the term “freelancer” of remote (remote) and homeworkers. However, there are important differences between them:
- a freelancer can simultaneously perform work and provide services for an unlimited number of customers, while teleworkers and homeworkers can perform the same actions only for a limited number of employers, and then provided that each employer expresses his consent to the “parallel” employment your employee. The very possibility of obtaining such consent from employers is a relative rarity;
- teleworkers and homeworkers always perform work and provide services on the basis of labor contracts, while freelancers perform work and provide services to customer companies under contract contracts, the design and conclusion of which we discuss in this article.
Most freelancers in Russia operate as individuals, and not as individual entrepreneurs. This is primarily due to the fact that the freelancer is frightened by additional obligations for reporting, paperwork, accounting and tax accounting, as well as complex administrative procedures for terminating IP status. Well, no one canceled the fears about possible tax audits.
Freelancer Contract: Features
As an example, we will analyze a common situation - the involvement of a freelance software developer by a Russian legal entity. Suppose you need a freelance programmer to write the code for your company, and you have such a programmer. It would seem that the matter is small - you need to take and conclude a contract for the execution of work on the creation of program code. Important note: the contract should be specifically for the performance of work, and not the provision of services, since the performance of work involves receiving a result from a freelance artist in the form of a ready-made code (as well as transferring exclusive rights to such a code to you).
At this initial stage, most companies make a major mistake - they take the standard form of a contract from some information and legal system such as “Consultant Plus”, or simply download from the Internet the authorship of some “legal magician” (although, of course, legally literate forms are found, but very rare), and begins to work with the freelancer under this agreement, sending him instructions and wishes, at best, by e-mail. Moreover, in the vast majority of cases, companies do not take into account at least the following features of concluding a contract with a freelancer:
1. The contract, like all its annexes, including the terms of reference, must be drawn up in writing signed by the head of the company and the freelancer;
2. the contract must necessarily contain an explicit indication of the fact that the freelancer in relation to the customer is an independent contractor, and their relationship under the contract cannot qualify as labor;
3. if the contract is temporary, and not one-time (project) in nature, then its term must end with the delivery of a certain result of the work, and not after a certain time, while the terms for each intermediate stage should be no more than two months - this is necessary, to avoid possible re-qualification of the relationship between the customer and the freelancer in an employment relationship. It is very important that both parties understand: the freelancer has a final attainable goal, the finalization of which leads to the completion of the contract, without variations on the topic “payment per day / month of work, regardless of the result”;
4. The subject of the contract, again, should be the performance of a specific work, or the provision of a certain service on a reimbursable basis (for a fee), in our case, writing a program code for a computer under the corresponding working name, or a unique program code that implements certain functions;
5. The terms of reference must be included in the agreement by the application with the terms of reference (TOR), which describes in detail what, how and in what time frame should be done by a freelancer. If this is program code, the statement of work should contain, at a minimum, the programming language in which the code is written, the software environment and the operating system under which the code is written, the term for writing the code, the required functionality and other requirements, for example, prohibiting the use of open source software . If you decide to sell the source code to any third party, then in the absence of TK it will be difficult to transfer the exclusive right to the buyer.
6. the procedure for receiving and transmitting a code from a freelancer to a customer upon completion of work (on a physical medium; by e-mail; via an FTP server, etc.) and activating such acceptance and transmission on the basis of a written act or through a system for setting and receiving tasks (task manager, such as Redmine, MegaPlan, and other similar systems, provided that the company uses such a system and provides the freelancer with the customer access to such a system);
7. detailed responsibility of the freelancer for possible claims and claims regarding the written code, as well as a court in which possible claims against the freelancer regarding the work performed will be considered. This is a very important point - if a violation is detected, by default all claims will be sent to the ultimate copyright holder of the code, that is, the customer, and the freelancer can only be brought to justice in the manner of recourse. The choice of court is necessary to insure against significant violations of the terms of the contract by the freelancer (non-fulfillment or improper performance of work) and to consider cases where it is convenient for the customer, and not at the location of the defendant-freelancer;
8. the exact amount of the remuneration of the freelancer and the procedure for paying remuneration for the work performed by the freelancer, with details of the procedure for paying remuneration.
When registering a relationship with a freelancer, you should have at least three documents in writing signed by the freelancer - the contract itself, the statement of work and the acceptance certificate. Moreover, if there are several tasks, then you have to conclude with the freelancer additional TK and acts of acceptance and transfer. All this entails the need for constant signing of documents with a freelancer. If there are several freelancers, then the number of documents required for signing increases by a multiple of the number of freelancers. And you will also need to establish an exchange of signed documents between your company and a freelancer! The procedures for exchanging intermediate documents can be simplified by replacing paper documents with electronic ones, but this does not apply to the procedures for signing the text of the main contract. However,
Taxes, contributions and reporting - is it that simple?
Suppose your company nevertheless entered into a competently drawn up contract with a freelancer, and the freelancer performed the work exactly as required in the terms of reference. You received the code, checked it, were satisfied, and the time has come to pay the reward. At this point, your accounting department is faced with the need to withhold taxes and assessed contributions from the freelancer - almost the same as from the company's regular employees:
1. Your company, as a tax agent of an individual, must withhold 13% of personal income tax from the freelancer’s remuneration and transfer it to budget of the Russian Federation;
2. your company must deduct from the remuneration of the freelancer and pay contributions to the Pension Fund of the Russian Federation (22%), the Federal Compulsory Medical Insurance Fund (5.1%) and the Social Insurance Fund of the Russian Federation (2.9%).
Thus, your company is obliged to withhold and transfer to the budget and funds 43% of the remuneration of a freelancer under a contract. At the same time, the indicated taxes and contributions should be withheld and transferred by your company’s accounting department on a regular basis, and your accounting department for all such deductions and transfers for freelancers should keep and submit separate reports for each freelancer to the Federal Tax Service, PFR, FFOMS and FSS. It’s good if the freelancer performing the work of writing code is one, and you attracted him to only one project - but if the number of freelancers involved by the company starts to “catch up” with the number of full-time employees, and each of them regularly performs some work, then Your company will face a serious increase in the costs of accounting support for working with freelancers, including
Here you will reasonably point out to us that you yourself are aware of problems with work contracts, which are performed by individuals without IP status, and you can’t do anything about it anyway.
And we, in response, in the next publication, will tell you the story of the creation of our SOLAR STAFF service, which is designed to simplify the work with freelancers as much as possible , automate workflow and simplify the transfer of intellectual property rights, as well as reduce the tax burden and automate the procedures for paying remuneration to freelancers.