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Independent contracting in Romania

Independent Contractor Contract & Employment Guidelines in Romania

Contractor length allowance

A company can work with an independent contractor for as long as it wants. However, their relationship mustn’t be a disguised form of employment.

The total duration of fixed-term contracts between the same parties cannot exceed 36 months. One contract cannot last for more than 12 months, with a maximum of three successive contracts allowed.

What makes someone an employee

Workers can fall under two different categories: (1) permanent employees of a company and (2) independent contractors or self-employed. Employees sign employment contracts, while independent contractors sign commercial contracts. Distinguishing the two categories can be a legally difficult task, which often involves looking at the subtle details of the worker-company relationship.

As per the Romanian Tax Code provisions, an independent activity is any activity carried out by a person who fulfils at least four of the following criteria:

  • Having the freedom to choose the place and the way of carrying out the activity, as well as the work schedule
  • Having the freedom to carry out the activity for several clients
  • Assuming the risks inherent in the activity while carrying it out
  • Using one’s patrimony while carrying out the activity
  • Performing the activity by using one’s intellectual capacity and/or physical performance, depending on the specifics of the activity
  • Being part of a professional body/order with the role of representation, regulation, and supervision of the profession, according to the special normative acts that regulate the organization and exercise of the respective profession
  • Having the freedom to carry out the activity directly, with employed staff or through collaboration with third parties in accordance with the law

If a person doesn’t meet at least four of the above conditions, the law may see the person as an employee and retroactively impose corresponding taxes and social contributions on such employee-employer relationship.

Employee vs contractor

When it comes to benefits entitlement, tax contributions, leaves, and protection against termination, the law treats employees and independent contractors differently. Only employees are entitled to all the statutory benefits and rights covered under the Labour Code, such as the right to trade unions, the minimum statutory annual leave, maximum weekly working hours, overtime, notice period before termination, and severance payment. Contractors can receive pension and social security benefits (such as sick and maternity leave) as long as they make voluntarily contributions.

Companies need to have a valid and fair reason to terminate an employee. As for contractors, companies don’t provide any increased protection (unless agreed otherwise), such as a notice period or severance pay, and can terminate a contract overnight for any cause, with most health and safety regulations and employer’s liability not extended to contractors.

Penalties for misclassification in Romania

In case the tax authorities re-qualify an independent contract as being a dependent activity, they can impose employment-related taxes and social contributions retroactively. If the authorities determine that an employer has used an independent contract to avoid paying taxes, they can classify the employer’s actions as tax fraud, which is a criminal offence.

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