Romania

Contractor Classification in Romania

Businesses hiring in Romania should understand the legal distinction between independent contractors and employees. Businesses hiring independent contractors under the guise of employment risk facing fines and criminal charges. In Romania, several important aspects must be considered by both companies and contractors before establishing a relationship. It’s crucial to work with a partner like Worksuite when engaging contractors abroad to establish a compliant and legal hiring framework.

There are two distinct legal statuses that govern the relationship between a hiring organization and its employees (angajați) or independent contractors (contractori independenți). A standard employment contract (contract de muncă), a well-demonstrated presence of subordination and a dependent nature of work, indicate the traditional relationship between an employer and an employee. A civil contract for the provision of services (contract civil de prestări de servicii) and a collaboration contract (contract de colaborare) indicate a freelance engagement whereby an independent contractor, acting as a legal enterprise, agrees to provide a defined piece of work for a set amount of money.

Romanian independent contractors are highly valued among businesses across the globe thanks to their expertise, proficiency in English, and a relatively cheap cost of engagement.

Romanian labor and civil laws are constantly subject to revision and policy changes. In addition, the country’s legislation defines very distinct compliance procedures for independent contractors. It is important to work with a partner like Worksuite to ensure that you have an engagement framework that properly classifies freelancers able to work as independent contractors.

Employment Laws

In Romania, employment relations are regulated by various national legal acts, collective bargaining agreements, the European Union legislation, and local labor courts. The following legal acts are primary when determining the nature of an employment relationship:

Local labor courts supervise and authorize re-characterization of civil/collaboration contracts as employment contracts. They also override any choice of law made by the parties which deprives a worker of mandatory protection afforded by Romanian employment law.

There are three types of employment agreement in Romania:

Permanent (Contract individual de muncă pe durată nedeterminată)
Part-time (Contract individual de muncă cu timp partial)
Fixed-term (Contract individual de muncă pe durată determinata)

Collective bargaining agreements (CBAs) may apply.

Employment contracts must be concluded in writing and in Romanian. They must be registered in the electronic records of a local labor office before the employment can actually begin.

Independent contractors can render services as sole proprietors under two professional categories:

Individual contractors (antreprenori individuali)
Liberal professionals (profesioniști liberali)

Independent contractor engagements are regulated by specific provisions of the agreement, as well as the Romanian Civil and Fiscal codes. Employment re-characterization is handled by labor courts. If a contractor believes that his relationship with the company falls into a scope of employment relationship, a court proceeding may determine it as such.

Hiring Practice

Candidates are recruited externally through job boards and advertising. An applicant must submit their CV to the employer.

Selected applicants receive an offer letter, and a written contract, if concluded, must be provided the day before the employment start date. In Romania, any employment contract that does not specify the duration of the agreement is considered to be indefinite by default.

The following aspects must be collected and included in the contract, in addition to special clauses, if applicable:

Names of the parties
List of duties
Employment start date
Duration of the contract for fixed-term agreements
Probation period (if applicable)
Total number of holidays
Job risks
Workplace
Work performance evaluation criteria
Employee benefits
Information on CBAs
Salary and payment frequency
Working hours
Notice period

Employers reserve the right to perform background checks during the hiring process, but they must not request any information that is not related to the nature of the work. This process can be delegated to third parties, provided they comply with the European Union privacy regulations. Medical checks are required, and a person can only be hired if they have a medical certificate proving they are physically fit to work. Pregnancy tests are not allowed, and any information pertaining to it cannot be requested. Testing for drugs and alcohol can only be conducted with the employee’s consent.

Probation period must not exceed 3 months.

Through professional employer organizations or directly.

Contractors can be hired directly or via a third party, such as a staffing agency. Contractors may be found via word-of-mouth, job boards, social networks, industry bodies, or other forums. Although hiring practices vary, the contractor may be asked to provide a CV, portfolio, and references and possibly sign an NDA.

An independent contractor agreement must clearly stipulate an independent nature of the work for it to be considered valid and not regarded as an employment contract. A contract may include negotiated clauses without restrictions except for those prohibited byt the civil legislation.

The following aspects must be stipulated:

Pay rates and arrangements
Scope of services
Contract duration
Termination terms

Independent contractors cannot work in ports operations. They also cannot be hired for public services (lawyers are an exception).

Tax Documents

The tax year runs from 1 January to 31 December.

Employers withhold taxes and social security contributions on the payment of salaries. Employers registered in Romania file personal income tax (impozitul pe venitul personal) reports on an annual basis by 25th May each year for the previous fiscal year using the form D402. Non-Romanian employers’ reports must be declared in form D224, due on the 25th of the month following the one for which the payroll is processed.

Companies are obliged to pay for mandatory health insurance, make work and pension fund contributions, as well as withhold personal income tax in addition to other corporate taxes, such as the overall VAT.

Withholdings and contributions can be submitted and paid online.

Some contractors file annual personal income tax reports and VAT, and pay social security contributions on their own.

Independent contractors must pay:

Pension insurance – 25%
Health insurance – 10%
Personal income tax – 10%
VAT – 19%

Liberal professionals may be subject to different pension contributions as they often have their own pension funds.

Payer's Tax Withholding & Reporting Requirements

Employers must withhold the following deductions and make the following flat-rate payments each year for each employee:

Pension insurance – 25%
Health insurance – 10%
Personal income tax – 10%
Labor insurance – 2.25%
VAT – 19%

Earnings of independent contractors are subject to personal income tax, social security contributions, and VAT, which they pay and file on their own without any involvement of a hiring organization.

Payer’s Withholding / Reporting Requirements for Independent Contractors

Companies hiring independent contractors are subject to social security contributions if any of the following conditions are met:

A company is registered in Romania and pays contractors directly
A company is registered in Romania and pays contractors through a third-party payment processor registered in Romania
A company is not registered in Romania, but is subject to an applicable EU social security legislation, and pays contractors directly

Remuneration

Employers are expected to pay their staff via automatic payroll deposits to their bank accounts. Currencies other than the Romanian leu (RON) are allowed.

There is no obligation to pay independent contractors monthly. Employers are responsible for providing consistent compensation. There are no standard payment terms. Remuneration frequency is to be agreed upon between the contractor and the employer. Payments become due after the contractor issues an invoice. Currencies other than the Romanian leu are allowed.

Workers’ Rights

In Romania, employees enjoy the following rights:

Paid annual leave – 20 days; 23 days for employees working under special conditions
Sick leave – 183 days; first 5 days are paid by the employer, the rest is covered by health insurance. Paid at 75-100% salary rate depending on the illness
Maternity leave – 126 days (split equally between the periods before and after birth)
Paternity leave – 5-10 days
Parental leave – 2 years; can be taken only by one of the parents; paid by the Social Security at 85% salary rate
Premium payment rate for overtime work – 175%
Termination notice – 20 business days for regular employees, 45 business days for managerial ones
Severance pay – determined by the contract or CBA, granted only to those who were dismissed because they lost the physical or mental ability to perform their job
Minimum wage – RON 3,000 (EUR 600)

Independent contractors are not entitled to any employer-granted rights, unless otherwise stipulated in the contract. There is also no minimum wage.

Benefits

All employees must have health, pension and labor insurance, which are funded by regular withholdings from salaries.

Employees may be granted additional internal benefits not otherwise governed by labor laws.

Sick leave, maternity, paternity, parental allowances, and pension benefits are granted by the state.

There is no protection from a sudden termination of the contract.

Third-party benefits granted by professional employer organizations may apply when an independent contractor is hired through such an organization (i.e. umbrella company) and is considered its employee.

When Paid

Once a month on the payment date stated in the contract, usually at the end or at the beginning of the month.

Typical contractor invoices are issued monthly on net 30-day terms. Each invoice usually includes the following details:

Invoice number and date
The client’s name and address
The contractor’s bank details
Agreed payment terms and due date

Employment Laws

In Romania, employment relations are regulated by various national legal acts, collective bargaining agreements, the European Union legislation, and local labor courts. The following legal acts are primary when determining the nature of an employment relationship:

Local labor courts supervise and authorize re-characterization of civil/collaboration contracts as employment contracts. They also override any choice of law made by the parties which deprives a worker of mandatory protection afforded by Romanian employment law.

There are three types of employment agreement in Romania:

Permanent (Contract individual de muncă pe durată nedeterminată)
Part-time (Contract individual de muncă cu timp partial)
Fixed-term (Contract individual de muncă pe durată determinata)

Collective bargaining agreements (CBAs) may apply.

Employment contracts must be concluded in writing and in Romanian. They must be registered in the electronic records of a local labor office before the employment can actually begin.

Hiring Practice

Candidates are recruited externally through job boards and advertising. An applicant must submit their CV to the employer.

Selected applicants receive an offer letter, and a written contract, if concluded, must be provided the day before the employment start date. In Romania, any employment contract that does not specify the duration of the agreement is considered to be indefinite by default.

The following aspects must be collected and included in the contract, in addition to special clauses, if applicable:

Names of the parties
List of duties
Employment start date
Duration of the contract for fixed-term agreements
Probation period (if applicable)
Total number of holidays
Job risks
Workplace
Work performance evaluation criteria
Employee benefits
Information on CBAs
Salary and payment frequency
Working hours
Notice period

Employers reserve the right to perform background checks during the hiring process, but they must not request any information that is not related to the nature of the work. This process can be delegated to third parties, provided they comply with the European Union privacy regulations. Medical checks are required, and a person can only be hired if they have a medical certificate proving they are physically fit to work. Pregnancy tests are not allowed, and any information pertaining to it cannot be requested. Testing for drugs and alcohol can only be conducted with the employee’s consent.

Probation period must not exceed 3 months.

Tax Documents

The tax year runs from 1 January to 31 December.

Employers withhold taxes and social security contributions on the payment of salaries. Employers registered in Romania file personal income tax (impozitul pe venitul personal) reports on an annual basis by 25th May each year for the previous fiscal year using the form D402. Non-Romanian employers’ reports must be declared in form D224, due on the 25th of the month following the one for which the payroll is processed.

Companies are obliged to pay for mandatory health insurance, make work and pension fund contributions, as well as withhold personal income tax in addition to other corporate taxes, such as the overall VAT.

Withholdings and contributions can be submitted and paid online.

Payer's Tax Withholding & Reporting Requirements

Employers must withhold the following deductions and make the following flat-rate payments each year for each employee:

Pension insurance – 25%
Health insurance – 10%
Personal income tax – 10%
Labor insurance – 2.25%
VAT – 19%

Remuneration

Employers are expected to pay their staff via automatic payroll deposits to their bank accounts. Currencies other than the Romanian leu (RON) are allowed.

Workers’ Rights

In Romania, employees enjoy the following rights:

Paid annual leave – 20 days; 23 days for employees working under special conditions
Sick leave – 183 days; first 5 days are paid by the employer, the rest is covered by health insurance. Paid at 75-100% salary rate depending on the illness
Maternity leave – 126 days (split equally between the periods before and after birth)
Paternity leave – 5-10 days
Parental leave – 2 years; can be taken only by one of the parents; paid by the Social Security at 85% salary rate
Premium payment rate for overtime work – 175%
Termination notice – 20 business days for regular employees, 45 business days for managerial ones
Severance pay – determined by the contract or CBA, granted only to those who were dismissed because they lost the physical or mental ability to perform their job
Minimum wage – RON 3,000 (EUR 600)

Benefits

All employees must have health, pension and labor insurance, which are funded by regular withholdings from salaries.

Employees may be granted additional internal benefits not otherwise governed by labor laws.

When Paid

Once a month on the payment date stated in the contract, usually at the end or at the beginning of the month.

Employment Laws

Independent contractors can render services as sole proprietors under two professional categories:

Individual contractors (antreprenori individuali)
Liberal professionals (profesioniști liberali)

Independent contractor engagements are regulated by specific provisions of the agreement, as well as the Romanian Civil and Fiscal codes. Employment re-characterization is handled by labor courts. If a contractor believes that his relationship with the company falls into a scope of employment relationship, a court proceeding may determine it as such.

Hiring Practice

Through professional employer organizations or directly.

Contractors can be hired directly or via a third party, such as a staffing agency. Contractors may be found via word-of-mouth, job boards, social networks, industry bodies, or other forums. Although hiring practices vary, the contractor may be asked to provide a CV, portfolio, and references and possibly sign an NDA.

An independent contractor agreement must clearly stipulate an independent nature of the work for it to be considered valid and not regarded as an employment contract. A contract may include negotiated clauses without restrictions except for those prohibited byt the civil legislation.

The following aspects must be stipulated:

Pay rates and arrangements
Scope of services
Contract duration
Termination terms

Independent contractors cannot work in ports operations. They also cannot be hired for public services (lawyers are an exception).

Tax Documents

Some contractors file annual personal income tax reports and VAT, and pay social security contributions on their own.

Independent contractors must pay:

Pension insurance – 25%
Health insurance – 10%
Personal income tax – 10%
VAT – 19%

Liberal professionals may be subject to different pension contributions as they often have their own pension funds.

Payer's Tax Withholding & Reporting Requirements

Earnings of independent contractors are subject to personal income tax, social security contributions, and VAT, which they pay and file on their own without any involvement of a hiring organization.

Payer’s Withholding / Reporting Requirements for Independent Contractors

Companies hiring independent contractors are subject to social security contributions if any of the following conditions are met:

A company is registered in Romania and pays contractors directly
A company is registered in Romania and pays contractors through a third-party payment processor registered in Romania
A company is not registered in Romania, but is subject to an applicable EU social security legislation, and pays contractors directly

Remuneration

There is no obligation to pay independent contractors monthly. Employers are responsible for providing consistent compensation. There are no standard payment terms. Remuneration frequency is to be agreed upon between the contractor and the employer. Payments become due after the contractor issues an invoice. Currencies other than the Romanian leu are allowed.

Workers’ Rights

Independent contractors are not entitled to any employer-granted rights, unless otherwise stipulated in the contract. There is also no minimum wage.

Benefits

Sick leave, maternity, paternity, parental allowances, and pension benefits are granted by the state.

There is no protection from a sudden termination of the contract.

Third-party benefits granted by professional employer organizations may apply when an independent contractor is hired through such an organization (i.e. umbrella company) and is considered its employee.

When Paid

Typical contractor invoices are issued monthly on net 30-day terms. Each invoice usually includes the following details:

Invoice number and date
The client’s name and address
The contractor’s bank details
Agreed payment terms and due date

Who classifies as an Independent Contractor in Romania?

Self-employment as an independent contractor is a popular income model for many individuals. The latest pandemic restrictions have prompted more and more Romanian professionals to work as self-employed independent contractors. Moreover, hiring independent contractors from Romania is currently a booming trend among organizations from all over the world. More and more representatives of Romania’s highly-motivated workforce choose to be their “own employers” and engage with companies as sole proprietors (Persoana Fizica Autorizata, PFA).

In Romania, freelancers are defined as “individual contractors” rendering services as an enterprise. Independent contractors and companies conclude a one-off civil agreement that stipulates such cooperation. Whether or not a worker is considered an independent contractor is determined by the nature of the work performed for an organization.

Who is an Independent Contractor?

Any individual who independently and consistently carries out an independent activity in the form of providing services for profit to a given organization, while not abiding by its internal legal directives under an employment contract, and acting as a registered business, is considered an independent contractor.

Independent contractor engagement implies no professional subordination between the worker and the employer. Dependent activities are defined as those performed by individuals during an employment relationship that generates income. At the same time, an independent activity is any kind of activity performed by individuals in order to obtain income, that meets at least four of the following criteria:

Personal autonomy and independence pertaining to where and how to perform the work
An ability to perform an activity for more than one customer
Risks inherent to the activity are assumed by the individual who performs the activity
The activity is performed using an equipment of the individual performing it
Usage of intellectual or physical performance of the individual performing an activity
The individual is part of a professional body/order that has supervisory and representative authority over the profession of the individual
The individual can delegate the services in question to third parties

Under Romanian law, an independent contractor is NOT obliged to:

Complete work for a set period of time each day, nor from a specified location
Make arrangements with the employer to take time off from work
Follow the employer’s disciplinary procedures

To become a contractor in Romania, a person must register as a sole proprietor with the National Trade Register Office (ONRC). A contractor must not be previously convicted of tax evasion. The following documents are needed:

Application
A document certifying the existence of the physical office (ownership act or rental agreement)
ID card or passport of the applicant
Professional or educational certificates, if applicable

An application form, as well as information on where to apply for sole proprietorship, can be found on the ONRC website.

Within 15 days after the registration, independent contractors must submit Form 070 and Form 220 to a local fiscal unit. Their addresses can be found here.

Freelancers must also register for VAT within 10 days after the receipt of the first income from work.

Contracting Models

Self-employed workers with their own business are classified as individual contractors or liberal professionals.

An individual contractor is any person who carries out professional services independently under the civil contract for the provision of services.

A liberal professional is an authorized individual who carries out an independent professional activity as a result of their specific qualification recognized by the National Agency for Fiscal Administration under the collaboration contract. Liberal professionals may opt out from establishing a sole proprietorship. Below are the most commonly recognized liberal professions in Romania:

Architect
Financial officer
Tax consultant
Pharmacist
Mediator
Insolvency practitioner
Sociologist
Psychologist
Sworn translator/interpreter
Lawyer
Doctor

A full list of liberal professions in Romania can be found here.

Engagement Models

There are two primary engagement models for working with independent contractors in Romania.

A. Direct engagement of the worker as self-employed and registered via their own company. Under this model, the hiring company engages directly with the independent contractor and draws up an agreement for the provision of services. The hiring company then pays the independent contractor directly.

B. Umbrella company. Companies operating under Employer of Record services in Romania come under one of two categories, but both are essentially designed to vet and engage freelancers compliantly as either contract employees or independent contractors on your behalf.

Staffing agency: Some contractors may work under an umbrella company. In this case, the contractor is responsible for finding and performing their work, but they are an employee of the umbrella company, which manages payroll and applies an administration fee on the contractor’s earnings.
Hiring partner: The hiring company can also work with a hiring partner who helps them vet potential contractors, set up contracts, ensure the contractor is properly classified, onboard and manage contractors, and make payments to them.

Contractor Payments

Independent contractors are typically paid upon issuing an invoice on net 30-day terms to the employer at the end of each month unless otherwise stipulated in the contract. Payments are made through direct deposits to their bank accounts or another preferred method stipulated in the contractor agreement.

Alternatively, companies may partner with wage processing providers. They can process wage calculations, prepare tax statements, and make deposits and withdrawals for contractors.

Terms, conditions, and frequency of payments can be settled between a contractor and an employer. Currencies other than the Romanian leu can be used, and they are subject to fluctuating exchange rates, which may impact the contractor’s paycheck.

If you work with a hiring partner like Worksuite, it becomes significantly easier to streamline contractor payment processes. A dependable partner can help you hire contractors legally and pay them quickly, accurately, in Romanian leus or in another currency of your choice, and in a way that complies with Romanian regulations.

Contractor Taxes

Contractors file annual personal income tax reports and pay social security contributions online by 15th of March. Independent contractors who earn less than 26,760 RON (EUR 5500) per year do not pay social security contributions. Freelancers are required to pay social security contributions in a direct, declarative system.

Gross Income Tax

Romania has a flat-rate personal income tax of 10% for employees and freelancers alike.

Value-Added Tax

The majority of services, imports of goods and services, and the sales value of items are subject to a VAT of 19%. Freelancers who render services to foreign clients or whose gross annual income earned from the provision of services to Romanian clients exceeds RON 300,000 (EUR 61,000), must file VAT. VAT is filed quarterly or monthly, depending on the type of VAT code (local or European).

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Employment Laws

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When Paid

Employee

Employment Laws

Hiring Practice

Tax Documents

Payer's Tax Withholding & Reporting Requirements

Remuneration

Workers’ Rights

Benefits

When Paid

Independent Contractor

Employment Laws

Hiring Practice

Tax Documents

Payer's Tax Withholding & Reporting Requirements

Remuneration

Workers’ Rights

Benefits

When Paid

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