12 min read
Bosnia and Herzegovina
Hire in Bosnia and Herzegovina with Confidence
Worksuite offers a whole range of professional services and compliance tools, making it easy to compliantly engage independent contractors in Bosnia and Herzegovina.
We work with the best legal partners in Bosnia and Herzegovina to create contract templates that are compliant with local laws to protect you and your contractors from fines and penalties.
Our bespoke onboarding workflows and screening questioners will help you determine the worker status in compliance with Bosnia and Herzegovinan law, based on which you can decide to engage a worker as a contractor or full-time worker—all without needing to set up your business entity.
Contractor Classification in Bosnia and Herzegovina
Businesses hiring in Bosnia and Herzegovina (BiH) should understand the legal distinction between independent contractors and employees. Fines or penalties may be issued to businesses hiring independent contractors under the guise of employment. In Bosnia and Herzegovina, some labor policies are unique to a region. 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 or independent contractors. A standard employment contract (ugovor o radu) indicates the traditional relationship between an employer and an employee. A service contract (ugovor o uslugama) indicates a freelance engagement whereby an independent contractor (nezavisni ugovarač) agrees to provide a defined piece of work for a set amount of money.
Bosnian labor laws are constantly subject to revision and policy changes. In addition, the country’s Labor Code defines very strict penalties for misconduct. 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.
Factors
Employee
Independent Contractor
Employment Laws
In Bosnia and Herzegovina, both employment and independent contractor relations are regulated by the country’s Labor Code (Zakon o radu Federacije BiH), as well as unique terms and conditions specified in employment contracts. Employment conditions may be subject to a Collective Bargaining Agreement (CBA, a written legal contract between an employer and a union representing the employees).
There are two types of employment contracts in Bosnia and Herzegovina:
- Open-ended, or indefinite (ugovor o radu na neodređeno vrijeme)
- Fixed-term (ugovor o radu na određeno vrijeme, for up to 3 years)
Both types of agreements must be concluded in writing. If a contract does not specify the duration of an agreement, it is considered to be an indefinite one.
There is no requirement to draw up contracts in Bosnian.
In BiH, independent contractors are defined as “service providers” (pružaoci usluga).
Service providers work under a service contract as exclusive agents.
Bosnian legislation does not define any sub-types of a service contract with an independent contractor. It can be bilateral (binding for both parties) or unilateral (binding for only one party).
Hiring Practice
Candidates are recruited externally through job boards and advertising. An applicant must submit their CV to the employer.
Selected applicants are entitled to receive a written contract or an offer letter (pismo ponude za posao) within 15 days of the date when the decision to hire was made by the employer. Such a document must specify the duration of employment. If an offer/contract is not provided during this period, then a contract is considered indefinite.
The following aspects must be collected and included:
- Full name
- Residence information
- Employment duration
- Date of commencement
- Place of work
- Nature of work and short job description
- Average weekly and daily working hours;
- Basic salary and bonuses (including payment date)
- Holiday entitlement
- 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.
Freelancers are hired 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.
There is no limitation on the use of independent contractors. BiH Labor Code does not define any guidelines for concluding a service contract. Generally, the process of hiring a contractor is identical to the one of hiring an employee.
Tax Documents
Employers are obliged to submit monthly income and social security tax reports to a local tax office on the same day as the salary payment and no later than by the end of the following month for the previous month.
In Republika Srpska, the deadline is the 10th day of each month.
There is no universal method of submission – employers are encouraged to contact a local tax office for guidance.
Contractors file annual tax reports (poreski izvještaj) to a local tax authority. They are also subject to pension and mandatory health and unemployment insurance contributions.
Payer's Tax Withholding & Reporting Requirements
Employers must withhold:
- 6% – retirement and disability insurance contribution
- 4% – mandatory health insurance contribution
- 0.5% – mandatory unemployment insurance contribution
- 0.5% – mandatory contribution for protection of water
- 0.5% 0 mandatory contribution for protection from natural disasters
- 10% – personal income tax (flat rate irrespective of the income size)
Independent contractors must pay the following taxes themselves in all regions except Republika Srpska:
- 17% – retirement and disability insurance contribution
- 12.5% – mandatory health insurance contribution
- 1.5% – mandatory unemployment insurance contribution
- 10% – personal income tax (flat rate irrespective of the income size)
- VAT – 17% (if gross annual income exceeds BAM 50,000 (EUR 25,000))
In Republica Srpska:
- 18.5% – retirement and disability insurance contribution
- 12% – mandatory health insurance contribution
- 0.6% – mandatory unemployment insurance contribution
- 1.7% – child protection contribution
- 10% – personal income tax
- VAT – 17% (if gross annual income exceeds BAM 50,000 (EUR 25,000))
Payer’s Withholding / Reporting Requirements for Independent Contractors:
N/A
Remuneration
Employers are expected to pay their staff via automatic monthly payroll deposits in Bosnia-Herzegovina Convertible Markas (BAM) to their bank accounts.
There is no obligation to pay independent contractors monthly. Employers are responsible for providing consistent compensation in Bosnia-Herzegovina Convertible Markas (BAM). 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.
Workers’ Rights
In BiH, employees enjoy the following rights:
- Paid annual leave – 20 days, available after first six months of employment
- Sick leave – 5 days
- Injury leave (for damages inflicted at work) – 42 days, paid by an employer
- Maternity leave (all regions except Republica Srpska) – 1 year granted to female employees, with a right to work part-time post-maternity until the child turns two years old
- Maternity leave in Republica Srpska – 1 year granted to female employees, increased to a year and a half for twin births or any subsequent births after a second child
- Paternity leave – 7 days
- Marriage leave – 7 days
- Bereavement leave – 7 days
- Severance pay (excluding cases when an employee is fired for misconduct or has worked less than 2 years) – according to the contract or CBA, can’t be less than one-third of the average monthly wage for the preceding three months
- Premium payment rate for overtime work (cannot exceed 8 hours/week, determined by a CBA)
- Termination notice – 14 days
Independent contractors do not enjoy any of the benefits granted to employees, unless internally agreed otherwise.
There is also no protection from a sudden termination of the contract.
Benefits
All employees must have unemployment insurance, which the employer is required to pay for. Pension and health insurance contributions are deducted from employees’ salaries and are paid by employers. Employees may be granted additional internal benefits not otherwise governed by labor laws.
Employees are generally entitled to a Christmas holiday bonus payment – 78% of an employee’s average monthly salary.
No benefits are granted to contractors. Third-party benefits granted by professional employer organizations may apply when an independent contractor is hired through such organizations (i.e. umbrella company) and is considered their employee.
Mandatory health insurance coverage is provided by the state.
When Paid
Determined by the contract or CBA.
Salary must be paid at least once a 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
Employee
Employment Laws
In Bosnia and Herzegovina, both employment and independent contractor relations are regulated by the country’s Labor Code (Zakon o radu Federacije BiH), as well as unique terms and conditions specified in employment contracts. Employment conditions may be subject to a Collective Bargaining Agreement (CBA, a written legal contract between an employer and a union representing the employees).
There are two types of employment contracts in Bosnia and Herzegovina:
- Open-ended, or indefinite (ugovor o radu na neodređeno vrijeme)
- Fixed-term (ugovor o radu na određeno vrijeme, for up to 3 years)
Both types of agreements must be concluded in writing. If a contract does not specify the duration of an agreement, it is considered to be an indefinite one.
There is no requirement to draw up contracts in Bosnian.
Hiring Practice
Candidates are recruited externally through job boards and advertising. An applicant must submit their CV to the employer.
Selected applicants are entitled to receive a written contract or an offer letter (pismo ponude za posao) within 15 days of the date when the decision to hire was made by the employer. Such a document must specify the duration of employment. If an offer/contract is not provided during this period, then a contract is considered indefinite.
The following aspects must be collected and included:
- Full name
- Residence information
- Employment duration
- Date of commencement
- Place of work
- Nature of work and short job description
- Average weekly and daily working hours;
- Basic salary and bonuses (including payment date)
- Holiday entitlement
- 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.
Tax Documents
Employers are obliged to submit monthly income and social security tax reports to a local tax office on the same day as the salary payment and no later than by the end of the following month for the previous month.
In Republika Srpska, the deadline is the 10th day of each month.
There is no universal method of submission – employers are encouraged to contact a local tax office for guidance.
Payer's Tax Withholding & Reporting Requirements
Employers must withhold:
- 6% – retirement and disability insurance contribution
- 4% – mandatory health insurance contribution
- 0.5% – mandatory unemployment insurance contribution
- 0.5% – mandatory contribution for protection of water
- 0.5% 0 mandatory contribution for protection from natural disasters
- 10% – personal income tax (flat rate irrespective of the income size)
Remuneration
Employers are expected to pay their staff via automatic monthly payroll deposits in Bosnia-Herzegovina Convertible Markas (BAM) to their bank accounts.
Workers’ Rights
In BiH, employees enjoy the following rights:
- Paid annual leave – 20 days, available after first six months of employment
- Sick leave – 5 days
- Injury leave (for damages inflicted at work) – 42 days, paid by an employer
- Maternity leave (all regions except Republica Srpska) – 1 year granted to female employees, with a right to work part-time post-maternity until the child turns two years old
- Maternity leave in Republica Srpska – 1 year granted to female employees, increased to a year and a half for twin births or any subsequent births after a second child
- Paternity leave – 7 days
- Marriage leave – 7 days
- Bereavement leave – 7 days
- Severance pay (excluding cases when an employee is fired for misconduct or has worked less than 2 years) – according to the contract or CBA, can’t be less than one-third of the average monthly wage for the preceding three months
- Premium payment rate for overtime work (cannot exceed 8 hours/week, determined by a CBA)
- Termination notice – 14 days
Benefits
All employees must have unemployment insurance, which the employer is required to pay for. Pension and health insurance contributions are deducted from employees’ salaries and are paid by employers. Employees may be granted additional internal benefits not otherwise governed by labor laws.
Employees are generally entitled to a Christmas holiday bonus payment – 78% of an employee’s average monthly salary.
When Paid
Determined by the contract or CBA.
Salary must be paid at least once a month.
Independent Contractor
Employment Laws
In BiH, independent contractors are defined as “service providers” (pružaoci usluga).
Service providers work under a service contract as exclusive agents.
Bosnian legislation does not define any sub-types of a service contract with an independent contractor. It can be bilateral (binding for both parties) or unilateral (binding for only one party).
Hiring Practice
Freelancers are hired 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.
There is no limitation on the use of independent contractors. BiH Labor Code does not define any guidelines for concluding a service contract. Generally, the process of hiring a contractor is identical to the one of hiring an employee.
Tax Documents
Contractors file annual tax reports (poreski izvještaj) to a local tax authority. They are also subject to pension and mandatory health and unemployment insurance contributions.
Payer's Tax Withholding & Reporting Requirements
Independent contractors must pay the following taxes themselves in all regions except Republika Srpska:
- 17% – retirement and disability insurance contribution
- 12.5% – mandatory health insurance contribution
- 1.5% – mandatory unemployment insurance contribution
- 10% – personal income tax (flat rate irrespective of the income size)
- VAT – 17% (if gross annual income exceeds BAM 50,000 (EUR 25,000))
In Republica Srpska:
- 18.5% – retirement and disability insurance contribution
- 12% – mandatory health insurance contribution
- 0.6% – mandatory unemployment insurance contribution
- 1.7% – child protection contribution
- 10% – personal income tax
- VAT – 17% (if gross annual income exceeds BAM 50,000 (EUR 25,000))
Payer’s Withholding / Reporting Requirements for Independent Contractors:
N/A
Remuneration
There is no obligation to pay independent contractors monthly. Employers are responsible for providing consistent compensation in Bosnia-Herzegovina Convertible Markas (BAM). 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.
Workers’ Rights
Independent contractors do not enjoy any of the benefits granted to employees, unless internally agreed otherwise.
There is also no protection from a sudden termination of the contract.
Benefits
No benefits are granted to contractors. Third-party benefits granted by professional employer organizations may apply when an independent contractor is hired through such organizations (i.e. umbrella company) and is considered their employee.
Mandatory health insurance coverage is provided by the state.
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 Bosnia and Herzegovina?
Self-employment as an independent contractor is a popular income model for many individuals. The latest pandemic restrictions have prompted more and more Bosnians to work as self-employed independent contractors. Moreover, hiring independent contractors from BiH is currently a booming trend among organizations in the United States and Europe alike. The relatively cheap cost of outsourcing has attracted dozens of companies looking to expand their workforce.
In Bosnia and Herzegovina, independent contractors are defined as “service providers”, and the scope of their work is stipulated in service contracts.
Who is an Independent Contractor?
Any individual who independently and consistently carries out a gainful activity in the form of providing services for profit to a given organization, while not abiding by its legal directives is considered a service provider.
Under Bosnian labor 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
If any of the above-mentioned conditions apply, employers are required to draw up an employment contract. Hence, a worker who follows a company’s directives and is involved in the operation of the business cannot be considered an independent contractor.
Contracting Models
BiH labor legislation does not define different types of independent contractor agreements. Instead, any individual who carries out an economic activity independently and directly, without being subject to an employment contract is defined as a service provider, even if they subcontract the related activities to other parties.
Below are the primary aspects, among others, that constitute labor relations in Bosnia:
- An individual performing service(s) to another entity in a continuous manner
- An entity organizing the provision of services (via official orders and guidelines)
Engagement Models
There are two primary engagement models for working with independent contractors in Bosnia.
A. Direct engagement of the worker as self-employed or registered via their own limited 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 BiH are often split into 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 typically get 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 Bosnia-Herzegovina Convertible Marka can be used in BiH, and they are subject to fluctuating exchange rates, which may have an impact on a contractor’s paycheck. Euro is generally accepted.
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 euros, and in a way that complies with Bosnian regulations.
Contractor Taxes
Independent contractors are required to make pension and health insurance contributions, as well as to pay a mandatory unemployment insurance fee once a month upon the receipt of the final monthly paycheck from clients.
When submitting an annual tax report, the following documents need to be provided to a tax authority by 31 of March each year:
- Form AMS-1035 (kontacija poreza po odbitku na druge samostalne djelatnosti) – withholding tax deduction for other independent activities
- Proof of income received (bank statements, invoices, payment receipts)
- Proof of payment of income tax and social security contributions
Income tax and social security contributions can be paid online through the portal of the Bosnian Tax Administration. The portal also allows report submissions.
Gross Income Tax
A federal tax on gross annual earnings that applies to self-employed people is the gross income tax. In all regions of BiH, the tax has a flat rate of 10% regardless of income size. By submitting monthly tax returns, the tax is considered paid.
Independent contractors who have a Bosnian tax card (porezna kartica) are entitled to an annual personal deduction (lični odbitak) upon submitting the form GPD-1051 (godišnja prijava poreza na dohodak), an annual income statement, to a local tax office. A tax card can be obtained upon submitting the application to a local tax office.
Value-Added Tax
The majority of services, imports of goods and services, and the sales value of items are subject to a VAT deduction of 17% if a contractor’s taxable turnover of goods or services in the previous year exceeds, or is likely to exceed, the amount of BAM 50,000 (EUR 25,000). All entities that are for the first time obligated or may become obligated to pay VAT, must submit an application to a local tax authority no later than by the 20th calendar day after the month for which they realized or are likely to realize revenues exceeding the cap.
