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The issue of arranging business trips for individuals who work under a contract for work
Arranging business trips for individuals not in employment relationships is impossible
The issue of arranging a business trip for individuals who work under a contract for work (civil-law contract) that provides for work in another locality, and for regular employees who are located at the site but are not in employment relationships with the enterprises, arises quite often.
Regarding business trip issues, enterprises should take into account Art. 121 of the Labor Code (KZOT), subparagraph 140.1.7 of the Tax Code of Ukraine (NKU) and Instruction No. 59 (which is of a recommendatory nature for agricultural entities not financed from the budget).
According to paragraph 1 of Instruction No. 59, a trip to another locality for the specified period on the basis of an order from the enterprise’s manager to perform a certain type of work outside the place of permanent employment may be considered a business trip. Such conditions are possible if there are documents confirming that the official business trip is related to activities that are the enterprise’s core operations.
Article 121 of the Labor Code provides a list of guarantees and compensations to employees in cases of business trips. It is important to note that in cases where the employee’s primary type of activity involves constant travel (a mobile character), official trips will not be regarded as business trips if this is not provided for by the collective agreement, legislation, or the employment contract between the owner and the employee (the manager or a person authorized by them).
Subparagraph 140.1.7 of the Tax Code indicates that taxpayer expenses include expenses for business trips of individuals who are in employment relationships with such a taxpayer. Thus, it is not difficult to conclude that the key condition for recognizing expenses related to business trips is the requirement that the person sent on a business trip be an employee of the enterprise.
Therefore, if an enterprise performs work at a site located in another locality, the work may be performed, in particular, by employees of such an enterprise who are in an employment relationship with it. Only such employees can be sent from their workplace to that site on an official trip (business trip) by order of the enterprise’s manager.
In addition, individuals who do not work for such an enterprise (were not in an employment relationship with the enterprise before starting work at this site) but reside at the location of the site may be engaged in work at such a site. Since the workplace coincides with the site, even if an employment contract (usually fixed-term) is concluded with such a worker, that worker will not be entitled to the guarantees provided by Art. 121 of the Labor Code for work at that site. Third-party individuals can be engaged for work by concluding either an employment contract or a civil-law contract (in particular, a contract for work and services), depending on the specifics of such work. But when working under a civil-law contract, an individual will not have the guarantees provided by Art. 121 of the Labor Code, because the Labor Code establishes such guarantees only for employment (labor) relationships, not for civil-law relations.
Thus, to have employees perform work outside the enterprise’s location, one can:
- either arrange a business trip (if provided for by the collective or employment contract) with per diem payments;
- or pay allowances for the mobile nature of the work (field support) for rotational shift work.
If an enterprise engages an external individual to perform work outside its location, with such a person one can:
- conclude an employment contract for the duration of performing a specific job;
- enter into a civil-law contract.
In the case of concluding an employment contract, the worker is paid wages, which are accordingly taxable. If a civil-law contract is concluded with the person, the individual receives the amount of remuneration established by the contract (no limit is set on the amount of such remuneration).
Note that on the amount of remuneration paid to an individual for work under a civil-law contract, the enterprise accrues the single social contribution (SSC) at the rate of 34.7% and withholds 2.6% from the salary. The withholding of the single contribution is made from the amount from which it is calculated (part 6 of Art. 7 of the Law on SSC). The SSC must be paid no later than the 20th day of the month following the reporting month. The maximum base for SSC calculation is no more than 17 subsistence minimums for able-bodied persons established by law.
In addition, personal income tax (PIT) must be withheld from the amount of remuneration. The tax rate will depend on the amount of income. According to paragraph 167.1 of the Tax Code, the tax rate is 15% of the tax base. The base is the accrued amount of such remuneration reduced by the amount of the SSC, according to subparagraph 2 of paragraph 164.6 of the Tax Code. But if the tax base in a calendar month exceeds ten times the amount of the minimum wage established as of January 1 of the reporting tax year, then a rate of 17% will be applied to the amount of the excess (from 01.01.2013 to 01.12.2013 – 11,470.00). The tax is paid (remitted) to the budget at the time of payment of the remuneration. If the remuneration is paid in cash from the cash register, PIT is paid (remitted) within the banking day following the day of such accrual (payment, provision), according to subparagraph 168.1.4 of the Tax Code.
The amount of remuneration paid under a civil-law contract will be classified as expenses of the enterprise under the rule of paragraph 142.1 of the Tax Code.
Also note that if an enterprise has to send a person working under a civil-law contract to another locality, the travel expenses of such an individual may be included in the amount of remuneration under the civil-law contract. Thus, the need for business trips disappears; the compensation of expenses is simply included in the amount of remuneration under the civil-law contract.