Non-employment of directors - everything you need to know

The employment of a director or other legal representative is one of the issues that cause the most doubts in practice. Although at first glance it seems that the solution is clear - either the director concludes an employment contract, or a special contract outside of the employment relationship - the details about taxes, contributions, CROSO applications and fees show that things are not at all simple.

This text provides an overview of the key rules, practical examples of calculation and tax treatment, as well as guidelines for filling out the form correctly PPP-PD. If you are an employer or director, you will learn everything you need to be compliant with the law and avoid unnecessary risks.

Legal basis and opportunities for hiring directors

Article 48 of the Labor Law foresees two models:

• Employment contract - the director becomes an employee, exercises all rights and obligations like other employees.
• Agreement on rights and obligations of directors – performing a function outside of employment, with clearly defined rights and fees in the contract.

Login to CROSO

The non-employee director applies to CROSSO with base code 225, unless he is already insured on another basis (eg employed by another employer). Special rules apply to pensioners - the application is submitted only for PIO insurance, because health is covered by the PIO Fund.

Director's remuneration

Director must have compensation. It is a mandatory element of the contract. The amount is not prescribed by law - it is determined by agreement, in accordance with business results and practice. In addition to the basic fee, the contract can provide for:

• the right to annual leave,
• reimbursement of transportation and travel expenses,
• additional benefits that are not mandatory for other employees.

Tax treatment of compensation

Non-employment benefits of directors are treated as other income (Art. 85 of the Law on Personal Income Tax). The rules are:

• Taxable income = gross - 20% normalized costs,
• Tax = 20% on taxable income,
• Contributions: PIO 24%, Health 10.3% (except for pensioners and already insured persons).

Gross-net coefficients

In order to correctly calculate taxes and contributions, the net amount is converted to gross by means of coefficients:

1. When paying tax, PIO and healthcare - 1.768033946
2. When paying tax and PIO - 1.543209877
3. When only tax is paid - 1.190476190

PPP-PD application

The employer is obliged to submit the PPP-PD form with each payment and declare all calculated taxes and contributions. In the text, examples are given in detail for the three most common situations: an unemployed director, a director insured by another employer, and a director with a PIO Fund solution.

Reimbursement of expenses and business trips

The expenses of the director outside of the employment relationship are treated as part of the remuneration, except for the expenses of the official trip, which are partially tax-free (per diem in the country up to 3,380 din, abroad up to €90 per day, accommodation and transportation costs according to invoices).

Conclusion

The employment of the director outside the employment relationship requires careful arrangement of contracts and strict monitoring of tax regulations. Although the law leaves flexibility regarding the amount of compensation, the employer's obligation to report, calculate and pay taxes and contributions is clear. Accurately filling out the PPP-PD form and documenting costs are the key to legal business and risk avoidance.

For additional information, see our pages on monthly reporting and internal reporting.