Recent Trends in Serbian Employment Law

Probation period

An employment contract may stipulate probation work for performing one or more associated or related activities determined by the employment contract, which may last for a maximum of six months.

Prior to expiry of the time for which the probation period was contracted, the employer or the employee may terminate the employment contract with a notice period which may not be shorter than five working days. The employer is obliged to provide reasons for termination of any employment contract. On the other hand, an employee failing, in the course of the probation period, to present corresponding work and professional abilities, will have their employment relationship terminated as of the day of expiry of the time limit stipulated in the employment contract. Bearing in mind the relevant provisions of the Labour Law, in case of termination of the employment contract prior to expiry of the probation period, formally there is no need to carry out the termination procedure, which is mandatory where an employee does not achieve the work results or does not have the necessary knowledge and skills to perform their duties (this procedure includes giving a prior written notice regarding the deficiencies in the employee’s work, guidance and an appropriate deadline to improve work performance).

However, this conclusion has been questioned by a recent judgment of the Supreme Court of Cassation passed in May 2022. Namely, according to this judgment, in case of termination of the employment contract prior to the expiration of the probation period, before the termination, the employer has to notify the employee in writing of the deficiencies in their work and provide them with instructions and an appropriate deadline for improving the work. This judgment differs from the provisions of the Labour Law, as well as from the previous court practice and the Ministry’s opinion.

The effect and implications of the respective judgment of the Supreme Court of Cassation remains to be seen.

Contractual relationship with company director

Pursuant to the Labour Law, a director or other legal representative of the employer may establish an employment relationship for an indefinite or a definite period of time. On the other hand, the mutual rights, obligations and responsibilities of a director who has not established an employment relationship and the company employer are regulated by a separate contract. The law is silent on whether it is mandatory to have a written agreement between the director and the company: ie, the provisions of relevant laws do not explicitly prescribe the company’s obligation to conclude an employment agreement or other contract with the director, especially when this person is a foreign national, residing abroad.

In practice, previously, the majority of private companies in Serbia with foreign director(s) (who have not established an employment relationship) have not concluded any contract with them. However, after the opinion of the Ministry of Finance issued on 11 June 2018, under which it was inter alia stated that the compensation for the director’s work is considered a mandatory element of the agreement on regulating the rights and duties of the director, this practice has started to change. Namely, after issuance of the aforementioned opinion of the Ministry of Finance, competent branches of the Tax Authority started to control whether companies are paying taxes and mandatory social contributions for their directors, because they are generally of the opinion that taxes and mandatory social contributions should be calculated and paid. The local authorities (especially the tax authority) require the conclusion of a contract with the director of the company, so this requirement can be considered as mandatory, although it is something of a grey area.

As for the compensation itself, the Labour Law, in a situation where the director is engaged outside the employment relationship, does not determine the lowest (nor the highest) amount of compensation for the work of a director. In practice, the subject compensation can be equal to the minimum monthly wage or even lower, depending on the practice of the competent Tax Authority.

Minimum wage increase

The minimum wage in Serbia is currently set at RSD230.00 (net) per hour, for the time period from January 2023 until December 2023, which applies to all employees. The minimum wage depends on the number of working days in the respective month.

Legislative Developments

New Law on Safety and Health at Work

Near the end of April 2023, the National Assembly of the Republic of Serbia passed a new Law on Safety and Health at Work (Zakon o bezbednosti i zdravlju na radu, Official Gazette of the Republic of Serbia, No 35/23) (the “Law on Safety and Health at Work”), introducing several key changes and novelties in the field of safety and health at work, which has been duly waiting for necessary adjustments since before the beginning of the COVID-19 pandemic.

One of the more significant changes brought by the new Law on Safety and Health at Work is the redefinition of key terms such as workplace, as well as the introduction of certain terms for the first time in health and safety legislation, such as working from home and remote work.

The workplace is now defined as being where employees perform work tasks in the working environment in which they stay or have access to during work, and which is under the direct or indirect control of the employer.

As for the newly introduced terms, work from home is defined as work which an employee performs using information and communication technologies from the place of residence or other place of stay, but not under the direct control of the employer, while remote work is defined as work performed using information and communication technologies in an area which is not the employer’s area and not under the direct control of the employer.

When working from home or remotely, the employer provides safety and health measures in co-operation with the employee, and must determine conditions for safe work, defines the work process and prescribes preventative measures for safe work.

Another key novelty is a medical examination per employee’s request which corresponds with risks associated with certain work activities, at regular intervals of five years from the previous examination, the cost of which is to be paid by the employer.

The employer is obliged to submit a request to the competent labour inspection before starting certain business activities, such as production, traffic, distribution, processing, disposal and storage of dangerous, harmful, and waste materials, oil, oil derivatives, poisons, chemical production activities, etc, in order to determine whether the prescribed conditions in the area of safety and health at work have been fulfilled.

A new Register of injuries at work, introduced with the passing of the Law on Safety and Health at Work, will enable employees to report injuries at work electronically and allow employers to have a better overview of data related to injuries.

A stricter penal policy is also subject of the provisions of the new Law on Safety and Health at Work, which has nearly doubled the amount of fines for certain misdemeanours, and introduced several dozen new ones for different breaches of these provisions.

The Law on Safety and Health at Work entered into force on 7 May 2023, whereas employers are obliged to organise their operations in accordance with the new law within two years from the date of its entry into force, ie, by 7 May 2025.

New by-law offering incentives for employers that employ persons who have recently established residency in Serbia

The Government of the Republic of Serbia adopted a new by-law, the Regulation on Criteria for Granting Incentives to Employers that Employ Newly Inhabited Persons in the Republic of Serbia (Uredba o kriterijumima za dodelu podsticaja poslodavcima koji zapošljavaju novonastanjena lica u Republici Srbiji, Official Gazette of the Republic of Serbia, No 67/2022) (the “Regulation”), which entered into force on 18 June 2022.

Incentives are intended for employers that employ natural persons with experience in fields of work which are deficient in the Serbian labour market, who have not resided longer than 180 days in Serbia in a time span of 24 months prior to entering a full-time employment relationship with the employer for an indefinite period. The incentive may be applied only if the employee has a salary of RSD300,000 (approx EUR2,550) or more. For the award of incentives related to the payment of individual salaries, the application can be submitted only once.

The right to incentives can be exercised by an employer whose number of permanent full-time employees on the day of submission of the application for the grant of incentives is the same or greater than the number of permanent full-time employees on the date of entry into force of this regulation, increased by the number of employees of newly inhabited persons for whom the application is submitted. If an employer is registered to perform activities in the Republic of Serbia after the entry into force of the Regulation, it is considered that it did not have full-time employees for an indefinite period of time on the date of entry into force of this by-law.

The incentives can be exercised by the employer at most for the number of employed newly inhabited persons which, together with the number of full-time employed persons for an indefinite period who cannot be considered as employed persons for newly inhabited persons on the date of submission of the application, is greater than the number of full-time employed persons for an indefinite period on the date of entry into force of the Regulation.

Incentives are paid in the amount of 70% of the calculated and paid income tax and 100% of the calculated and paid contributions for mandatory pension and disability insurance for one or more employed recently inhabited persons during a period of no more than 60 months, starting from 1 July 2022, and ending with 31 December 2028.

An employer will not be able to exercise the right to incentives if:

• in the period from the submission of the first application and ending with the end of the calendar year in which it received the last incentive payment, it pays dividends, ie, realised profits, except for dividends or profits that are paid out of the portion of the profit that is higher than the amount received on behalf of the incentives;
• it is a beneficiary of state aid in connection with the employment obligation, except for employers who have already fulfilled this obligation as of 1 July 2022; or
• for an employed newly inhabited person for whom it receives the incentives prescribed by the Regulation, it uses or has used the right to reduce the tax base for that person in accordance with the Law on Personal Income Tax.

The employer is required to submit an application to the Ministry responsible for economic affairs once a year, ie, up to eight times in total, in the period between 15 September and 30 September for the payment of incentives in connection with the salaries of the newly inhabited persons paid starting from 1 July 2022 and ending on 31 December 2028, whereby each application is submitted for salaries paid in the period preceding the submission of the application, no more than 12 months. The payment of incentive funds is made up to the amount of available budget funds in accordance with the law on the budget for the years in which the incentive payment is made.

Should the Ministry responsible for economic affairs refuse to award incentives, the employer has the right to file an objection to the competent authority within eight days from the date of delivery of said decision.

What the Serbian Labour Market May Expect Soon

A number of proposals for significant amendments to employment-related legislation are submitted for legislative work, including the Law on Employment of Foreigners and the Law on Foreigners.

Stimulating the Serbian labour market – Draft Law on Amendments to the Law on Employment of Foreigners

In order to stimulate the domestic labour market, Serbia is preparing to amend provisions regulating the position of foreigners in the country and to simplify the necessary procedure for their employment. The Draft Law on Amendments to the Law on Employment of Foreigners (the “Draft Law”) plans to introduce a new electronic procedure for issuance of a single unified permit both for work and temporary residence, which will substitute the current regime of two separate procedures for each of the two permits. The new unified permit will be issued in the form of a plastic biometric card.

The current terms for employment of foreigners are also subject to modest alteration, whereby:

• the employer must not have dismissed employees due to technological, economic or organisational changes at the workplace for which a unified permit is requested, within 90 days before submitting a request for a unified permit;
• the employer initiated the implementation of the labour market test (the organisation responsible for employment conducts a labour market test at the request of the employer by determining whether there are domestic natural persons who meet the requirements of the employer’s request for the specific workplace); and
• there exists a proposal for an employment agreement or another agreement by which rights based on work are realised.

The amendments to the Law on Employment of Foreigners are also simultaneously followed by proposed amendments to the provisions of the Law on Foreigners, which are proposing an increase of the period of temporary residence up to three years, with an option to extend the temporary residence for another three years, depending on the basis on which the residence permit is issued. These amendments thus have notable implications since there are plans to introduce a single unified permit. All ongoing proceedings for obtaining the residence permits that were initiated before the introduction and entry into force of the amendments will be concluded based on the regulations that were in effect at the time the proceedings started. However, if the new provisions are more favourable for the foreigner involved in the proceedings, then those new provisions will be applied instead.

The Draft Law also proposes amendments to provisions regarding the secondment of employed foreigners, that is, issuing a single unified permit for seconded employed foreign persons and a single unified permit for movement of these persons within the company.

The new procedure is expected to greatly contribute to reducing costs associated with the issuance of these permits and enable employers to submit the application for the unified permit electronically, obtain necessary permits in a quicker and simpler manner and allow foreigners to simultaneously exercise the right to temporary residence and work in Serbia.

In case of adoption of the Draft Law, the new rules for foreigners will be applicable as of 1 February 2024.

Amendments to be made to the Labour Law – introduction of electronic signatures and electronic documents

The Labour Law saw significant amendment in 2014; since then the labour market in Serbia has rapidly expanded and changed. In order to harness the possibilities brought by the digitalisation process, it is anticipated that the new series of provisional amendments of the Labour Law will introduce an alternative way of regulating rights and obligations stemming from the employment relationship using electronic documents and electronic signatures. Although there were announcements that the Labour Law would be amended during 2021, the COVID-19 pandemic delayed this process, and the recent and ongoing developments in eastern Europe further delayed the process well beyond 2022. The amendments of the Labour Law are now expected to be adopted during 2024.

If the proposed amendments to the Labour Law are implemented, digitalisation of labour documents would remove burdensome administrative and financial technicalities in employment relationships and would subsequently allow for labour documents to be administered more promptly and efficiently. Employers should take notice of these potential upcoming changes, particularly employers with a large number of employees, as they should make financial savings, but also decrease the amount of time spent on administrative activities.