To cut insurance costs, many employers sign service or collaborator contracts with individuals who work full-time right in their office. The strategy holds until the insurance agency or a court looks at the relationship’s substance instead of the paper’s name: Clause 1, Article 13 of the Labour Code provides that a differently named contract is still a labour contract where three signs are present. This article analyses those three signs and the full consequences of reclassification.
The three signs that turn a service contract into a labour contract
Clause 1, Article 13 of the Labour Code provides that where a contract bears another name but its content shows paid employment, wages, and the management, direction and supervision of one party, it is deemed a labour contract. The three cumulative signs are: a specific job assigned, remuneration attached to the work process, and management, direction and supervision — shown through fixed hours, timekeeping, assignment and appraisal by the employer’s managers, and internal discipline applied as to staff.
Contrast a genuine service contract: the provider independently organises its own work, bears result risk, serves multiple clients, and is paid by deliverable or result package rather than by fixed months tied to presence. The more management signs appear — internal email, staff badge, fixed meeting schedule, leave requiring approval — the harder a labour-contract conclusion is to avoid, regardless of the name on the contract’s first page and whatever the parties orally agreed about not paying insurance.
Consequences of reclassification: back-contribution and full regimes
The first financial consequence is back-contribution of social, health and unemployment insurance for the entire period the real relationship existed, calculated on actual pay, with late amounts of 0.03% per day under Article 40 of the Social Insurance Law 41/2024/QH15 and administrative sanctions for contribution evasion. Where the evasion was organised and prolonged, handling may be considered at the more serious tier for insurance evasion under Article 41 of that law.
The second consequence sits on the worker’s side: once the relationship is established as employment, the worker receives retroactively the rights of an employee for the time worked, including recorded contribution time, annual leave, and sickness or maternity regimes where conditions are met, plus corresponding severance amounts at termination. The third consequence is contagion risk: a conclusion for one individual usually opens a review of the employer’s entire collaborator group on the same model, turning a single case into a workforce-wide assessment.
How employers should convert the model correctly
For positions that are in substance full-time managed labour, the only durable handling is signing labour contracts and contributing in full from the conversion point, while proactively working with the insurance agency on the past period instead of waiting to be discovered. For work genuinely suited to a services model — project-based, result-based, not presence-bound — the employer must redesign the relationship to match that substance: the provider organises its own personnel, payment follows result acceptance, no timekeeping, and no direct management of the individuals performing the work.
A common conversion mistake is changing only the contract’s name and template while operations stay identical: the person still sits in the office, still clocks in, still reports to a department head. Every review examines actual operations before documents, so a cosmetic conversion only adds evidence that the employer knew the risk and continued anyway. The compliance cost of converting properly at the start is always lower than the combined back-contribution, fines and litigation of an evasion model discovered in year three or year five.
Frequently Asked Questions
What signs make a service contract get ruled a labour contract?
Under Clause 1, Article 13 of the Labour Code, a differently named contract is deemed a labour contract when three signs coincide: paid employment, wages, and one party’s management, direction and supervision. Management signs include fixed hours and timekeeping, assignment, appraisal and staff-like discipline. The contract’s name and any agreement not to pay insurance do not decide the relationship’s nature.
From when is SI back-assessed after reclassification?
Back-contribution covers the entire period the real employment relationship existed, on the worker’s actual pay, with late amounts of 0.03% per day under Article 40 of the Social Insurance Law 41/2024/QH15 and administrative sanctions. The worker’s contribution time is recorded and corresponding regimes are settled as in an ordinary employment relationship.
Does signing labour contracts now erase the past period?
Not automatically. Signing labour contracts from the conversion point stops new violations from arising, but the past service-model period can still be back-assessed when the agency reviews. Proactively declaring and working with the agency on the past period gives the employer better control of the handling scale than waiting for an inspection to find it.
How should external services be structured to avoid an employment ruling?
A genuine service relationship must match in substance: the partner organises its own personnel and bears result risk, payment follows acceptance of deliverables or work packages, and the individuals are not timekept or directly managed like the client’s staff. Renaming the contract while operations stay the same still results in an employment ruling on review.
Practical recommendations
The Article 13 test is simple: the law looks at how people actually work, not at the contract’s name. Employers should self-audit every existing collaborator and individual service arrangement against the article’s three signs once a year; any position showing all three should move to a labour contract in that same review cycle, before the insurance agency or the worker’s own lawsuit does it for them.
This article has been quality-reviewed by the FLAW AI Legal Council