Navigating the world of contracts can be tricky, especially when two documents look similar but carry very different legal consequences.
This article breaks down the key differences between Service Agreements and Employment Agreements, two of the most commonly used tools in today’s business landscape.
Whether you are hiring talent, engaging freelancers, or structuring internal operations, understanding these distinctions is essential to protecting your business and staying compliant.
The main difference is the type of relationship created. An Employment Agreement (a contract of service) creates an employer–employee relationship. This means the worker is part of the company and is given certain legal rights and protections.
A Services Agreement (a contract for works) is used when hiring an independent contractor. Contractors work on their own, decide how to do the job, and do not receive the same rights as employees.
Contract of Service (Employment Contract)
A contract of service is the formal term for an employment contract.
It is an agreement (written or verbal) in which a person binds themselves to work for an employer in return for wages.
The Employment and Industrial Relations Act, Chapter 452 of the laws of Malta (hereinafter referred to as the ‘EIRA’) classifies such a worker as an employee when the work is done under the immediate direction and control of another person.
Employees working under a contract of service are protected by Malta’s labour laws, and the EIRA and other subsidiary regulations set minimum standards for employment conditions, including minimum wage, maximum working hours, annual and sick leave entitlements and other benefits.
An employment contract may be for a fixed term or an indefinite duration.
Contract of Works (Services Agreement)
A services agreement refers to an agreement with an independent contractor.
In this agreement, a person or company is engaged to perform a service for a client, but there is no employer-employee relationship. Instead, the relationship is governed by civil or commercial law principles and the terms of the service contract itself, rather than by the employment law framework.
In a services agreement, the individual generally operates autonomously and is not subject to hierarchal control like an employee is.
In most cases, a service provider engaged under a Services Agreement is self-employed. This means they run their own business and are responsible for managing their own tax, social security, and other obligations.
Instead of receiving a salary, the service provider issues invoices to the company for the work they carry out. The company then pays these invoices according to the agreed terms, just like it would pay any external supplier. This setup amongst other fundamental differences, are key points that identify that a provider is not an employee but rather an independent contractor.
Some Differences between an Employee and an Independent Contractor
- An employee benefits from all the rights and protections provided by employment law. By contrast, an independent contractor is not covered by these statutory employment guarantees. They typically do not receive paid leave or other employee benefits by law, unless expressly agreed in their contract.
- Employment contracts can be indefinite or for definite term. Both definite and indefinite employment agreements include a probationary period. In contrast, generally, Services Agreement are entered into for a fixed (possibly renewable) term.
- Maltese law heavily regulates termination of employment to protect employees. For an indefinite employment contract, an employer can only terminate the employment for a legally valid reason (such as redundancy or justified “good and sufficient cause”). Even definite employment contracts cannot be ended early without consequences, except in exceptional cases or by mutual agreement.
Independent contractors (i.e. service providers), on the other hand, have no such statutory job security rights. The termination of a services agreement is generally dictated only by the terms of the contract rather than by employment law. Contractors cannot claim “unfair dismissal” if their contract is ended, since they are not employees.
Conclusion
In summary, an Employment Agreement in Malta creates a formal employment relationship with extensive legal protections and obligations under the EIRA, while a Services Agreement engages an independent contractor and is governed mainly by the terms of the contract and general civil law.
Employees enjoy a bundle of rights and benefit that contractors do not, whilst a contractor offers more flexibility but fewer protections. It is crucial for businesses and individuals to understand these differences to uphold the appropriate rights and obligations on both sides.
At DW&P, we are here to guide you every step of the way.
Whether you need help deciding which type of agreement suits your situation, drafting clear and compliant contracts, or tailoring terms to fit your company’s needs, our team is ready to assist. We ensure your agreements protect your interests, reduce risks, and support smooth and professional working relationships. Let us help you build a strong legal foundation for your business.