Service provider Service: What is it? What are the types? Learn all about it!

If you've ever wondered about the crucial role a service provider plays, you should understand who this figure is in the market and what they actually do.

This professional is often confused with other workers, so it is unclear what their day-to-day role is.

Therefore, to clarify, this article will provide information about who a service provider is and what work they perform on a daily basis. Read on to find out more.

What you will see here:

• What is a service provider?
• How does the service work?
• What is considered a service provision?
• Are there types of service provision? What are they?
• What are the obligations of the service provider?
• What are the rights of a service provider?
• Is it better to hire a CLT employee or hire a service provider?

What is a service provider?

A service provider is an independent professional, company, or individual who offers specialized skills, technical knowledge, or performs specific tasks in exchange for compensation.

Rather than providing a tangible product, as in a sales transaction, service providers deliver results or perform activities as agreed upon with the client. (Enjoy and learn how to difference between product and service)

Service providers operate in a wide variety of sectors, including consulting, healthcare, information technology, education, maintenance, entertainment, and many others.

Service provision can range from everyday, practical tasks to highly specialized services such as legal consulting, accounting, graphic design, software development, and more.

Agreements between service providers and customers are typically formalized through contracts that outline the terms and conditions of the service, including scope, deadlines, costs, and other relevant specifications.

In other words, the service provider is the professional who will perform work for you or your company without having an employment relationship.

How does service provision work?

Service provision works through an agreement between a service provider and a client, where the provider undertakes to perform specific tasks in exchange for remuneration agreed with the client.

This dynamic involves several steps and essential elements for it to be executed successfully:

• Identifying Customer Needs: The process begins with the customer identifying a specific need or demand that requires specialized skills or knowledge.
• Contacting the Service Provider: The client searches for a suitable service provider to meet their needs. This can be done through referrals, online research, professional networks, and other methods.
• Negotiation and Agreement: The client and service provider contact each other to discuss the details of the service, including scope, deadlines, costs, and any other relevant conditions. This negotiation often leads to the creation of a formal contract.
• Formal Contract: A contract is drawn up to formalize the terms of the agreement. This document clearly outlines what will be provided, the obligations of both parties, deadlines, and any other relevant information.
• Service Execution: The service provider begins executing the tasks as agreed. During this process, there may be regular communication between the provider and the client to ensure expectations are met.
• Results Delivery: The service provider delivers the final results to the client. This may include tangible products, reports, implemented solutions, or other specific service outcomes.
• Evaluation and Feedback: After the service is completed, the client can evaluate the quality of the work provided. Feedback is valuable to both parties, helping to improve future interactions.
• Payment: The client makes payment according to the terms agreed upon in the contract. This may involve one-time payments, installments, or payments based on milestones achieved during the service delivery.

Providing services is a flexible and effective way to meet a variety of needs, allowing clients to obtain specialized results in a more practical and efficient manner.

What is considered a service provision?

Service provision refers to activities or tasks carried out by a professional, company or individual, with the aim of meeting the needs or demands of a client.

Rather than delivering a tangible product, the focus is on delivering results or executing specific actions. Service provision encompasses a wide range of sectors and can range from everyday tasks to highly specialized services.

Some common examples of service provision include:

• Business Consulting: Professionals who offer specialized guidance in areas such as strategy, management, finance, or human resources.
• Health and Well-being: Services provided by healthcare professionals such as doctors, nurses, physiotherapists, psychologists, and personal trainers.
• Information Technology: Companies offering software development, IT consulting, technical support, and network management services.
• Education: Private teachers, tutors, schools and higher education institutions providing educational services.
• Residential Maintenance: Professionals offering plumbing, electrical, home repair, and garden maintenance services.
• Creative Services: Graphic design agencies, freelance writers, artists, and musicians offering creative services.
• Catering and Food: Restaurants, catering services, and food delivery companies that provide food-related services.
• Transportation and Logistics: Transportation, delivery and moving companies that provide goods and people moving services.

These examples illustrate the diversity and importance of providing services across different sectors of society, meeting the varied needs of customers.

Are there types of service provision? What are they?

Service provision encompasses a variety of modalities, making it vital to understand the nuances between different types of providers, whether individuals or legal entities.

In summary, there are three main categories of service providers: individuals, legal entities and MEI service providers.

Each of these modalities has specific implications in terms of legal obligations, social security benefits, and formalization opportunities. The choice between these categories will depend on the nature of the activities performed and the individual's professional goals.

By choosing to act as service provider in the form of an individual, the professional needs to register with the National Social Security Institute (INSS).

This guarantees access to social security benefits, such as retirement and sick pay. Additionally, you must pay Personal Income Tax (IRPF) on your income.

When providing services to a company, it is common to issue an Autonomous Payment Receipt (RPA), a document that formalizes the payment and details the discounts related to INSS and IRPF.

THE service provider in the form of a legal entity has a National Registry of Legal Entities (CNPJ) and, therefore, operates as an incorporated company.

The category of Individual Microentrepreneur (MEI) is an option for those with annual revenue limited to R$ 81 thousand.

It's worth noting that MEI (Individual Microentrepreneurship) doesn't allow the practice of some regulated professions, such as engineering, accounting, nursing, physical therapy, and architecture. When MEI isn't a viable option, there are alternatives for opening a service provider company.

The Individual Microentrepreneur (MEI) is a specific category for service providers who wish to formalize their activities in a simplified manner.

Limited to an annual revenue of R$1,000,004, the MEI offers benefits such as retirement, sick pay, and the issuance of invoices. However, it's important to note the restrictions on certain professions.

What are the obligations of the service provider?

The obligations of the service provider vary depending on the type of activity (individual, legal entity or Individual Microentrepreneur – MEI) and the sector in which they are involved.

Obligations of the Individual Service Provider

When acting as an individual, the service provider must register with the National Social Security Institute (INSS) to guarantee social security benefits, such as retirement and sickness benefits.

Individual service providers are also responsible for paying income tax on their earnings. Filing an annual tax return is mandatory.

When providing services to companies, especially if there is no formal employment contract, the individual provider can be remunerated through RPA.

This document formalizes the payment and details the INSS and IRPF discounts.

Obligations of the Legal Entity Service Provider (PJ)

The legal entity service provider must keep its National Register of Legal Entities (CNPJ) up to date.

The company must comply with accounting obligations, such as tax records, tax calculations and preparation of balance sheets.

Issuing invoices is mandatory for most services provided by companies. This document formalizes the transaction and is essential for accounting purposes.

Legal entities are subject to paying taxes, such as Corporate Income Tax (IRPJ), Social Contribution on Net Income (CSLL), PIS, COFINS, among others.

Obligations of the MEI Service Provider

The MEI must issue an invoice when providing services to other companies.

Individual Microentrepreneurs must complete Gross Revenue Reports, informing the month's revenue.

The MEI is required to pay the Simples Nacional Collection Document (DAS), which includes federal, state and municipal taxes.

Despite having simplified accounting obligations compared to other companies, MEIs must still maintain a minimum of accounting records to comply with their tax obligations.

It's crucial that service providers are aware of and comply with their legal obligations, ensuring the regularity of their activities and avoiding problems with regulatory agencies. Consulting with an accounting professional can be valuable in providing guidance on these specific obligations.

What are the rights of a service provider?

In Brazil, the rights of service providers are governed by specific legislation and may vary depending on the nature of the service provision, the type of relationship established with the contractor and the legal framework of the provider (individual, legal entity or MEI).

See what the rights of service providers are:

• The service provider has the right to receive payment for the services rendered as agreed in the contract or oral agreement.
• Legal entities and Individual Microentrepreneurs (MEI) have the right and obligation to issue an invoice for services provided.
• Service providers as legal entities or MEI have rights and obligations related to the collection of taxes, such as Corporate Income Tax (IRPJ), Social Contribution on Net Income (CSLL) and municipal and state taxes.
• Service providers as individuals have the right to contribute to the National Social Security Institute (INSS) to access social security benefits, such as retirement and sickness benefits.
• Service providers as individuals are entitled to agreed working hours and safe and adequate working conditions, if applicable.
• In some cases, the service provider may hold copyright and other intellectual property rights to the work performed, depending on the contractual terms.
• The service provider has the right to terminate the contract in accordance with the established conditions, subject to any agreed penalties.
• Service providers have the right not to be discriminated against based on characteristics protected by law, such as race, gender, religion, sexual orientation, among others.
• Service providers as individuals are entitled to social security benefits, such as sickness benefit, disability retirement, among others, after fulfilling contributions to the INSS.

It is essential that service providers are aware of their specific rights and comply with their legal obligations.

What is the difference between a service provider and an employee?

The difference between a service provider and an employee is related to the nature of the relationship and the way in which the activities are carried out.

This distinction is important in determining the rights, obligations and responsibilities of both the professional and the contractor.

The differences of the Service Provider are as follows:

• A service provider is typically hired to perform a specific job or provide services for a specified period, without the expectation of a continuous employment relationship.
• Service providers generally have greater autonomy and independence regarding how they perform their work. They can set their own schedules and work methods, as long as they comply with the contracted scope.
• Service providers, especially legal entities and Individual Microentrepreneurs (MEI), generally issue an invoice for the services rendered.
• The service provider does not have the same labor rights as an employee, such as paid vacation, thirteenth salary and FGTS.
• The service provider is responsible for their own operating costs, such as equipment, training, and benefits. They do not receive the same benefits as an employee.

Already one Employee has the following characteristics:

• The employee establishes a continuous employment relationship with the employer, characterized by subordination and economic dependence.
• The employee generally has fixed working hours and is subject to the supervision of the employer, who has the right to direct and control his or her work activities.
• The employee signs the Work Card and is entitled to employment benefits, such as paid vacation, thirteenth salary, FGTS, among others.
• The employee is entitled to paid vacation and, in some situations, paid absences for specific reasons, such as illness or maternity leave.
• The employee has social security contributions automatically deducted from their salary, in addition to having income tax withheld at source.

And the difference between a freelancer and a service provider?

The difference between a freelancer and a service provider is often subtle and can vary depending on the context and legislation. The two terms are often used interchangeably, but they can have distinct nuances in certain contexts.

Generally speaking, a service provider is a self-employed worker, meaning they have no formal employment relationship. However, not all self-employed individuals are service providers.

While a service provider, even if they have no formal ties, works with records, invoices, and other things, freelancers generally do not use these resources as much for their work.

Is it better to hire a CLT employee or hire a service provider?

The choice between hiring a worker under the CLT (Consolidation of Labor Laws) or as a service provider depends on several factors, such as the specific needs of the company, the characteristics of the work to be performed, and legal and financial considerations.

Advantages and disadvantages of hiring under CLT

The advantages of hiring a CLT are:

• Security and Stability;
• Control over Work;
• Strong Employment Relationship.

The disadvantages are:

• Social and Labor Charges;
• Less Flexibility.

Advantages and disadvantages of hiring a service provider

Hiring as a Service Provider has the following advantages:

• Greater Flexibility;
• Reduction of Labor Charges;
• Specialization and Focus.

The disadvantages are:

• Less Direct Control;
• Less Stability;
• Possible Tax Implications.

The choice between hiring under CLT and a service provider depends on the company's specific needs.

Therefore, it's important to understand everything each modality offers and choose the one that best suits you. Did you like it? Check out more tips on our website.