In the Polish labour market, there are many forms of contract that can be the basis of employment. In some industries, we are seeing an increase in the popularity of cooperation on the basis of the so-called B2B contract, which is becoming an alternative to the traditional employment contract. Many people face the dilemma of which form of cooperation to choose. While talking with candidates, I see their little knowledge of these agreements and confusion of concepts and belief in popular myths. In this article, I decided to introduce both forms of employment. I would also add that the topic is very broad, covering many nuances that would require a whole series of publications. The purpose of this article is to provide an introduction to the topic, it is intended to be a good starting point for further consideration. I invite you to read!
The basics – what are the characteristics of a UoP versus a B2B?
Employment contract (UoP)
It is a contract regulated by the Labor Code. The basic feature of an employment contract is the subordination of the employee to the employer – carrying out the employer’s orders at the time and place designated by the employer. The employee can enjoy the privileges and rights that this form of contract brings, namely:
- The inalienable right to wages and the minimum wage guarantee;
- paid leave of 20 or 26 days per year – IMPORTANT – unused leave “rolls over” to the following year (after three years it is “forfeited”);
- mandatory social insurance covered in part by the employer’s funds, this translates into eligibility for social benefits (e.g., paid sick leave, maternity and parental leave, compensation for accidents at work and on the way to work, etc.);
- mandatory pension insurance, and in the case of employment in medium-sized and large organizations, a supplementary pension plan (PPK or PPE) partially covered by employer and state funds;
- the employer’s responsibility for the correct calculation of wages, advance income tax, or health contributions and their payment to the relevant authorities;
- specific manner and conditions of termination, regulated notice period;
- reducing the risk of errors. The employee is liable for the damage only to the extent of the actual loss suffered by the employer and only for the normal consequences of the act or omission from which the damage resulted. In addition, compensation may not exceed the amount of three months’ salary to which the employee was entitled on the date of the injury. It is also worth noting that if he demonstrates that he properly performed his duties, he will not be held liable for the damage caused to the employer’s property.
Remember! The mere name of the contract does not matter – what matters are the actual circumstances under which it is performed. Art. 22 § 1¹ of the Labor Code says unequivocally that employment, where work is performed under the direction and at the place and time designated by the employer for remuneration, is an employment based on an employment relationship, regardless of the name of the contract entered into by the parties.
B2B (short for business to business) contract
This is a contract between two business entities (service contract). It is a contract regulated by the Civil Code. It requires registration of a business – whether in the form of a company or a sole proprietorship. The main feature of this contract is the partnership treatment of both parties to the contract – and consequently, greater freedom in defining the subject of the assignment and much greater responsibility (than in the case of the Employment contract) on the part of the service provider. A B2B contract allows you to provide services to several entities at once – which usually translates into more revenue-generating opportunities, as well as independent time management. Another argument in favour of cooperation on the basis of a B2B contract is the favourable financial settlement resulting from greater opportunities to optimize tax and social charges. However, when choosing this form of cooperation, it is important to consider whether you are able to meet the requirements of the business, namely:
- Correctly issue a Vat or non-Vat invoice;
- Proper bookkeeping, including accounting for business expenses;
- the correct payment of social security, health insurance and advance tax payments (income and VAT). Errors in billing are the responsibility of the entrepreneur and can result in heavy penalties from the IRS and Social Security. It is permissible to entrust some of these duties to an accounting office. This involves additional costs, but it is certainly a great convenience. However, it is important to remember that working with an accountant/bookkeeper does not remove the entrepreneur’s responsibility for billing errors!
- It is also worth recalling that payment of dues cannot be waived even if you currently have no income.
In addition, due to the fact that the social security contributions paid are usually minimal and all liability for errors in the performance of services is on the Entrepreneur, working under this contract, the entrepreneur should set aside funds for pension security, liability insurance or possible interruptions in the provision of services, for example, due to long-term illness.
When talking about both forms of employment, it is important to use the right terms. Especially since these terms may indicate that the contract entered into (regardless of its name) is in fact an employment contract.
|Concepts specific to the employment contract||Terms specific to a B2B contract (corresponding to the meaning of terms from an employment contract|
|Employer||Customer / Company A / Company Name A|
|Employee||Service provider / Company B / Company name B / Contractor / Entrepreneur|
|Place of work||–|
|Leave of absence||Interruption of services|
|Leave on demand||Interruption of services|
|Superior||Customer / Principal / Employee receiving the service|
|Working dimension, full-time||(Minimum) Number of hours of service provision|
|Workstation||Scope of services provided – description|
|Bonus regulations||Conditions for payment of additional remuneration|
|Delegation||Costs associated with the provision of services|
Why do companies prefer to hire on a B2B basis?
A company that hires people on a B2B contract, compared to a company that hires on an employment contract, accounts for the costs of such cooperation quite differently. It treats contractors as subcontractors/service providers, which means first: it can deduct the cost of their wages from its revenue reducing its income tax base, it can deduct VAT and, most importantly, the company is then exempt from calculating and paying social security contributions or advance payments on the associate’s income tax. It does not need to hire labour law specialists. In addition, it is not bound by requirements under the Labor Code, such as the provision of safe and sanitary working conditions, organization of the workplace, the 40-hour work week and time records. It is also worth mentioning that a B2B contract can be entered into for any length of time and is much easier to terminate. Thus, it is a flexible form of cooperation.
Another important argument often made against companies that hire experts and where there is a great deal of competition for an employee – at the same cost to the Company – the contractor receives a higher salary “on hand”. This makes it easier to negotiate with a potential service provider.
Why do individuals choose B2B employment?
The main argument in favour of a B2B contract is the higher salary. This is due to the possibility of taking advantage of various forms of taxation (scale, flat rate, lump sum) and lower social security contributions. A sole trader can take advantage of leasing or include some of the “everyday” expenses in business expenses, which reduces the tax base.
B2B cooperation, despite the additional responsibilities it imposes, offers tremendous freedom of action compared to full-time employment, as it allows you to perform individual tasks anywhere and anytime. However, it requires a lot of discipline and good organization of working time.
Another consideration is that as an entrepreneur, you can take part in tenders, you can take advantage of grants or subsidies for specific elements related to running your business.
This form of cooperation is also chosen by specialists who provide services as a so-called “cooperation”. “Freelancer”, is a person who provides his services personally and carries out projects on commission, in the field in which he specializes. A freelancer usually works with many clients at one time and defines the scope of his services himself.
When is an employment contract better than a B2B contract?
There is no clear-cut answer to this question, as it depends on a person’s individual situation, and everyone must find this answer for themselves. However, it is possible to generalize and give examples in which this agreement is more favourably applied.
- for those entering the labour market up to the age of 26 – favourable tax rules, make the financial settlement of both contracts (u.op and B2B) – the salary “on hand” is very similar, and yet the employment contract gives more employee privileges.
- For those for whom stability and certainty of work and wages are important, labour law is much more effective in protecting an employee’s right to wages than civil law.
- For those seeking credit. An employment contract (regardless of the amount earned) for any bank is the most reliable confirmation of the salary received. For an entrepreneur, it can be more difficult to get a bank loan even if he earns twice as much as a person doing the same thing on an employment contract.
- For people who do not like to deal with accounting/financial issues, it is difficult, incomprehensible to them or they are simply not systematic enough to carry out the obligations imposed by law
Deciding on the form of cooperation with a new entity/employer is not easy. It requires analysis of many factors, one’s own situation or future plans. I encourage you to learn about the topic in depth before making a decision.