Have you already discovered the benefits of outsourcing software development services and hiring Polish developers? If so, you are undoubtedly interested in legal issues related to hiring employees in Poland. In this article, we will try to answer all the important questions on this subject. Why is the choice of contract so important in the IT industry and in the recruitment of Software Developers in Poland?
We are an IT recruitment agency in Poland with extensive experience in hiring programmers. If, while reading the article, you have any questions about recruitment in IT and differences in types of contracts, send us a message. We’ll try to dispel all your doubts.
Definitions
What is an employment contract?
An employment contract is a standard form of employment in Poland. It contains the scope of rights and obligations of both the employer and the employee. It describes the role of the employer and the specific tasks of the employee. The employer must pay the employee as previously agreed, and the employee is to perform the duties assigned by the superior. The employment contract and all its rules are based on the Polish Labour Code.
What is B2B contract?
The B2B (Business-to-Business) contract is an alternative to an employment contract. A software developer starts his own company (and becomes self-employed) to provide services to another IT company. Instead of a monthly salary, he or she issues an invoice that the client is required to cover. It is a contract between two companies; it is governed not by the Labor Code but the Civil Code.
This means that both parties have more freedom in shaping the content of the contract, e.g. notice period, (un-)paid holidays, (un-)paid sick leave. In a B2B contract the employee is responsible for making further transfers of e.g. tax, health care contribution to the relevant institutions. To sum up, it also means more formality for the IT specialist.
B2B and employment contract — the two most popular types of employment among Polish software developers
B2B contract and employment contract are the two most popular forms of employment among Polish software developers. Interestingly, according to our report “Prepare for the IT recruitment process in 2023 – IT job market in Poland”, the popularity of a particular type of contract depends on years of experience.
In the IT industry, the type of contract is largely related to the level of professional experience. 65% of Juniors and 54% of Mids indicated that they were employed under a contract of employment. In turn, 60% of Seniors and 57% of Experts, whose earnings are higher, most often cooperate on the basis of a B2B contract.
The level of experience of a software developer vs. type of contract
As we can see, the popularity of the employment contract decreases with increasing experience. In the case of Juniors, only 18% of them work on a B2B contract, while in the case of Seniors, this number rises to 60%.
Are you wondering what the reason is? On various forums for software developers in Poland, you will often find discussions and polls about what type of contract they prefer. Why? Because many employers give them a choice between a B2B and a work contract. The answer to “what’s more profitable” is usually “it depends.” On what? First of all, on earnings – the more they earn, the more beneficial it becomes to start a business and invoice as an entrepreneur.
Average salary offered and received by a software developer in Poland and type of contract
In our 2023 report, we also analyzed the matter of average salary offered and received depending on the seniority level. This data also show differences in wages depending on the type of contract. As an IT recruitment agency in Poland, we see these distinctions. People who work as Seniors on B2B or Experts (both on B2B and CoE) can count on higher wages than those presented in the job offers.
For more information on IT professionals’ salaries and specific technologies, check the 2023 report about the IT job market in Poland.
IT job market in Poland – what has changed in 2023?
Our report on the IT labor market can give you valuable answers about the relationship between differences in contracts and the salary of Polish Software Developers.
When analyzing the salaries appearing in the advertisements in terms of the type of contract offered, we can see that the highest salary ranges appeared in the advertisements where cooperation is on the basis of a B2B contract. In the case of salary based on an employment contract and a civil law contract, gross amounts are presented.
Currently, B2B employment is still popular, especially when it comes to programmers, who receive relatively high salaries.
Employers most often do their best to treat all employees in the same way, providing similar working conditions and benefits. A perfect example is the issue of paid leave.
In the case of a B2B contract, there is no formal paid leave. However, often the parties agree on paid leave in the agreed time. We know from our report that every second respondent working on a B2B contract indicated that the employer offers paid days without the need to provide services (“paid leave”).
To sum up, there may be more and more benefits for IT specialists employed on B2B, however, each such case must be considered separately, because benefits are often the subject of tax complexities.
B2B and employment contracts — key differences
To better understand the difference between the two most common types of developer contracts, we have prepared a table covering the most important issues. If any points need more explanation, you will find them under the table.
| B2B | Employment contract | |
| Paid holiday | Can be offered on gentleman’s agreement | 20 / 26 days (depending on work experience) |
| Paid sick leave | No | Yes |
| Special leaves (births, funerals) | No | Yes |
| Flexibility | Large | Small |
| Notice period | Flexible, depending on the contract (usually 1 month) | From 2 weeks to 3 months |
| Payment term | In the date specified in the contract | By the 10th of each month |
| Payment frequency | Depending on the contract | At least once a month |
| Who is responsible for paying social security contributions? | Self-employed | Employer |
| Who is responsible for paying health contributions? (ZUS) | Self-employed | Employer |
| Exemption from paying health contributions | For the first 6 months after starting a business | For people under 26 years old |
| Applicable laws | Civil Code | Polish Labor Code |
| Possibility of signing a contract with a software developer by a foreign company without establishing a business in Poland | Yes | No |
| Possibility of paying a flat tax | Yes | No |
Paid holiday — to whom and how many days does it entitle?
When you sign a B2B contract as a client, you are under no obligation to offer paid vacation days. However, this is flexible, and you can agree on “paid rest time” at a given number of days in a year. If you hire an employee under a contract of employment, the Polish Labor Code requires you to provide the employee with 20 or 26 days of vacation.
What does the difference depend on? In short, people who work more than 10 years (for all employers) should have 26 days of paid leave. However, “work experience” in this case also includes time spent in secondary school, vocational school and college.
- 4-5 years — for people from a general or vocational secondary-level school,
- 8 years (in total) — for people who have completed higher education (regardless of the type of degree obtained).
Taxes, health, and social contributions
It’s time for the most complicated and dynamically changing difference between these two employment contracts — taxes, health, and social insurance contributions. When comparing a B2B and an employment contract, you should remember that the gross amount is not all the expenses you incur as an employer. Some of the premiums are deducted from the employee’s gross amount, and some are added to the employer. We have outlined the significant differences in contributions from 2021 in the table below.
However, there is a huge difference in 2023 on how everything is calculated and it’s caused by the issue of the new rules from Polish Deal. If you want us to explain a specific case regarding IT recruitment in Poland, contact us.
For an employment contract, contributions are calculated on:
- the employee’s gross salary – for social contribution
- gross salary minus social contributions – for health contributions
For B2B, contributions are calculated on:
- In the system created by the Polish Deal, the amount of payments to Social Insurance Institution (ZUS) contributions and the right to relief depend on the form of taxation, the amount of income and business revenues.
- In 2021 it was an amount no less than 75% of the average salary in Poland (in 2021, it was 4242,38 PLN) – for health contributions. In 2023, this amount is different for each entrepreneur – the rules for calculating the contribution will depend on the form of income tax. We explain more below.
What has changed in 2022?
The new so-called Polish Deal programme entails a lot of changes in area of tax reduction. For example, it includes raising the tax threshold, high tax allowance, changes in the calculation of the health insurance contribution for sole entrepreneurs and other changes in the area of labor law. The key changes for B2B contracts are showed in the table below.
Another thing that is worth mentioning is the fact that The Polish Deal introduces a new form of lump-sum taxation on foreign income for individuals who make the decision to transfer their tax residence to Poland. From our experience, we know that software developers often choose a lump sum (it is 12% and sometimes 8,5%). The changes are very dynamic so it is worth regularly checking information about new regulations.
The Polish Deal 2.0 – tax changes from July 1, 2022
The Polish Deal 2.0 introduces many changes and the most important ones are described below. In fact, knowing this information in detail is important in considering whether a software developer on B2B wants to choose a flat tax or a lump sum tax. All calculations depend on many variables, which are best consulted with an accountant.
- The rules for calculating health insurance contributions have been changed.
From 2022, the calculation of the health contribution for a person who chooses a lump sum depends on the income earned, and the health insurance contribution is 9% of its assessment base. It is based on three rates in 2023:
The new health contribution rates for a person who has chosen a lump sum are:
- income up to 60,000 PLN – 376,16 PLN per month (60% of the average salary, i.e. PLN 4,179.56 x 9%);
- between 60,000 PLN and 300,000 PLN – it is 626,93 PLN per month (100% of the average salary, i.e. 6,965.94 PLN x 9%);
- over 300,000 PLN – it is 1,128.48 PLN per month (180% of the average salary, i.e. 12,538.69 PLN x 9%);
- The tax threshold was increased to 120,000 PLN.
- The tax-free amount was increased to 30,000 PLN.
- It is possible to include a part of the health insurance contribution in the costs of economic activity.
- The middle-class relief was repealed.
Total costs — the differences
To better understand the difference in earnings for B2B and employment contract programmers, just take a look at the table in accordance with the current 2022 regulations. You might notice that B2B contracts mean lower costs for employer.
In the table below, there is an example of calculation after the new regulations of the Polish Deal.
| Total employer’s costs | Gross amount / Net on invoice | The net amount (for employee)* | |
| B2B | 10 000 PLN | 10 000 PLN | 6 665,54 PLN** |
| Employment contract | 12 048 PLN | 10 000 PLN | 7 147,39 PLN (depending on the month) |
| Total employer’s costs | Gross amount / Net on invoice | The net amount (for employee)* | |
| B2B | 20 000 PLN | 20 000 PLN | 14 368,64 PLN** |
| Employment contract | 24 096,00 PLN | 20 000 PLN | 13 963,78 PLN*** |
* In this example, the developer pays full ZUS (without discounts) on the minimum contribution base and a flat tax for his business.
**In this example, a counting base is a flat tax (19%).
***Depending on the month, the net amount for the employee will be between 10 561,78 PLN and 13 963,78 PLN. This case is explained in more detail in the table below.
Please note: The amounts listed are just examples and may vary depending on the tax chosen and whether the developer can use the contribution payment on preferential principles.
As you can see, the amounts on the contract, i.e., gross in the case of an employment contract or net in the case of a B2B, generate completely different employer costs and employee compensation. Therefore, if you would like to give an employee a choice between different types of employment, we suggest setting your total costs rather than a gross amount.
Which contract is better in the IT industry?
IT recruitment and IT contracting in Poland
Want to learn more about hiring programmers from Poland? Contact us. We will try to answer all your questions and clarify any doubts. We also recommend you to take a look at IT contracting service in Poland. Our consultants from Next Technology Professionals can present you the advantages and disadvantages of this solution and advise whether it is suitable for your business.
Sources:
- https://www.zus.pl/documents/10182/167526/S%C5%82ownik+termin%C3%B3w/368525eb-1e85-4028-bce0-698f012d7d65
- https://www.ifirma.pl/aktualnosci/dzialalnosc-gospodarcza-a-umowa-o-prace-potracenia.html
- https://www.pit.pl/aktualnosci/skladka-zdrowotna-w-polskim-ladzie-2-0-policzylismy-ile-zyskaja-przedsiebiorcy-1006758
- https://ksiegowosc.infor.pl/podatki/pit/pit/rozliczenia/5524568,polski-lad-20-zmiany-podatkowe-od-1-lipca-2022-r-Stawki-skala-podatkowa-ulgi-skladka-zdrowotna-i-inne-nowosci.html