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. Ready? Let’s go.
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 2022 – 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. 64% of Juniors and 63% of Mids indicated that they were employed under a contract of employment. In turn, 55% of Seniors and 54% of Experts, whose earnings are higher, most often cooperate on the basis of a B2B contract.
As we can see, the popularity of the employment contract decreases with increasing experience. In the case of Juniors, only 12% of them work on a B2B contract, while in the case of Seniors, this number rises to 55%.
Are you wondering what the reason is? On various forums for software developers, 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.
In our 2022 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.
People who work as Mids on B2B and Seniors and Experts (both on B2B and employment contracts) can count on higher wages than those presented in the job offers.
For more information on IT professionals’ salaries and specific technologies, check the 2022 report about the IT job market in Poland.
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.
|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|
|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, the critical difference here is not the percentages but how they are calculated.
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:
- an amount not less than 60% of the average salary in Poland (in 2022, it’s 3553,20 zł PLN) – for social insurance on the entire Social Insurance Institution (ZUS) contributions
- 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. From February 2022, this amount is different for each entrepreneur – the rules for calculating the contribution will depend on the form of income tax.
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.
The changes are very dynamic so it is worth regularly checking information about new regulations. The Polish Deal 2.0 contains changing the rules by the government for paying health insurance. From July 1, 2022, further changes to the rules for paying it will be introduced.
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.
Here in the table below is an example of what it looked like in 2021. It will be updated to the 2022 version when the new regulations of the Polish Deal will be fully introduced on July 1, 2022.
|Total employer’s costs||Gross amount / Net on invoice||The net amount (for employee)*|
|B2B||10 000 PLN||10 000 PLN||6 733,66 PLN**|
|Employment contract||12 048 PLN||10 000 PLN||6 937,39 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||14.343,66 PLN**|
|Employment contract||24 096,00 PLN||20 000 PLN||13 238,78 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 10 828,78 PLN and 13 238,78 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.
Want to learn more about hiring programmers from Poland? Contact us. We will try to answer all your questions and clarify any doubts.