In times of increasing pressure on wages, some companies are considering the possibility of changing the form of employment from an employment contract (where the total burden of income tax and social security contributions may exceed 50% of gross remuneration) to a more profitable so-called B2B contract (i.e. a contract for the provision of services concluded between two entrepreneurs: the existing employer and the former employee who has registered a sole proprietorship). It is not uncommon for such changes to be forced by the need to remain competitive with the offer of entities already operating in such a model, with suggestions coming from the employees or job applicants themselves. The employer is then faced with a difficult choice – can it still afford to raise wages or should it already be looking for other solutions?
Such a change is, of course, possible and legally permissible in many cases. However, in each case, it should be carried out in a well-thought-out manner in order to minimise the risk of it being considered a sham by the tax authorities. It is not enough to simply change the name of the contract. It should be borne in mind that if the conditions characteristic of an employment contract are maintained, such a change will not be effective, and the legal and tax consequences will be at least the same as if the change had not taken place (at least, as various sanctions may be added, of which more later).
There can be many scenarios – the person in question can be either an ordinary employee, performing typical duties, a person managing a smaller team or even a person in a managerial position not subject to any supervision. As a consequence, also the risks related to the questioning of such cooperation may be different and may concern, for example, the possibility of reclassification into an employment contract or into a so-called personally performed activity, including under a so-called managerial contract. In addition, various consequences may arise in terms of VAT, PIT and social security.
The subject of my post, however, is not to discuss in detail all the possible cases and their consequences, as there are simply too many of them, but I would like to draw attention to several key elements that should be verified when assessing whether the established relationship is indeed appropriate for business activity. These are primarily:
- place and time of work – their strict definition is characteristic of an employment contract, whereas a B2B relationship is characterised by freedom in this respect;
- infrastructure – the former employer’s financing of work tools such as, for example, a car and its running costs, a computer, a telephone, internet access, an office, etc. raises doubts as to whether, in practice, such an entrepreneur bears the real risk of running a business;
- liability towards third parties – if limited in relation to others, this is not a typical business situation;
- supervision – if the work is carried out under supervision and the person in question is subject to superiors in the company hierarchy, who, for example, additionally carry out periodical performance appraisals – this situation is also characteristic of an employment relationship;
- fixed remuneration – as in the case of infrastructure, setting the remuneration at a fixed monthly level may lead to the conclusion that the business risk does not burden the person cooperating with the former employer on a B2B basis. It may therefore be questionable if, irrespective of the level of involvement, remuneration is due to such a person, as this is not usual between typical entrepreneurs operating in the market);
- the right to paid leave or sick leave paid by the employer – the introduction of regulations in this respect in a B2B relationship obviously evokes associations with an employment relationship.
In addition to the aforementioned, one can also mention, for example, anti-competition clauses, bonuses, per diems, company business cards, obligation to perform work in person and many others.
It is important to note that the presence of a single element from this list does not automatically classify the relationship as an employment relationship. However, it does increase the likelihood of such a classification. Therefore, the assessment must be conducted comprehensively, taking into account the entirety of both contractual and factual circumstances.
However, in a nutshell, it can be said that B2B activities should be characterised by the autonomy, freedom and risk inherent in a business (as in the entities we see side by side every day, i.e. a neighbourhood grocery shop, a language school, a plumber, a mechanic, a dentist, an accountant, etc.), and their absence should be a warning signal.
And since sanctions in the case of reclassification of the concluded contract can be very severe and range from penalties imposed by the National Labour Inspectorate or tax authorities (tax arrears, interest on arrears, penal and fiscal sanctions), through the Social Insurance Institution (arrears of contributions with interest) to legal sanctions (e.g. the need to grant outstanding holidays), I strongly recommend a thorough analysis of each individual case and, if necessary, consultation with legal and tax specialists.
