Job offers in which employers give a choice of the form of cooperation are no longer a surprise. B2B contracts are especially popular among IT professionals in Poland, enticing them with higher salaries and greater independence. Companies are eager to offer them, and no wonder as it means reduced costs for their business. Sounds like a win-win situation, but will a B2B contract be as beneficial in every case?
If you are in the process of looking for a new project and would like to learn about the advantages and disadvantages of this solution… You have come to the right place. In this article, we break down the topic of B2B.
A few words about B2B…
As the name suggests a B2B (business to business) contract is conducted between two entities. The employer’s company and the employee. When deciding on this form of employment, we are therefore forced to set up our own business and settle accounts through invoices. Which the employer is obliged to pay.
A crucial point is that the premise of a B2B contract is governed by the Civil Code. Not the Labor Code as is the case with an Employment Contract. This minor detail deprives us of the privileges of an employee. Such as a due notice period, paid vacation, or relatively well-paid sick days (80%), among others, but at the same time creates many opportunities.
Earnings comparison- Employment Contract vs B2B
The difference between remuneration on Employment Contract and B2B usually reaches a few thousand. What are the reasons for these discrepancies, and how much do the self-employed receive in practice?
The net amount that comes in each and every month for people on employment contracts is approximately just 60 percent of the total cost of their full-time position. The distinction is due to the employer’s obligation to pay advance income tax and mandatory contributions on the employee’s behalf.
For example, Tom who is employed on the contract earns PLN 10,000 gross per month. His salary “on hand” is 6937.39 PLN. The total cost to the employer incurred in connection with his employment will be equal to 12,048 PLN.
In the case of a B2B contract, the employee-entrepreneur pays advance income tax and all contributions himself. Assuming that the employer wants his costs to remain constant, he can offer such a person a higher amount, in this case, 12,000 net.
Another example: Kate in the same position. She has chosen to be self-employed, and her invoice shows a rate of 12,000 net + VAT PLN. This is her first B2B contract, so she can take advantage of the ‘Startup Relief’. Which exempts her from paying Social Security premiums for 6 months. After paying the mandatory health contribution (588 PLN) and the flat income tax (PLN 2168.28 if she does not incur any business expenses) Kate will receive 9,243 PLN. This is over 2,300 PLN more than what Tom will receive. After 6 months, she will be eligible for the so-called “preferential contribution”. Which means that her costs for the next 24 months will increase only by token Social Security contributions. In Kate’s case, this will be about 260 PLN, so she will earn about 9,040 PLN per month for the next 2 years.
After this period, the Social Security contribution will increase. Kate’s account will be credited with 8357.72 which is still 1,420 PLN more than what Tom will get on an Employment Contract.
With lower remuneration, the differences shown will be smaller. So it is worth using the B2B salary calculators available online and comparing the profitability of the contract with the amount of our salary.
Take note of what you must remember!
It is much more profitable to delay deciding to become self-employed until you start working with a new employer. If you decide to take this step with your current employer… You will not be able to count on getting the “Startup Relief “or the so-called “Small ZUS”. You will also lose the opportunity to choose a flat tax or lump sum.
Advantages and disadvantages
Finances are not the only advantages of self-employment. Among them are also mentioned…
- More leeway in negotiating contract terms. Because the Civil Code does not specify the exact content of a B2B contract, its provisions can be tailored to our specific needs.
- No restrictions on the number of collaborations. Ability to provide services to several different companies at the same time.
- The possibility of subcontracting tasks. A provision in the contract is required here.
- Relatively flexible working hours. While some employers require attendance at specific time slots, the self-employed have more room for negotiation.
- The option to choose a flat tax implies that regardless of the income earned, the entrepreneur pays a 19% income tax. It is estimated that this is a favorable option for those whose earnings exceed about 100,000 per year.
- The ability to include expenses in the cost of doing business and thereby reduce the amount of income tax paid. Examples of such expenses could be fuel, industry training, accounting services, or leasing a car.
About the disadvantages of B2B
- The need for invoicing, bookkeeping, and paying taxes yourself. However, you can enlist the help of an accounting firm. That will do most of the paperwork for you for a relatively small fee.
- No paid annual leave or leave on demand. However, more employers are offering paid days off as a benefit.
- Lack of protection against sudden dismissal. If you are concerned about the notice period, it is worthwhile to negotiate such a provision into the contract.
- Sickness and maternity benefits are significantly reduced.
- The need to save for retirement on your own. The self-employed often pay lower pension contributions, are not covered by Employee Capital Plans (PPK). They are not subject to employer-directed pension plans for employees. So their benefits will necessarily be much lower.
- Potential problems in obtaining credit – banks’ requirements for entrepreneurs are much higher, which may translate into a lack of creditworthiness.
Core differences between B2B and Employment Contract
To further illustrate the main differences between an Employment Contract and B2B in the following chart, we provide a small summary.
If, after reading this article, you feel that B2B is an option for you… The first step towards achieving your goal would be to set up your own business. The whole procedure is quick and free—just go to www.ceidg.gov.pl. And fill out the application, confirming your identity with a trusted profile or electronic banking.
Voila! Welcome to the group of entrepreneurs 😉