What does it take for a UK company to employ people in Poland?

Even before the Covid-19 pandemic, the nature of work had for some time been changing. Gone are the days when having a job meant working for a company on a long-term basis and under a contract of employment. It is now quite the opposite. Over the past decade, there has been a considerable rise in the number of self-employed people both in the UK and in Poland.

Covid-19 has had and will continue to have profound effects on how we all work as companies seek to transition out of lockdown into a socially distanced model. The fact that the UK left the EU on 31 December 2020 makes the situation even more difficult because the process of the UK –EU labour law harmonisation has stopped.

If a UK company wants to hire a person in Poland, it has basically two options:

- employment (with the full spectrum of employment rights including paid holidays, pension, sick pay, national minimum wage, etc.) or
- self-employment/ sole trader (in which there are very few employment protections but both parties to the cooperation contract have a lot of flexibility in agreeing the model of cooperation)

There are a range of factors that are taken into account by the Courts when determining which category a worker falls within. It is not always a straightforward question and there can be many grey areas. The sole trader option gives the parties much more flexibility so it is the option usually chosen by a foreign company when hiring a person in Poland.

Traditionally, there has always been a pool of highly skilled individuals who work for themselves (providing technical, design, production skills etc). This has now expanded – both in the UK and Poland - to include what has been called the ‘gig economy’ where core services are delivered by self-employed contractors.

As the ‘gig’ economy grows, so does the traditional divide between self-employed/employed blur.

Depending on the factors set out below, it could be that an organisation considers that they have engaged a self-employed contractor when in fact what they have done is taken on an employee with all the obligations and costs that arise from that. This is not an insubstantial issue.

The main factors that are taken into account when deciding whether the parties agreed the employment status or a B2B relationship (if a dispute arises) are:

Personal service and
Level of control

Personal service

In its most simple terms, an employee personally serves their employer. The employer has an obligation to provide work to the employee and the employee is obliged to personally carry that work out. In contrast, someone who is a sole trader and runs his own business provides services to a client and that sole trader is normally free to send a substitute to carry out those services.

Level of control

This includes the power of deciding the task to be completed, the way in which it shall be done, the time it will take and the place where it shall be undertaken. A high level of control is a factor that points towards the relationship being one of employment. As most highly skilled employees will have considerable autonomy over how and when they carry out their duties, the cases have tended to focus on the extent to which the individual is controlled during their engagement. As a result the extent to which the worker is subject to company processes such as appraisals and disciplinary processes will be important.

Other factors

In a self-employed situation, there must be no obligation on the sole trader to undertake the work and, for the company, no obligation to provide any work. The less interdependent, the less likely it is that the Courts will find it to be an employer-employee relationship. Organisations should also keep in mind other considerations such as length of contract and benefits offered. The longer the contract and the more integrated into the company the individual is, the greater the likelihood of the Courts finding them to be an employee. In any event, it will also be easier for a sole trader to argue that there was a mutuality of obligation when a contract spans several years.

The consequences of getting this wrong can be substantial. An organisation can face claims from the self-employed persons contending that they are due holiday pay and national minimum wage. The distinction is also important from a tax perspective as an organisation is required to pay PAYE income tax and national insurance in respect to all employment income. If a sole trader is in fact an employee, the Courts will look to the hiring organisation rather than the sole trader for back tax and the payment of penalties.

Intellectual property

Another important factor is in relation to who owns the intellectual property created. As a general rule an employer will own the intellectual property created by an employee during the course of their employment. On the other hand a sole trader as a self-employed consultant will (unless there are contractual agreements providing otherwise) own the intellectual property of their work. So for example, if an arts organisation employs an in-house photographer then the copyright in the photographs taken as part of the photographer’s job will belong to the employer. This will not be the case for a freelance photographer.

Conclusion

When engaging self-employed contractors it is important to weigh up these factors so that organisations can be satisfied that the engagement is genuinely one of a self-employed nature and therefore minimise the risk of that arrangement later being classified as one of employment. It is important to document the arrangement in a properly drafted cooperation agreement. Nonetheless, bear in mind that the contract by itself will not determine the status and if a dispute arises, the Courts will look at the actual circumstances of the relationship to determine the individual’s employment status.

In the case of a UK company hiring a person in Poland, naturally the level of control will be low because of the distance, therefore in most cases it will be easier to argue that the real intention of the parties was B2B relationship. In any case, each situation should be reviewed individually to minimise the risk.