The “gig economy” and the employment status of those working within it, has been in the spotlight in the EU recently. 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. The same applies to Poland. UK employers may face a number of challenges in the light of the recent developments if their plans involve hiring people in Poland directly. This issue requires serious consideration.
Currently, there are two main categories of individuals in the workplace in Poland which are available to a UK company after Brexit – (a) employees and (b) self-employed contractors. The classification is crucial because it determines what rights and entitlements will apply. For example, an employee is entitled to holiday pay and sick pay, but a self-employed contractor is not.
Which option is the best depends on the specific circumstances and on what the parties agreed. Naturally, the best option from an employee point of view is the employment status while companies prefer the self-employed status because it gives a lot of flexibility to both parties. Sometimes, however there could be controversies whether the individual is self-employed rather than an employee.
If you utilise self-employed resource within your business, you ought to review your arrangements to ensure that:
- the reality of the arrangement is consistent with the label given to the individual (the Courts will look at how the arrangement works in practice, not just what is stated in the contract).
- the self-employed person is not integrated into the business (i.e. they are not treated like employees).
- any right of substitution is not in reality restricted.
Employment status is under increasing scrutiny at the moment and that trend will continue. If you utilise self-employed contractors, we recommend that you review your current arrangements to mitigate any risk of a self-employed contractor asserting employment status.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 self-employed person is in fact an employee, the Courts will look to the hiring organisation rather than the self-employed person for back tax and the payment of penalties.
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. A sole trader in Poland has to be formally registered as an economic entity who issues invoices for its services.
The second important factor worth considering while we are comparing both options is the level of control which means the power of deciding the task to be completed, the way in which it shall be done, the time it will take etc. A high level of control is a factor that points towards the relationship being one of employment. The extent to which the individual is subject to company processes such as appraisals and disciplinary processes will be important.
To sum up: 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 lower 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.
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