The impact of the COVID pandemic on working arrangements has meant that UK employers are increasingly likely to have staff working remotely from overseas. Poland is one of the most favourite places especially for hiring software developers.
To hire employees in Poland, a UK company should establish a legal entity in Poland. The UK company can choose to form a branch, a private limited company or a joint venture. Many international companies choose to form a private limited company in Poland, which can operate more independently than a foreign branch. Starting a business in Poland takes approx. 30 days and involves several steps. To establish the Polish subsidiary, the UK company must:
- sign the Articles of Association before the notary public,
- appoint the governing bodies,
- submit the motion for incorporation,
- open a Polish bank account and
- register with the tax authorities.
The UK company may also buy a Polish shelf company and then carry out the necessary adjustments. The shelf company is up and running from the moment of buying the shares so - if the need arises – it can start trading immediately.
The simpler solution if the UK company does not need a physical business presence in Poland and they want to start hiring new employees in Poland right away is to go for the cross-border employment contract to be signed between a UK company and a Polish employee. Employees based in Poland will be normally entitled to the benefit of Polish employment law, regardless of whether they have an English law contract or a contract that is expressly subject to Polish law. The fact that they are working remotely for a UK company will not be relevant. Alternatively, the parties may decide to sign the cooperation contract if the UK company prefers to outsource the work to a self-employed person.
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 a cooperation contract?
The cooperation contract (B2B contract) is an alternative to an employment contract and it is particularly popular among software developers. 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.
Which approach is better?
Which approach is better depends on the specific circumstances and on what the parties agreed. Naturally, the employee prefers the employment status while companies prefer the self-employed arrangements because it gives them more flexibility. Sometimes, however there could be controversies whether the individual is self-employed rather than an employee. This is an important issue.
If the UK company utilises self-employed resources within their business, they ought to make sure 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 in Poland at the moment and that trend will continue. If the UK company utilises self-employed contractors in Poland, we recommend to carry out an audit of the 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 Poland 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.
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 also 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, please 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.