B2B contract vs. employment contract - which option is better for you?

The transition from an employment contract to one's own business - B2B - comes with both many hopes and doubts for employees. And like any solution - it too has its advantages and disadvantages. It is often associated with the loss of many of the rights and privileges that come with employment, but in turn tempts with a higher paycheck and greater flexibility. If you are thinking about starting your own business - you probably also have many questions about it. What is a B2B contract and what consequences does it entail? What does self-employment entail and in what cases does it pay off?

• Key information
• What is a B2B contract?
• Employment contract or B2B contract - which to choose?
• Pros of own business
• Advantages of an employment contract
• The most common concerns in the transition to B2B
• Transitioning from an employment contract to B2B - what should I keep in mind?
• Provision of services to a former employer and the Small Social Security relief
• Working for a former or current employer and income tax
• Leave of absence after transition from full-time to B2B
• Does the employer gain from an employee's transition to B2B?
• Self-employment - regular payment of Social Security contributions
• Putting your accounting in professional hands

Key information

• Changing the form of employment from UoP to B2B will usually be most advantageous for those who have a high gross salary on a full-time basis and whose employer pays high Social Security contributions on it.
• A B2B contract involves voluntariness in the amount of social contributions paid.
• An employee on B2B loses certain rights, but also gains new responsibilities (such as those related to criminal liability).
• B2B gives you the opportunity to issue more invoices without signing a civil contract.

What is a B2B contract?

In a B2B contract, one party agrees to provide certain specified services to another. The latter, in turn, declares payment of the corresponding remuneration for this. The terms of the contract can be shaped completely freely. The order and content of the contract is selected according to how the two parties want to get along. 

Importantly, there are no restrictions here on the types of such activities and services, as long as both parties to the employment relationship are business entities. In the case of B2C, we have more recovery options, which is due to the Labor Code that protects us.

However, everything written in the contract must comply with the Civil Code and must not contain abusive clauses.

It is important to remember, when deciding on such a contract, to pay a lot of attention to accurately specifying the objects of the contract and the scope of work - so we can avoid many misunderstandings in the future.

Employment contract or B2B contract - which to choose?

This is a question that many employees really ask themselves when deciding on the next steps in their careers. What pays off more and gives more flexibility? The answer to this question will actually be very individual.

A change in the form of employment from UoP to B2B will usually be most beneficial for those who have a high gross salary on a full-time job, and the employer pays high Social Security contributions on it. In this case, after switching to self-employment, the contributions and taxes are paid by yourself so that you can gain an additional amount, which remains in the overall settlement "on hand".

However, it's very important to carefully analyze the individual situation and possible benefits, as well as potential losses, in each case.

Downsides of a B2B contract

• Negotiable notice period, not statutory;
• worse recovery of funds from the employer's company in case of financial problems;
• responsibility for their own accounts;
• responsibility for annual (PIT) settlements;
• The need to keep accounting documents for 5 years and HR documents for 10 years.

Pros of own business

Among the most frequently cited advantages that make many employees choose to switch from contract to b2b are:

• Choice in paying Social Security and tax;
• cost deductibility;
• higher salary "to hand."
• lower or voluntary social security contributions;
• flexibility in creating working conditions.

Thus, we associate self-employment largely with flexibility and the ability to adapt our work to our individual intentions. This is why people who work by design - very often, for example, programmers, marketers, graphic designers managers, CEOs, agents, salespeople, representatives, self-employed, doctors, architects, accountants, real estate agents, loan brokers, physiotherapists, dentists - opt for this type of business.

Advantages of an employment contract

The most common concern that arises with the thought of transitioning to self-employment is the loss of privileges that come directly from a full-time employment contract. Such privileges include, first and foremost, the stability of employment with the current employer with an adequate notice period, which protects the employee from a sudden and unexpected loss of employment.

Na podstawie umowy o pracę mamy także płatne urlopy wypoczynkowe. Poza tym jest zapewnione również wysokie świadczenie w razie choroby powyżej 30 dni lub przejścia na emeryturę. Mamy także urlopy zdrowotne, ubezpieczenie zdrowotne i ochronę wynagrodzenia (czyli utrzymanie go na odpowiednim poziomie względem stawek minimalnych).

Under the employment contract, we also have paid annual leave. In addition, there is also a high benefit provided in case of sickness for more than 30 days or retirement. We also have sick leave, health insurance and salary protection (that is, keeping it at an appropriate level relative to minimum rates).

On an employment contract, the Labor Code protects you, and on a contract of mandate, contract for work, or B2B, the Civil Code protects you.

The most common concerns in the transition to B2B

Of course, there is also no shortage of doubts that many people face when considering the transition from an employment relationship to a business.

Above all, a B2B contract can sometimes be a challenge for freelancers who are concerned about the irregularity of assignments and unstable financial situation. Under an employment contract, this salary is usually fixed and independent of the number of assignments. In this case, greater flexibility also often means unequal monthly financial inflows.

The B2B contract also does not include rights to paid leave, unless otherwise negotiated in the contract.

In the case of overtime and night hours, the employment contract guarantees rates and equivalents, while in the case of B2B, you have to negotiate this for yourself.

And finally - many people are concerned about the additional obligations of a Zus premium payer that this type of contract brings. Those who provide work under B2B must pay all contributions (Social Security, income tax) themselves and ensure that they do not miss the relevant deadlines. Of course, it is very common for such responsibility to be passed on to a properly selected and trusted accounting firm.

Transitioning from an employment contract to B2B - what should I keep in mind?

If you decide to become self-employed, there are several steps ahead of you that are worth paying close attention to.

1. First, analyze your situation: on your own (or with your accountant, business advisor) consider whether the benefits of a B2B contract are right for you at this point.
2. Ensure favorable terms of cooperation: negotiate with your former employer the terms of a B2B contract that will be satisfactory to both parties in terms of the duties performed and the remuneration for them.
3. Put weight on your new contract: make sure the B2B contract is in writing and does not contain elements more appropriate for an employment contract.
4. Rethink your bookkeeping: decide whether you want to go it alone or prefer to entrust an accounting firm to run your business for taxes and social security contributions.
5. See to your notice period: make sure all commitments with your current employer are completed.
6. Register your business: set up a sole proprietorship, choose a form of taxation and register with Social Security.
7. Sign a B2B contract with your contractor - don't underestimate signing a paper contract!

Provision of services to a former employer and the Small Social Security relief

Most often, when changing the type of contract, the employee decides to set up his own business and signs a new contract with the same employer as before with an employment contract. This is a very common solution, but not always fully beneficial to the employee.

In the case of the Small Social Security relief (small ZUS), which can be used by entrepreneurs at the very beginning of their business, we have the opportunity to pay a much lower rate for the first two years after starting a business. The declared base is then no less than 30% of the minimum wage.

Here, however, there is a catch - if the entrepreneur performs for a former or current employer the same duties that he performed under an employment contract, then, unfortunately, the right to use this relief is lost, and Social Security sometimes disputes this.

Working for a former or current employer and income tax

In the case of flat tax and lump sum, the situation is very similar. An entrepreneur who changes the form of contract to B2B, and remains in an employment relationship with the same employer (or former employer) loses the right to use the flat tax and lump sum for the first two years of business.

In the case of former employers, after the year following the tax year in which you worked for your former employer, you can choose these forms of taxation.

Leave of absence after transition from full-time to B2B

All right, then, what happens in terms of leave on B2B? When entering into an employment contract, paid leave is due to us without question. In addition, we also have sick leave in case of health problems. In the general rules of the B2B contract, there is no mention of the top-down possibility of taking leave. But this does not mean that such days off are not available in this case at all!

In practice, the issues of absences and vacations are on a B2B contract agreed between the two parties to the contract. The most common solution is to accept the same or a similar number of days off to be used as was the case with the employment contract.

What the employment contract does not offer us is that we cannot tell the employer that we prefer a higher salary instead of vacation. A B2B contract, on the other hand, allows such an option.

Does the employer gain from an employee's transition to B2B?

Typically, a B2B contract is beneficial not only for the employee, but also for the employer. The most important benefit in this case is actually the fact that it is not the employer who then bears the costs associated with full-time employment. Such costs primarily include social security contributions, health insurance, as well as vacation and sick pay, personnel costs, storage of personnel files, or the possibility of inspections from the PIP, Social Security, and immigration authorities.

The flexibility of arrangements on a B2B contract is also a plus from the employer's perspective. With optimal conditions, such an arrangement actually becomes extremely beneficial for both parties.

Self-employment - regular payment of Social Security contributions

Self-employment on a B2B contract brings with it a number of responsibilities that must be handled by the employee himself. One of the key tasks is the regular payment of Social Security contributions and accounting for taxes - something that often scares people who want to opt for such a contract.

The self-employed person must independently monitor payment deadlines and properly complete documents for contributions and taxes. In addition, he is responsible for tax returns, in which he must include both income tax and possibly VAT.

Ensuring proper bookkeeping and accounting for taxes requires not only knowledge of regulations, but also time and attention, which can be a challenge, especially in the beginning.

Beyond that, what do we have to look forward to when deciding to go into business for ourselves?

• Monthly sending of declarations to Social Security and the US;
• bookkeeping;
• Archiving documentation;
• Odbieranie korespondencji;
• Paying Social Security and Tax Office payments on time;
• Representing oneself in offices and the Social Security Administration;
• And many other responsibilities.

Of course, it is also worth considering whether, with our own business, it would be worthwhile for us to use the services of an accounting firm.

Putting your accounting in professional hands

Using a professional accounting firm may be a good option. This gives the entrepreneur himself more time to focus on what is most important to him - that is, running the business. It's also a guarantee that he will be up to date with all the changes in the sphere of tax optimization.

Tax & Money can help you not only with all the duties mentioned in the previous paragraph, but also with tax optimization and prevention of potential problems related to erroneous accounting. It is worth considering such an option to ensure peace of mind and confidence in the proper handling of your financial affairs.