Last updated on January 26, 2019
In Poland, there are two main types of employment – full-time employment (umowa o pracę) and B2B contract. So what are the main benefits of these two types of employment and why some people prefer one over another? Let’s get into some details 🙂
Obs1. It is good to consult a specialist before making a final decision about your type of employment.
Obs2. In 2019 there will be a couple of changes on how ZUS will be charged for B2B
Full-Time Employment (Umowa o pracę)
This is probably the most stable type of employment in Poland, especially when you are on unlimited contract. You sign a contract as an individual with a company and you are normally obliged to work 40 hours/week for a fixed amount of gross salary.
Main Advantages of this type of contract
A few main strong benefits of this type of contracts are:
- You are under the protection of your employer as per law in cases such as mobbing and discrimination.
- As an employee, you are eligible for paid holidays – 20 or 26 working days per year.
- You can take holidays on demand and get paid for it.
- 80% of your salary will be paid for you for sick leave or 100% if the sick leave happens as a result of maternity.
- You will get paid for maternity or paternity leave.
- You cannot get fired from one day to another – your employer will need to respect the legal regulations here.
- It is quite convenient as all of the obligations lie on the employer side in terms of payment of pension, disability/sickness insurance, health insurance and advance payment for future taxes.
Disadvantages of this type of contract
- It can be a little flexible. If you are employed by the same company for more than 3 years you fall into 3 month notice period. This might be tricky when you think about changing companies.
- Quite a big tax deductions, especially if you exceed the 18% tax obligation and fall into the 32% rate. This means that much less money will be paid into your account, even though the gross amount stated in your contract remains unchanged. You can verify this in our Salary Calculator. If you input a salary of 12k zloty, you’ll see that your net amount gets reduced by October.
This is another very popular type of employment in Poland. I have heard of many IT professionals who opt-in for this form of contract. As the name suggests, this is a contract between two businesses. So if you want to opt-in for this type of employment you will need to open and register a proper company. I will try to write about this procedure in one of my next posts 🙂
In general, for you to open a 1-person business in Poland is very quick and easy! 🙂 You just need to have internet access and it takes you 1 day 🙂
Advantages of B2B contract over Full-Time Employment
- You have more flexibility. You can more freely decide when you work and where.
- Normally, for the same amount of money that the employer pays, you’ll receive more money in hand in the B2B option, i.e., an employee that costs 8k for the employer under a B2B contract will receive more money in hand than an employee that costs 8k under a umowa o pracę.
- There are two different types of taxation you can choose from: linear (19%) or progressive (18%/32%). In the linear taxation, the tax rate doesn’t change, it’s always 19%. In the progressive type, when your accumulated tax base reaches the value of 85 528, you fall into the 32% tax category, so you pay more tax. In summary, the bigger your salary, the most probable is that you can take advantage of the 19% taxation. If you don’t reach the limit of 85 528, it’s more interesting to choose the 18%/32% option, since your tax rate will be 18% all along the year.
- There is a possibility of limiting your tax liability by including the costs of running the business in your income declaration such as the cost of the laptop, petrol, rent of your office etc. Some costs cannot, however, be included in 100%, therefore it is always better to consult an accountant.
- Even though you have to pay health and social contributions on your own, they are fixed amounts and not dependent on your income. You also can benefit from a 2,5-year preferential period where these obligations are lower (more on this later).
- It is also more convenient for your potential employer. Even though they have to pay you the net invoice amount + VAT, they can put the whole invoice as their costs and therefore decrease their profits and tax obligations.
- If you are left with some free time, you can easily get some other additional projects and get paid for them on top.
Disadvantages of B2B contract over Full-Time Employment
- You have to pay health and social contributions on your own. No one is going to help you with it. The same relates to your tax declarations. You will probably need to hire an accountant to do it for you, so you’d better take this cost into account.
- When you go on holidays you do not get paid for it.
- You do not get benefits that are usually offered by big companies such as company phone, private health insurance, multisport, company car etc. You might also want to add those costs to your calculations.
- Once you are sick or you go on maternity leave you either get very little money or nothing at all.
- In general, you can expect less employment security. Once your contract ends, it does not have to get extended so you might stay unemployed for some time.
As I’ve mentioned before, new companies have the benefit of a lower ZUS contribution. Before we go into the categories, it’s worth mentioning two points:
- The sickness insurance is optional, you’re not obliged to pay it.
- The health insurance has no discount, and its value is 319.94.
The ZUS contribution works as follows:
- First 6 months: 0.00 zl
- From 6 months to 2 years (mały ZUS): 199.32 zl (15.44 zl of this value is for the optional sickness insurance)
- After 2 years (duży/normal ZUS): 912.22 zl (65.31 zl of this value is for the optional sickness insurance)
As you can see, during the first 2 years the company has a great discount on the ZUS contribution. Remember that those are all fixed values, they are the same if you have an invoice of 5k or 15k.
Some practical example
So let me put what I wrote above into practice 🙂
Umowa o prace (Full-time employment)
Let’s assume the following situation: You are employed by a company and you earn a fixed monthly salary of 10 000 zl gross.
In order to calculate your net amount, you could use our Salary Calculator 🙂
In general your yearly gross amount will be of 120 000 zl, however, you will only get 7034,23 zl net monthly and in the last month even less 5795,38 zl as you will be falling into 32% tax level.
Your gross amount of 120 000 zl will equal 83 173,91 zl net.
The total cost for your employer, in this case, amounts to 144 732 zl!
Let’s now assume that you are employed on a B2B contract and you issue an invoice for the amount of 144 732 zl which is the total cost for the employer in the previous case.
The employer will pay you the invoice of 144 732 zl + VAT and for him, this is actually very attractive as the whole value of the invoice he can put into his costs and therefore decrease his tax and VAT obligations.
Therefore, let’s assume the starting point is the value of 144 732 zl.
What you will need to subtract:
- Starting value: 144 732 zl which monthly will give 12 061 zl
- Health and social insurance monthly: 505 zl, after the preferential the 2-year period 1 167 zl. You also benefit from an initial 6-month preferential period where you only pay around 300 zl but I am basing my calculation on the middle value.
- Taxation at 19% gives 1 981
- Monthly income after taxation: 9 575 zl and after the 2-year preferential period: 9 039 zl
This gives 114 905 zl net yearly during the 2-year preferential period and 108 468 zl afterwards.
You might say in such case ok, it seems like the B2B contract is financially much more beneficial as in the worst case scenario you are getting a difference of 83 173 zl (umowa o prace) and 108 468 zl, which is a considerable amount of 25 295 zl!
However, what you need to bear in mind is that you probably are not going to work for 12 months a year. Considering you’ll not work for 1 month, you need to lower your 105 890 zl by 9 039 zl. In addition to that, you will probably have to pay monthly for an accountant, let’s say 200 zl monthly. I assume you will probably want some private health insurance and gym membership which will add up to 300 zl monthly.
This means that your initial difference will lower from 25 295 zl to around 10 256 zl for the whole year. In many cases, you will be able to lower your tax obligation by including some other costs of running the business 🙂 Also, remember that some employers offer paid vacations for B2B employees, I hope you get lucky about that 😉
These values become much more attractive if your monthly invoice at B2B contract gets higher. Just try to make your own calculations in our Salary Calculator and see what happens 🙂
Value added tax is another thing that you need to decide upon. The decision in the majority of the cases is yours whether you want to be a VAT payer or not. There is a list of professions, however, that are obliged to be a VAT taxpayer and you have no choice in such a case. The most common ones are lawyers and consultants.
But, for example, if you would like to work on a B2B contract as an IT professional you will need to make a choice. There are advantages and disadvantages of paying VAT. The main advantage is, of course, that big companies normally prefer to issue an invoice together with VAT as they can, later on, put it in their costs.
Another advantage for you is that if you are a VAT payer, you can normally subtract your VAT obligation by VAT from the things your purchase.
I guess the biggest disadvantage for you is the extra work you need to go every month for VAT declaration. Either you will have to do it yourself and make sure you keep the deadlines or you will need to pay an accountant extra for this type of work.
In 2019, there’ll be changes to the ZUS for B2B contracts. In the future, we’ll update this post with this new information.
I hope that this article helps you at least a little bit in choosing which form of employment is more beneficial for you 🙂 Please check out as well some other articles that we wrote – Average Salary in Poland to find out more about the job market in Poland 🙂