Are you considering your employment as a programmer? We compare B2B and contract of employment contracts to help you choose the best option for your IT career.
Companies are competing with ideas to attract the best programmers to their organizations. Nowadays, it’s not just about the salary itself, the opportunity for remote work, or additional benefits such as company-provided equipment, fruit Thursdays, team-building events, private healthcare packages, or a sports card.
Due to their unique features, which are extremely important for the labor market, as well as high earnings, programmers have a wide range of forms of employment to choose from, the most popular of which are the classic employment contract (UoP) and the B2B contract (self-employment/sole proprietorship). Depending on the situation related to the form of settlement, programmers often wonder what form of contract to choose so that the net remuneration for their work is as high as possible.
In this article, we compare an employment contract with a B2B contract. Which form of employment is better? Is B2B more profitable than contract of employment? What about the benefits provided by the Labor Code? You will find out all of this and much more in a moment.
What does working on B2B mean for a programmer?
Providing programming services based on a B2B contract is an increasingly common – what does it mean in practice? People who decide on a B2B (Business to Business) contract become self-employed programmers with their own business (Polish law refers to a JDG – sole proprietorship).
Having their own company, a programmer can enter into a contract with one or multiple companies to provide services. In the case of programmers, it is most often a single contract with a company (client) and the fulfillment of duties based on terms similar to a traditional employment contract, which, in the case of a B2B contract, are individually negotiated between both parties. Some B2B contracts include non-competition clauses to avoid situations where a programmer works for two competing businesses.
Self-employment is not subject to the Labor Code, which entails several differences compared to employment based on an employment contract. These include:
- Independence: A B2B contract offers greater independence and flexible working hours (no rigid working hours as stipulated by the Labor Code).
- Compensation: Transitioning to a B2B contract opens the path to higher earnings, but it’s important to note that higher compensation comes with the responsibility of paying taxes, contributions to The Social Insurance Institution (ZUS) as well as managing accounting.
- Financial Management: In the case of a B2B contract, the individual running the sole proprietorship (JDG)is responsible for independently managing finances – appropriately settling contributions, paying taxes, and managing costs and revenues in business activities, or opting for accounting services at an additional cost.
- Broader Collaboration Opportunities: With a B2B contract, one can collaborate with multiple clients simultaneously, increasing income.
- Cost Deductions: Individuals with a sole proprietorship can deduct necessary business expenses, leading to a reduction in taxes. As a result, the use of a car or the purchase of high-quality equipment necessary for work becomes more cost-effective.
- Grants and Subsidies: Sole proprietorships have easy access to various forms of financial assistance and incentives for research or implementing innovative projects. Funding sources are available from both Poland and the European Union.
It is important to note that a B2B contract also has its drawbacks and shortcomings compared to a traditional employment contract. These include:
- Lack of Employee Rights: A B2B contract does not equate to establishing an employment relationship, so the self-employed individual is not entitled to the rights guaranteed by the Labor Code. This means a lack of job security guarantees, paid vacation, or seniority bonuses. Additionally, it’s worth noting the lack of salary during prolonged absence, for example, due to chronic illness. Also, the lack of vacations and the desire for constant salary growth may lead to overworking and professional burnout.
- Potential Lack of Non-Monetary Benefits: In the case of a B2B contract, there may be a limitation on non-monetary benefits such as team-building trips, holiday bonuses, or annual bonuses. However, this depends on the specific terms negotiated with the contracting company. In the IT industry, individuals with a B2B contract often receive the same benefits as employees under a traditional employment contract.
- Accounting and Contribution Obligations: Operating a sole proprietorship is an obligation that requires discipline, monitoring deadlines, and time management. Programmers must focus on managing their business, including issuing invoices, enforcing payments, making monthly transfers to the Social Insurance Institution (ZUS), paying advance income tax to the tax office, and handling all accounting and documentation for the company.
- Different Notice Period than Employment Contract: In a B2B contract, the notice period is determined individually. There are no guaranteed notice periods as specified by the Labor Code. A B2B contract can be concluded for a fixed or indefinite period.
How to calculate compensation on a B2B basis for a programmer?
Calculating compensation on a B2B basis for a programmer is usually more complex than in the case of traditional employment. Most often, programmers with their own businesses sign fixed-term contracts for a steady monthly sum for the services they provide, or they agree on an hourly rate for hours worked. Sometimes, a base calculation is used – a fixed amount for a minimum number of hours worked in a given month, plus additional compensation (bonus) for exceeding the specified number of hours. However, it’s important to note that the net amount on the invoice is not the actual earnings for the programmer in relation to the signed contract.
From the net income, deductions must be made for pension and disability contributions, health insurance contributions, and taxes. All the components mentioned above depend on the form of taxation (progressive tax scale, flat tax, lump-sum tax), the costs of earning income in a given month (company expenses), and any social insurance benefits – preferential contributions, start-up relief, Small ZUS.
You can find many B2B calculators on the Internet that allow you to quickly and conveniently calculate the amount of net remuneration on hand.
How to set up B2B as a programmer?
Establishing B2B activity in Poland as a programmer requires adhering to specific legal steps and procedures. For programmers, the most commonly chosen legal form is a sole proprietorship. Its registration takes place at the relevant municipal office based on your place of residence and requires filling out the appropriate application along with providing necessary information such as the company name, business address, PKD code (Polish Classification of Activities), any additional permits, and the form of income taxation.
You can also register a company online through the CEIDG platform (Central Registration and Information on Economic Activity). Importantly, any individual can establish their own company in Poland.
After registering the business, a tax identification number (NIP) is assigned to the company. Upon obtaining it, one should go to the bank to open a corporate bank account – for receiving payments from clients and for contributions to the Social Insurance Institution (ZUS) and the tax office.
At this point, it is worth considering hiring an accountant or using an accounting office.
A good idea is also to purchase professional liability insurance, which can protect the company against potential client claims.
Self-employment involves additional responsibilities. It’s important to be aware that the retirement benefits of a self-employed programmer will directly depend on the amount of contributions paid to The Social Insurance Institution (ZUS). Many self-employed individuals choose to purchase additional health and social insurance independently.
How to issue a B2B invoice as a programmer?
Issuing an invoice on a B2B basis as a programmer in Poland is a relatively simple process that can also be automated. Invoices are typically generated using popular business management software, often integrated with online banking systems.
When issuing an invoice, it is important to ensure that it includes information about the company, details about the client (recipient), invoice number, date of issuance, date of sale or service completion, description of services/goods, VAT rate, VAT amount, total amount, payment terms, as well as bank transfer details.
From July 1, 2024 (for taxpayers exempt from VAT from January 1, 2025), KSeF – the National e-Invoice System – will be in force, which will also affect programmers running sole proprietorships. This solution aims to standardize the invoicing system in Poland. The Ministry of Finance has selected the XML format with the logical structure of e-Invoices( eFaktura FA(2)) as the standard for issuing invoices after July 1, 2024. All entrepreneurs will need to ensure the structuring of their invoicing systems in their organizations.
Structured invoices can be issued using free tools provided by the Ministry of Finance or commercial programs updated to support the National System of e-Invoices (in Polish: “Krajowy System E-faktur”, usually abbreviated to: “KSeF”). Each invoice issued in the National System of e-Invoices will receive a unique identifier, preventing unrestricted modification of data on the issued invoice without annotation in the system. All invoices will be synchronized with the Ministry of Finance’s cloud to ensure integrity and proper structuring of invoices.
What tax applies to a programmer on B2B?
Programmers in Poland most commonly opt for two forms of taxation – lump-sum tax and linear tax.
Taxation in the form of lump-sum on recorded revenue amounts to 12%, and in some cases, it can be as low as 8.5%, making it a highly favorable tax method. It is advisable to precede the choice of this taxation method with an opinion from the Tax Office relevant to the business address. For comparison, in the case of linear tax, the tax rate is 19%.
In the lump-sum taxation, the income is taxed, not the profit. This means that there is no possibility to deduct the costs of obtaining income. However, for programmers, compared to their earnings, these costs are not typically high. Lump-sum taxation also allows for simplified accounting, significantly facilitating business management by reducing the time needed for organizational matters related to running a company. It is worth noting, though, that programmers often exceed the lump-sum thresholds set by The Social Insurance Institution (ZUS), posing a risk of a substantial additional payment at the end of the calendar year.
Is IP Box a good solution for a programmer?
IP Box is a special type of tax settlements that was created to develop innovation and research in enterprises. This is a type of tax relief that can be used by enterprises operating in the field of new technologies, including programmers and IT companies. It operates on the principle of preferential taxation of income related to intellectual property, including copyrights, patents and licenses.
IP Box can be utilized by IT professionals who sell their intellectual property rights, a practice that is quite common among programmers creating non-physical software. When using IP Box, the tax rate is only 5%. Importantly, this does not combine with the lump-sum tax, so a decision needs to be made on which solution is more favorable. There is no clear-cut answer to this, as it depends on the individual situation of each programmer.
When using IP Box, it is crucial to ensure thorough documentation of one’s work. Programmers with sole proprietorships (JDG) who opt for IP Box must have a contract specifying the scope of services provided that falls within the innovative part. Additionally, information about the ratio of innovative work to the overall scope should be included. Documentation must be kept as evidence in the event of a potential audit. While this approach may be time-consuming, it can be cost-effective. An additional benefit is the possibility to retroactively settle IP Box for a period of up to 5 years.
What is better, B2B or UOP for a programmer?
Each employment form has its own advantages and disadvantages. There is no definitive answer to the question of which is better. It all depends on the individual’s life situation, expectations, and preferences.
Based on a B2B agreement, the benefits include higher earnings, significant independence, and the ability to work with multiple clients. Additionally, the possibility of working from any location and a task-oriented work mode are not without significance. Other advantages include the option to use leasing for a car, equipment necessary for work, and even real estate.
On the other hand, based on an employment contract in the IT industry, one may have lower earnings but also a range of advantages such as being subject to The Labor Code (Kodeks Pracy), strict cooperation rules, and ease of obtaining a loan (it is a preferred form of employment for banks, especially an indefinite-term employment contract).
In summary, running your own business in the IT industry allows for independence, flexibility, higher remuneration, and access to multiple projects, but it comes with the responsibility of managing accounting and attending to formal matters. In the case of an employment contract, you can expect stability, a fixed income, fewer additional formalities, no business-related risks, and additional social benefits.
What Polish Classification of Activities (PKD) code does a B2B programmer need?
In the PKD (Polish Classification of Activities), there are specific types of activities prepared for programmers. These include:
- PKD 62.01.Z – Activity related to the creation of websites and other activities related to software (this is a general code for programmers).
- PKD 62.02.Z – Activity in the field of consulting IT services.
- PKD 62.09.Z – Other services related to information technology and computing.
- PKD 62.01.Z – Activity related to the creation of websites and other activities related to software.
- PKD 62.03.Z – Activity related to the management of performance and availability of computer systems.
- PKD 62.04.Z – Activity related to consultancy in hardware and software.
Programmers can choose more than one PKD code. It is important that the business includes PKD codes corresponding to all offered services/products.
What vacation does a programmer have on B2B?
A programmer with a sole proprietorship (JDG) is not subject to the Labor Code, and therefore does not have the right to paid leave. Before starting work on a B2B basis, it is worth carefully analyzing the contract and discussing with the client or employer regarding vacations and other aspects of work. In the IT industry, contracts often include provisions allowing for a paid technical break, the duration of which is similar to the traditional paid leave available in an employment contract. Some programmers with a sole proprietorship include the cost of their vacation in the hourly rate to balance earnings during the vacation/technical break period.
What insurance is required for a programmer on B2B?
A programmer with their own business activity and settling under a B2B contract is obliged to pay mandatory health, retirement, and accident insurance contributions.
Polish law does not require having liability insurance, insurance for company equipment, income loss insurance, or insurance against the risk of a cyber attack and GDPR infringement. Running your own business activity involves risks, so it is advisable to consider such insurance products.
How can a B2B programmer terminate the contract?
The method of terminating a contract depends on the form in which it was written. A programmer providing services can terminate the contract by mutual agreement or give notice under a B2B contract. It’s important to remember the notice period specified in the contract.
Importantly, in the IT industry, some B2B contracts cannot be terminated. This applies to implementation contracts that foresee a specific outcome of the work. Non-disclosure agreements (NDAs), which bind parties to confidentiality regarding information processed under the agreements, may also be impossible to terminate.
The simplest way to terminate a B2B contract is by using an agreement signed by both parties based on the principles of goodwill. This agreement can be effective from the date of signing, after the notice period, or on a specified date.
The programmer also has the right to terminate the contract unilaterally with notice or immediately without notice. This is possible when the counterparty defaults on payment, violates personal data protection rules, or deliberately acts against the contract, such as intentionally delaying work or impeding access to data.
Very often, contracts include provisions that remain binding even after the termination of the agreement. Non-compete clauses are still in effect, often extending to a prohibition on working for intermediary or cooperating entities with the client, significantly limiting the number of available assignments in the market. The entirety is subject to contractual penalties of high value.
Contract B2B or Employment Contract for a Programmer? What to choose?
The decision to choose a form of cooperation is crucial and can have long-term consequences. The choice between a B2B contract and an Employment Contract (UoP) for programmers depends on various factors, including the employee’s preferences, current financial situation, professional level, and specialization.
Before making a final decision, it’s advisable to consult with a lawyer, accountant, or professional advisor to thoroughly understand the complex legal, tax, and financial consequences of both options. It’s also worth considering current market conditions and personal preferences to choose the employment form that best suits the specific needs and circumstances of the programmer.
