The reclassification of a B2B contract into an employment contract is becoming an increasingly common topic in the Polish legal and tax landscape. Although self-employment offers attractive benefits for both entrepreneurs and employers, it also carries significant risks, especially in the context of tax audits and labour inspections. Here are some key aspects to consider in order to minimise the risk of reclassifying a B2B contract as an employment contract.
Reclassification by the Fiscal Authorities
The conversion of employees to self-employment is sometimes seen as a form of tax optimisation. The benefits of such an approach are obvious: lower employment costs for the employer and the possibility for the self-employed to benefit from more favourable forms of taxation. However, where the economic activity carried out by the former employee is merely a sham, the tax authorities may challenge such a co-operation model.
As the head of the National Tax Administration (KAS) points out, artificial activities aimed only at tax benefits, such as employees setting up their own companies, may be considered invalid. If former employees perform the same tasks using the infrastructure of their former employer, the tax authorities may consider the self-employment to be fictitious, leading to the imposition of additional tax liabilities on both the employees and the employer.
B2B reclassification criteria
The basic criterion that can lead to a B2B contract being reclassified as an employment contract is the fulfilment of the prerequisites set out in the Labour Code. These include, among others:.
– Performing work under the direction and at the time and place designated by the employer,
– Permanent provision of work for one entity,
– Lack of autonomy in work organisation and use of employer’s equipment and infrastructure.
If the self-employed worker in practice performs work on a basis analogous to an employment contract, labour inspectors and tax authorities may decide to reclassify the legal relationship as an employment contract.
Consequences of reclassification
The reclassification of a B2B contract as an employment contract has a number of legal and financial consequences:
– Additional tax liabilities and social security contributions: The employer may be required to pay outstanding social security contributions and taxes, which can generate significant costs,
– Limitation of tax benefits: The self-employed person loses the ability to account for business expenses and his/her income is taxed according to a higher tax scale,
– Employer liability: The employer may be penalised for incorrect billing and may face legal consequences related to the misclassification of employment.
How to minimise risk?
To minimise the risk of a B2B contract being reclassified as an employment contract, it is worth following a few rules:
– Maintaining real independence: The self-employed person should be able to organise his or her own work, choose where and when to do it and carry out assignments for different clients,
– Avoiding sham: Co-operation should be based on genuine economic rationale and not simply on a desire to reduce tax costs,
– Transparency of the contract: The B2B contract should clearly define the scope of the collaboration, the terms of settlement and the responsibilities of both parties so that there is no doubt as to the true nature of the relationship.
Reclassifying a B2B contract into an employment contract is a risk worth taking into account when planning a collaboration model. Following the above principles will help avoid potential legal and financial problems, ensuring a safe and legally compliant operation.
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