Contract Reclassification Is Already Affecting Employment Today - Few People Realise It

The new reality of inspections of employment and civil-law contracts means that the classification of working relationships is no longer just a theoretical legal risk, but has become an active element of inspection proceedings. In practice, this means that both state authorities and courts are closely examining how businesses employ staff and how they classify contracts in their relationships with contractors.

What until recently was merely part of the discussion about future legal changes already applies in practice today and affects how many companies run their business.

The role of the Social Insurance Institution (ZUS) in analysing civil-law contracts

Although the National Labour Inspectorate is often cited as the main body supervising the proper employment of staff, the Social Insurance Institution (ZUS) has a real influence on the reclassification of contracts. As part of its inspections, ZUS analyses civil-law contracts and assesses whether they in fact reflect an employment relationship. If ZUS concludes that a given contract in practice amounts to employment under an employment contract, it may apply to the court to change the legal classification of that contract.

This means that it is not only the Labour Inspectorate, but also ZUS, that takes part in verifying the real terms of cooperation with contractors or employees. It is a genuine tool that can lead to court decisions to convert a civil-law contract into an employment contract and result in the need to settle outstanding contributions and taxes.

Inspecting practice, not just form

In practice, the inspecting bodies look not only at the content of the contract signed on paper, but above all at how the work is actually performed. If a formally concluded contract of mandate or B2B contract in fact resembles an employment relationship - for example, the worker performs work under the direction of the client, during set hours and in line with the rules of work organisation - authorities and courts may classify such cooperation as an employment relationship.

This means that even if the documents formally indicate a civil-law contract, in practice it may be treated as an employment contract. The consequences of such a change are both legal and financial - the business may be charged with outstanding ZUS contributions and taxes, as well as other benefits arising under the Labour Code.

The contract inspection reform proposal - history, controversy and reality

In recent months there has been a broad discussion about a reform proposal that was meant to give the National Labour Inspectorate the power to issue administrative decisions converting civil-law contracts and B2B contracts into employment contracts. The idea raised many concerns in the business community, because the administrative decisions could have taken effect with immediate enforceability.

As a result of the debates and consultations, the proposal was halted in its original form, and work on revising it is still ongoing. Even so, practical inspections carried out by ZUS and the courts already have a real impact on the classification of contracts today and set standards that businesses must take into account.

What are the practical consequences for companies?

For business owners, the current situation means that the risk of working relationship classification cannot be ignored. Regardless of whether the legal changes come into force, courts and inspecting bodies are already analysing contracts and the actual relationships between the company and the people providing work or services.

The most important practical consequences are:

• the risk of a civil-law contract being converted into an employment contract,
• the need to settle outstanding ZUS contributions and taxes,
• potential claims from the worker (e.g. employee benefits),
• greater importance of proper documentation and structuring of cooperation.

For business owners, what matters is therefore not only drafting contracts correctly, but above all ensuring that actual practice complies with the applicable labour and social insurance regulations.

How to prepare

In light of current inspection practices, it is worth:

• carrying out an audit of contracts and forms of cooperation with contractors and employees,
• verifying the actual conditions of the work performed against the formal contract,
• taking into account the risks arising from a possible change in contract classification,
• consulting a tax and legal adviser on possible risk-minimisation strategies.

Conscious management of forms of employment and cooperation is today not only a matter of legal compliance, but also part of effective tax and operational planning.

Summary

Although the reform giving the Labour Inspectorate the power to reclassify contracts has been halted in its original form, real inspection mechanisms are already affecting contract classification today. ZUS and the courts are actively analysing how businesses cooperate with third parties, which may lead to changes in contract classification and the associated financial risk.

Business owners should therefore be prepared for more thorough inspections and analysis of contracts - both those concluded formally and those performed in practice.