The reform of the National Labour Inspectorate - what is it really about?
The long-announced reform of the National Labour Inspectorate (PIP) has finally become a reality. Its main aim is to put in order the relationship between employees and people who work under civil law contracts or B2B contracts. At first glance the aim seems sound - the goal is to eliminate situations in which legitimate forms of cooperation are used solely to replace an employment relationship.
The problem, however, is that the state is valiantly trying to solve a problem which it largely created itself. Instead of addressing the root cause of the phenomenon - that is, the difference in tax and contribution burdens between the various forms of employment - the legislator has chosen to expand the inspection apparatus. This approach raises serious doubts among lawyers and business owners alike.
It is worth understanding the context of this reform. Employment under a contract of employment is only one of many forms of economic activity provided for by Polish law. Self-employment, contracts of mandate (umowa zlecenia) and contracts for specific work (umowa o dzieło) are fully legitimate instruments. The difficulty arises when they are used contrary to their purpose - solely to avoid the higher costs associated with a contract of employment.
Why is B2B more popular than employment?
To understand the scale of the problem, we need to answer a fundamental question: why do the parties choose other forms of cooperation instead of a contract of employment? The answer is simple and comes down to economics. Entering into a B2B contract or a civil law contract is simply more cost-effective - for both the client and the contractor.
The difference in public-law burdens between employment and self-employment can amount to several dozen percent. In practice, this means that with the same budget an employer can offer a B2B specialist a significantly higher net remuneration than under an employment contract. At the same time, the employer bears lower costs, because it does not pay Social Insurance Institution (ZUS) contributions on the employer's side or incur additional burdens arising from labour law.
The main reasons for the popularity of B2B contracts are:
- Lower ZUS contributions - a self-employed person benefits from preferential rates or flat-rate forms of taxation
- The ability to deduct the costs of running a business
- No Labour Code restrictions - flexibility as to working time, leave and notice periods
- Higher net remuneration at a comparable total cost for the client
- Flat-rate income tax (19%) instead of a progressive tax scale
Paradoxically, it is the state itself - by maintaining such large differences in burdens - that in a sense encourages market participants to circumvent the provisions of the Labour Code. The definition of an employment relationship has remained unchanged for years: performing duties at a specified place and time, for remuneration and under the direction of the employer. However, the economic incentive to bypass it is stronger today than ever.
New PIP powers - inspection and reclassification of contracts
The reform gives labour inspectors new, broad powers to verify civil law contracts and B2B contracts. The key element is the ability to issue an administrative decision converting a civil law contract into an employment relationship. This is a fundamental change, because until now such a determination required a court ruling.
In practice, this means that after carrying out an inspection, a PIP inspector can independently decide that a given B2B contract or contract of mandate in fact meets the criteria of an employment relationship, and order it to be reclassified. Both parties - the business owner and the person engaged - retain the right to appeal against such a decision to the labour court.
This raises another practical problem. PIP has struggled with serious staff shortages for years. Inspectors already have thousands of scheduled inspections on workplace safety, the legality of employing foreigners and many other matters. Now we are adding new duties, knowing full well that decisions on whom to inspect will be made arbitrarily - because it is simply impossible to check everyone at once.
Consequences for business owners
Converting a B2B contract into an employment relationship has far-reaching financial and organisational consequences. A business owner must be prepared to pay outstanding ZUS contributions together with interest, settle outstanding income tax under the rules applicable to employment, and provide the employee with all entitlements arising from the Labour Code - including leave, protection against dismissal and the right to sick pay benefits.
In addition, companies face financial penalties for breaching labour law. Uncertainty over the outcome of any appeal proceedings before the labour court may, in turn, freeze business and staffing planning in the organisation for years.
Full contribution liability - would it be a better solution?
It is worth recalling that the PIP reform was not the only scenario considered. In the original version of the National Recovery Plan, a proposal appeared for full social security contributions on civil law contracts. This solution - although controversial - had several significant advantages over the current approach.
Above all, it would be a fair and automatic mechanism. It would apply immediately to all market participants, with no room for arbitrary decisions by officials and no risk of protracted court disputes. Clear, simple and transparent rules instead of selective inspections - this is an argument that is hard to dismiss.
The current reform places honest employers at a disadvantage above all, as they have offered employment contracts for years and bear higher costs as a result. Law-abiding companies must cope with higher spending on salaries, paid annual leave, sick leave and notice periods. Meanwhile, their competitors, who use B2B contracts instead of employment contracts, can continue to avoid these burdens - at least until an inspection reaches them.
The PIP reform therefore does not level the playing field. Instead, it creates a system of fairness only for the chosen few - wherever an inspector turns up or where a business owner reflects on the matter of their own accord. It is a solution that is costly, time-consuming and carries the risk of unequal treatment of businesses.
What should business owners do now?
Regardless of how one assesses the reform itself, its entry into force requires immediate preparatory action from business owners. Ignoring the changes may result in serious financial and legal consequences. Here are the most important steps to take:
- Contract audit - a review of all existing B2B contracts and civil law contracts for the risk of reclassification as an employment relationship
- Analysis of contract content - checking whether the contractual provisions contain elements characteristic of an employment relationship (subordination, a fixed place and time of work, exclusivity)
- Assessment of the actual terms of cooperation - even the best-drafted contract will not protect you if the actual way the work is performed matches the definition of employment
- Preparing scenarios - estimating the costs of any conversion of contracts and planning a budget for this purpose
- Legal consultation - using the help of specialists to minimise risk
The PIP reform is a signal that the state intends to enforce the rules on sham self-employment more actively. Business owners who adapt their employment structures early enough will avoid not only penalties, but also costly court disputes.
Do you need a professional analysis of your B2B contracts and a risk assessment in light of the PIP reform? Our specialists in labour law and tax law will help you prepare your company for the coming changes. Contact our firm - we will analyse your situation and propose the best legal solutions tailored to the specifics of your business.
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