Does B2B contract reclassification mean that every long-term contract will automatically become an employment contract? No. What matters are the actual conditions under which the services are performed, rather than the title of the agreement. In its latest article, Wyborcza.biz discusses the first interpretation issued by the Polish Chief Labour Inspector concerning B2B contracts in the IT sector. Earlier, we commented in “Rzeczpospolita” on the tax consequences of treating a self-employed contractor as an employee.
B2B contract reclassification is not automatic
In the article “The IT sector (…)”, Wyborcza.biz describes the first assessment of an IT-sector B2B cooperation model by the Polish Chief Labour Inspector. In the case concerned, the authority found no grounds to challenge the adopted terms of cooperation.
This is an important signal for the market. The new powers granted to the Polish National Labour Inspectorate (PIP), do not mean that B2B contracts will automatically disappear. The official guidance concerning the PIP reform also states that correctly concluded and performed civil-law contracts are not at risk.
However, each cooperation model must be assessed individually. A favourable interpretation issued in one case cannot automatically be applied to every company and every B2B contract.
In an material, we pointed out that not only the wording of the contract matters, but also the procedures actually followed by the company.
Dr Piotr Sekulski, tax advisor
“…a clear separation of the recruitment process, ongoing administrative support and even bonuses granted to B2B contractors from those applicable to employees.”
This does not mean introducing merely cosmetic changes to the documentation. The contract, recruitment process, ongoing communication with the contractor and the actual organisation of the cooperation should form a consistent business model.
B2B contract reclassification: PIT, VAT and ZUS
We discussed the other side of the issue in “Rzeczpospolita”. The article “The inspector will convert B2B into employment(…)” was also featured on the newspaper’s front page.
A PIP decision does not necessarily change tax settlements for previous years by itself. However, the information gathered by the labour inspectorate may be transferred to the Polish National Revenue Administration and the Social Insurance Institution, commonly referred to as ZUS. It may then become the basis for a separate audit.
As I explained in my comment for “Rzeczpospolita”:
Dr Piotr Sekulski, tax advisor
“The amendment also requires regional labour inspectors to provide the competent tax authorities with information about a case.”
If the tax authorities conclude that a contractor’s remuneration should have been treated as employment income from the outset, the consequences may affect both the company and the self-employed individual. On the front page of “Rzeczpospolita”, I summarised the potential consequences as follows:
Dr Piotr Sekulski, tax advisor
“Recalculate invoices as salaries and pay PIT advances and social security contributions.”
In practice, B2B contract reclassification may also require corrections to PIT-11 information returns, PIT-4R declarations, business tax returns, VAT settlements and documents submitted to ZUS. The precise consequences will always depend on the circumstances of the individual case.
We discussed these risks in greater detail in our earlier article: “B2B contract audits – PIP may attract the attention of the tax authorities”.
What does the first PIP interpretation mean for businesses?
The first interpretation described by Wyborcza.biz confirms that a properly structured B2B relationship may be accepted by PIP. However, having an appropriate contract template is not enough. The contractor’s independence, the manner in which instructions are given, the organisation of the time and place of providing services, responsibility for the result and genuine business risk also matter.
Before a potential audit, companies should therefore review not only their contracts but also their management practices, HR procedures, settlement methods and everyday communication with B2B contractors.
B2B contract reclassification – how can we help?
At Outsourced.pl, we analyse the tax and social security risks associated with B2B cooperation models. We review contracts, the actual organisation of the cooperation and the applicable settlement methods. Our job is also to assess the potential consequences for PIT, VAT and ZUS.
We can also help companies prepare for an audit and identify areas where the contractual documentation does not reflect the actual manner in which the cooperation is organised.
