Poland offers a wealth of employment opportunities, and various contract types are available to cater to diverse needs. Among these, the most common contract types include permanent contracts, limited-term contracts, mandate contracts and contracts for specific work, and last but not least, a B2B contract.
Permanent employment contract (Umowa o Pracę)
Permanent employment in Poland facilitated through an indefinite-term contract (Umowa o pracę), is a cornerstone for job security and enduring professional commitments. This contract lacks a fixed end date and continues until the employee resigns or the agreement is terminated, often including a standard three-month probation period.
Employees under this contract enjoy valuable benefits, including social security and health insurance for financial stability and healthcare access. The agreement encompasses specific terms and conditions related to working hours, salary, benefits, and other employment-related matters. Additionally, it grants paid holidays (20 or 26 days, depending on work experience), sick leave (paid generally at a rate of 80%, in some cases – 100%), maternity (20 weeks allowance which is paid in 100%), paternity (up to 2 weeks) and parental leave ( up to 32 or 34 weeks), and severance pay (between 1 and 3-months salary depending on several conditions), ensuring security in case of employment cessation.
The notice period on a permanent contract in Poland depends on the length of employment with a particular company and can be the following:
- 2 weeks – for less than 6 months of employment;
- 1 month – for the period between 6 months and 3 years;
- 3 months – after 3 years of working for the same company.
In summary, permanent employment in Poland symbolizes job stability and a gateway to a wealth of rights and benefits, fostering a mutually beneficial, long-term partnership between employees and employers.
Fixed-term contract (umowa o pracę)
Fixed-term employment contracts in Poland are a flexible arrangement beneficial for both employers and employees. These contracts have a specific duration and can be extended twice, up to a maximum of 33 months, after which they become indefinite.
Employees under fixed-term contracts enjoy the same rights and benefits as permanent employees, including social security, health insurance, paid leave, and severance pay. Suppose an employer ends a fixed-term contract prematurely without justification. In that case, the employee is entitled to compensation based on earnings, tenure, and contract length, ensuring fairness and protection.
B2B Contract in Poland
In Poland, contracting is one of the most efficient forms of cooperation and optimal for remote collaboration with companies from abroad. “B2B” means, in most cases, contractors who are working in the form of sole proprietorship companies (self-employed), LTD companies (even with one founder), and through IT incubators, where self-employed individuals offer their services to the companies.
What is an IT incubator, and why do software engineers in Poland choose them?
An IT incubator is a third-party intermediary company that handles legalization, tax and accounting issues for self-employed people, where such an organization becomes an obligatory party of the contract and service provider through which the invoices and payments are passed to the contractor.
For some individuals, it is the only way to legalize in Poland and work on a B2B basis with companies from abroad. It is possible because incubators also handle legalization issues for citizens outside the EU living in Poland.
The main benefit is that B2B contracts are cost-effective for employers. However, they don’t fall under labor law, meaning all conditions between parties should be specified in the contract.
Moreover, there are no obligatory perks for employees on B2B contracts. However, some companies enter `gentlemen’s agreements’ with contractors and provide them some additional benefits, making their job offers more attractive for candidates.
The notice period on a B2B contract is usually 30 days or one calendar month.
The typical B2B contract in Poland should contain several essential elements:
- The name of the contract (on top of the agreement);
- Date and place of conclusion of the contract;
- Correctly identified parties to the contract;
- The subject of the contract;
- The statements of the parties;
- Duration of the contract;
- Contract termination;
- Liability of the parties;
- Dispute Settlement;
- Final Provisions.
B2B contracting in Poland is an excellent alternative to a permanent contract, as it provides win-win benefits. For employers, the benefits of B2B cooperation will be less costs and less paperwork, as the company does not need to set up an entity in Poland, have an office, and hire via employment contracts. As for contractors, the main benefit will be less tax and social security payments and, therefore, a higher net salary after tax.
Mandate Contracts
In Poland, a Mandate Contract known as “Umowa Zlecenie” is a distinct employment arrangement that grants employees flexibility in determining their work hours. These contracts are used when one party authorizes another party to perform specific actions on their behalf within a given period of time. Remuneration is based on hours worked within a month. Employers are also not obliged to provide employment certificates.
Contract for Specific Work
The contract for specific work (“Umowa o Dzieło” in Polish), is used when one party agrees to perform a particular task or project for another party. It is commonly used when a particular outcome or result is expected, such as in freelance projects. Employers using these contracts in Poland are exempt from social security contributions.
Taxation in Poland
In this chapter, we will consider employment taxes in Poland for both employer and employee on permanent and B2B contracts.
Employment costs in Poland on permanent or fixed-term contracts consist of several aspects. It includes gross salary payment, Social Security contributions covered by the employer, and employer-financed contributions to PPK.
The minimum wage in Poland since July 2023 is 3600,00 zł gross.
Contributions paid by the employee
| Type of insurance | Contributions |
|---|---|
| Retirement | 9,76% |
| Pension | 1,50% |
| Sickness | 2,45% |
| Health | 9,00% |
Contributions covered by the employer
| Type of insurance | Contributions |
|---|---|
| Retirement | 9,76% |
| Pension | 6,50% |
| Accidental (varies based on type of work) | 0,67-3,33% |
| Labor Fund | 2,45% |
| Guaranteed Employee Benefits Fund | 0,1% |
Therefore, the employer is responsible for paying over 20% of the employee’s salary in addition to the gross salary.
Another social initiative in Poland is a voluntary program for saving for future retirement (PPK). The employer must know that contributions to the PPK are financed from both the employee and employer’s funds. The amount of contributions from the side are the following – primary – 1.5% and additional – 2.5%.
Advance income tax – calculated according to the tax scale, for which the rate is 12% or 32% due to existing in Poland tax brackets:
| Sum | Contributions |
| First 30000,00 PLN of salary | 0% |
| From 30000,01 PLN – 120000,00 PLN | 12% |
| Over 120000,01 PLN | 32% |
Some employees may also benefit from tax exemption. For instance, there is a relief for young workers – the income limit exempt from PIT for taxpayers up to age 26, up to 85528,00 PLN per year. So, they pay income tax only after crossing this limit, and initially at the 17% rate, till 120000,00 PLN, after exceeding which the rate of 32% will be applied.
VAT Tax
In Poland, the standard rate of VAT is 23%. Suppose a B2B contractor cooperates with a company from abroad (USA, UK, Canada, etc.). In that case, the VAT is not applicable due to “reverse charge” regulations.
B2B Cooperation taxes
Unlike employees, B2B contractors manage their social security and tax obligations, including Personal Income Tax (PIT). Under the Polish tax system, B2B contractors must calculate and pay PIT on their business income.
B2B contractors can choose the following options for taxation:
- Tax scale (PIT), same as employees, 12%, then 32%. The 12% rate is used if the tax base does not exceed 120000,00 PLN. The 32% rate is used if the tax base exceeds this amount. The tax of 12% is additionally reduced by a degressive tax-reducing amount of 3600,00 PLN.
- Flat tax – 19% of the income, established based on the accounting books maintained.
- Lump-sum tax on registered revenues – this tax has a variety of rates based on types of economic activities. The rates are various, but the typical software development rate is 12%, while manual testers can apply a lower rate of 8.5%.
- In the case of having an LLC type of company, not a sole proprietorship (typical B2B), the Corporate Income Tax (CIT) rate in Poland is 9%.
Social Security Contributions on B2B
B2B contractors in Poland are also responsible for paying social security contributions. These contributions, known as ZUS, are mandatory for all self-employed individuals, including B2B contractors.
For the first six months from the commencement of business activity, the business person is exempt from being subject to social security.
New entrepreneurs or those who have completed the startup relief period can join the two-year premium relief. During the 24 months of using the preference, entrepreneurs can pay reduced social security contributions. The basis for calculating preferential Social Security contributions is a minimum of 30% of the minimum wage amount.
The basis for standard Social Security contributions is 60% of the projected average monthly wage. Entrepreneurs using this contribution scheme are covered by social security and health insurance.
The fees of social contributions depend on the type of tax scheme chosen by the B2B contractor:
| Type of tax scheme | Fee rate |
|---|---|
| Tax scale | 9% of income (not less than 314,10 PLN) |
| Flat tax | 4,9% of income (not less than 314,10 PLN) |
| Lump sum tax | 9% of the base of income sum earned:Up to 60,000.00 PLN – 373,16 PLN; Up to 300,000.00 PLN – 626,93 PLN; Over 300,000.00 PLN – 1128,48 PLN |
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