The process of organizing and formalizing relations between an employer and an employee in Poland, despite having significant specific features, is largely similar to the one in Ukraine.

The main forms of organizing labor relations in Poland are: the labor contract (umowa o pracę), the civil law mandate agreement (umowa zlecenia), the task-specific contract with an individual (umowa o dzieło), and the service agreement with an employee acting as a private entrepreneur (B2B).

Each of these forms has its advantages and disadvantages for both the employee and the employer in terms of taxation, work process organization, social protection of the employee, etc.

1. Labor Contract (umowa o pracę)

This is the primary form of organizing relations with an employee. The relationship arising from such a contract is regulated by the Labor Code of the Republic of Poland. This form of employment is the most beneficial for the employee (as it ensures proper social protection and defense of labor rights) and the most costly for the employer (as it involves the maximum tax burden on wages, approximately 40%).

Under Polish law, a labor contract must be concluded if:

• The work is performed under the guidance of the employer, who determines the order, method, and timeframe of its execution;

• Working hours and rest periods are strictly regulated by the employer;

• The place of work is determined by the employer.

In this case, the employee is entitled to:

• Timely payment of wages not lower than the statutory minimum;

• Annual paid leave;

• A standard work week (40 hours);

• Social and pension insurance contributions paid by the employer;

• Paid sick leave, etc.

As mentioned, a minimum wage is established for this form of employment. As of January 1, 2016, in Poland, it is 1,850.00 PLN. The remuneration of a Polish company employee under a labor contract and the employer’s cost structure (based on the minimum wage) can be seen in Table №1.

Table №1

Under Polish law, the tax burden on wages is shared between the employee and the employer. Therefore, Brutto remuneration is the wage rate specified in the contract, which includes deductions from the employee. Brutto remuneration cannot be lower than the statutory minimum (1850 PLN). In turn, Netto remuneration is the amount the employee actually receives after all legal deductions. The total cost to the employer is calculated as the Brutto remuneration plus the taxes the employer must pay.

2. Mandate Agreement (umowa zlecenia)

A common form of organizing relations in Poland is the conclusion of a civil law mandate agreement. Labor law does not apply to such relations; they are regulated by the terms of the contract and civil legislation. In this case, there are no minimum wage requirements, and payment is usually hourly. When using a mandate agreement, the employee is not entitled to leave, social security contributions are lower, and the dismissal procedure is simpler.

Table №2

A mandate agreement is less attractive for the employee due to the limitation of labor rights; however, it is widely used in various business sectors.

3. Task-specific Contract (umowa o dzieło)

A separate form of labor relations in Poland is the task-specific contract, where the employer acts as the client and the employee as the performer of a specific result. The employee must complete the work within the timeframe specified in the contract, and the employer must accept and pay for it. A characteristic feature is a clearly defined result that the performer must hand over.

Under this contract, the employer pays no social contributions, and the employee pays only personal income tax (PIT). These relations are regulated only by the contract and the Civil Code of Poland. This form is popular among employers (especially in construction) as it allows for maximum optimization of labor costs.

Table №3

Note: When determining the PIT base, Polish law sets a fixed rate of 20% for expenses presumably incurred by the performer. The tax base is reduced by this amount (Table No. 4).

Table №4

In some cases, fixed expenses can be set at 50% (Table No. 5) if the performer transfers copyrights to the result of the work to the client.

Table №5

In general, a task-specific contract  is the least acceptable for an employee, as it does not count toward seniority (years of service), and there is no right to leave or any social security benefits. On the other hand, it is a successful form of relationship with an employee who works in another place in parallel, where the employer carries out the entire package of social contributions for them.

The detailed structure and amount of all taxes and payments when an employer uses a labor contract, a civil law agreement, or a task-specific contract can be tracked using a “calculator” program available at the following link: http://wynagrodzenia.pl/kalkulator_oblicz.php.

4. Hiring an employee as an entrepreneur. Establishing actual labor relations with an employee is also possible by involving them in the performance of work as a private entrepreneur, based on an agreement for the performance of work or the provision of services. In this case, the employee pays their own social insurance costs (ZUS) and also adds Value Added Tax (VAT) of 23% to their services (Table No. 6).

The ZUS rate in this case is fixed at 1,092.28 PLN. However, an entrepreneur can take advantage of a concession on ZUS payments for the first two years of activity. This preferential rate is 433.34 PLN.

Table №6

When choosing the most optimal form, the employer must proceed from the content and nature of the work. An incorrectly chosen form may lead to negative consequences during inspections by regulatory authorities.