According to the Bulldog Job report, the employment contract is the dominant form of employment in Poland, declared by as many as 56% of respondents. Self-employment is becoming increasingly popular. Almost every day we come across job advertisements in which a b2b contract for programmers and IT workers is standard. Self-employment in the IT industry and starting a business are associated with higher levels of work motivation and favourable treatment from employers. A self-employed person can receive a higher rate from the company in exchange for not having to pay extra. Today we will describe a question that troubles many programmers – is it more profitable to work on a contract or as a B2B freelancer? This choice can make a huge difference to your professional and financial future. In this article, we will discuss the differences between both options and analyse their profitability.
B2B contract or employment contract
Every programmer who starts his career or wants to change his form of employment faces a dilemma – is it better to work on a contract of employment or as a B2B freelancer? Both options have their pros and cons. An employment contract programmer has financial stability and social benefits such as health and pension insurance. A self-employed person, on the other hand, can expect more income.
However, this choice is not easy and requires a careful analysis of individual needs and preferences. Working as a B2B programmer involves much higher costs than a contracted job, such as Social Security contributions and business taxes.
On the other hand, however, contract work allows you a lot of freedom in shaping your work schedule and the opportunity to take on interesting projects with a variety of clients. So it’s worth carefully analysing your career and life goals before making a decision.
Bottom line – the choice between employment contract and B2B is an individual matter for each programmer and depends on his priorities and future plans!
Differences between employment contract and B2B
A programmer on an employment contract and a programmer on a B2B contract are two different forms of employment, which have their own advantages and disadvantages. In the case of a contract of employment, a programmer is permanently employed by a company as its employee. B2B programmers, on the other hand, are freelancers or use the services of a temporary employment agency.
The main difference between the two is their legal status and the scope of their duties and responsibilities. Programmers on employment contract work for a single company, which is responsible for social security, salary and other social privileges. B2B programmers, on the other hand, have to take care of all these issues themselves.
Another important issue is also financial stability – the employment contract form has a fixed salary regardless of the amount of work done or the duration of the project. For a B2B programmer, on the other hand, his earnings depend on the number of hours worked for the client.
The profitability of working for a company on an employment contract.
Nowadays, many people are wondering whether it pays to work on an employment contract. After all, more and more employers are offering B2B agreements or contracts. However, it’s worth reminding yourself of the benefits of working for an employment contract company.
First of all, the company is obliged to pay health and pension contributions for its employees. This means a certain financial stability for the person performing the tasks of a programmer.
In addition, as an employee under a contract of employment, you can count on a fixed salary and allowances such as vacation or sick leave.
Besides, an important advantage of working on an Employment Contract is the possibility of obtaining a mortgage or other form of bank loan – which can be more difficult with Contracts or B2B contracts.
And let’s not forget the range of social benefits offered by companies to their employees – from private medical care to sports cards and movie tickets.
The profitability of working as a programmer on a B2B contract
As a B2B programmer, you have much more control over your work than if you work on a contract basis. You can negotiate salary rates and contract terms with the client, which can bring you financial benefits and job satisfaction.
Compared to an employment contract, working as a B2B programmer has many advantages. First of all, you can decide your own working hours and where you perform your duties. The ability to work remotely is also often available to B2B programmers.
Another advantage of this form of employment is that you don’t have to worry about social benefits or vacations – these are all outside your responsibility.
If you have specialised knowledge and skills and are good at business negotiations, working as a B2B programmer can prove more profitable than the traditional employment approach.
When should you start paying taxes on self-employment?
Remember that self-employment also comes with responsibilities. Paying yourself is part of choosing this type of business:
- social security,
- income tax and
- VAT.
A self-employment contract with an employer results in significant financial improvements in the following two areas:
- fixed social security and health insurance (NFZ) contributions,
- as well as a flat or flat tax rate.
An individual whose income exceeds PLN 85,528 gross does not fall into the third tax bracket, in which taxes are calculated at a rate of 32% due to the flat 19% tax rate.
Earnings simulation
Tomasz, a junior Java programmer with a gross salary of PLN 5,000 per month.
Tomasz, who is employed under a contract of employment,
will receive PLN 42,602.28 per year in addition to his employer’s expenses, which in his case amount to a total of PLN 72,366.00.
The fact that, as a programmer, he can take advantage of a 50% deduction of deductible expenses, however, raises his income to PLN 47,574.84.
He should receive PLN 72,366 net + VAT from his company if he decides to switch to self-employment. This type of employment does not raise the cost of recruiting an employee for the company, since VAT is often neutral for large companies.
After paying the flat tax (19%), Social Security and National Health Fund contributions (preferential version) and other expenses, we have PLN 57,879.60 in cash.
The annual savings thus amounted to. PLN 10,000!
From 2022, entrepreneurs have a choice of 3 forms of taxation: tax scale, flat tax and registered lump sum.
B2B, full-time employment contract and credit
One more argument is also worth considering. For any bank, the most reliable proof of salary is an employment contract (regardless of the amount earned). Even if an entrepreneur earns twice as much as a person doing the same job under an employment contract, it may be more difficult for him to get a bank loan. All because a business owner is a riskier borrower in the eyes of bank employees.
So if you’re planning a mortgage or a loan for another purpose, reconsider whether it’s worth it to opt for a business or whether it’s better to stay with a full-time contract. Well, and one more important thing. An employment contract is often seen as the kind of job that gives you the security of getting paid and keeping your job.
The biggest advantages from a self-employed person’s perspective include:
- Higher pay
It is almost always possible to negotiate higher rates than under a UoP in a B2B contract. This is primarily blamed on the service provider’s lower expenses. This one is exempt from having to pay social security, health insurance or advance tax payments for the employee. Of course, in this situation the self-employed person does it, but the costs will be much lower, resulting in real savings.
- Better terms and conditions
A B2B contract provides a great deal of freedom to regulate, among other things, the terms of service, such as setting working hours, as opposed to a rigidly controlled employment relationship. As a result, the entrepreneur is free to decide, among other things, where to work, how to communicate with co-workers and how to bill for services rendered, as there are many definitions of an employment relationship. As a result, it will not be necessary to comply with the strict requirements that apply to remote workers, for example.
- Flexibility
A B2B contract allows independent contractors to do more business. A self-employed person can easily provide services to others and bill them without much hassle if not specified in the contract. B2B employment often serves as a gateway to much larger corporate activities.
- Lower taxes
As we described above, by choosing a flat tax or lump sum, we are able to control the amount of contributions.
Disadvantages of a B2B contract
First of all, it is important to understand that a self-employed person is an entrepreneur. As a result, he must, among other things:
- Be responsible for his own payments for social security, health insurance and taxes. This involves not only costs, but also the need to meet payment deadlines.
- make choices regarding the structure of taxes.
- maintain accounting records, such as a P&L.
- If a self-employed person wants to save in employee equity plans, as it were, the employer does not pay a portion of the self-employed person’s PPK contributions.
- There is no protection against termination due to pregnancy.
- Social Security offers less protection in case of chronic illness. Self-employed individuals tend to make lower contributions, which also results in lower later payouts.
The most egregious may be the loss of rights under relevant labour laws.
B2B contracts may or may not guarantee certain things, such as access to annual leave (which in this case must also be clearly defined). Both experts and business owners express scepticism about the whole idea of including leave in a B2B contract.
It makes managing sick leave essentially impossible, and in most situations results in inability to work, such as during a hospital stay.
Unlike an employee, an entrepreneur is liable with all his assets. Potential damage caused by his mistake, such as at the place of service, can be much more costly.
If you have doubts, contact us and we will calculate the costs of your business and the profitability of your B2B contract.
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