Business or employment contract?

More and more often we hear that someone is “employed” in the business (DG). Is it beneficial and when is it profitable to set up DG?

General characteristics of cooperation within DG

I do not want to go into the nuances of law, but first of all we have to answer whether the character of our work allows us to choose such a form of cooperation. In a very simplistic way, B2B (business to business) contracts can be used in the case of design cooperation, without direct subordination within the company structure (we are an external consultant / co-worker, non-regular employee of the Company).

The key issue is that it is a form of cooperation with a given company and not “employment” in it.

Advantages and disadvantages of cooperation within DG

The key advantage of a B2B contract is that we can receive a higher rate for such cooperation than for a contract of employment. A detailed comparison will show at the end of this article, but after exceeding a certain financial threshold these differences may be significant.

The second positive aspect is undoubtedly the ability to deduct operating costs. Need a car under the DG? Both the car and fuel can be deducted from the cost. Your job requires hardware purchase – similarly, you will deduct hardware from your revenue costs. Examples could be multiplied, but generally the key issue is that there is an opportunity to raise the amount that is left to you.

If it is so good then what are the differences with the contract of employment? I will try to change key aspects in several points:

  1. You are not entitled to leave and pay in case of illness.
  2. You are less retired.
  3. You are not subject to the Labor Code – you are covered by the contract.

We do not hide the above risks of course may be significant, but in most cases the difference in the amounts on the two types of contracts will effectively compensate for the lack of revenue during vacation or illness.

Advantages and disadvantages of an employment contract

We all know the benefits of a contract of employment – stability, “protectionist” labor code, paid holidays and periods of illness. On the other hand, does the employment contract have any disadvantages?

First of all it is important to remember that a contract of employment in addition to certain benefits, also obliges you to specific behavior. Within the framework of the UoP we are associated with a specific employer and we also have duties and full corporate responsibility.

The second key issue is the financial aspect – as I mentioned earlier on UoP we will earn less than on DG. If there are any extra costs associated with the company, we will not be able to deduct them for UoP.

What is more profitable?

After discussing the general pros and cons of each solution, it is worth paying attention to the overall cost-effectiveness (financial) of each model. Below I compare for several cost rates depending on the type of contract selected with the following assumptions:

  • The lack of additional costs on the activity (that is, the amount of “to hand” may potentially be even higher)
  • Settle at the DG within the linear rate of 19%.
  • Preferential rate of ZUS (valid for 2 years from establishment, later ZUS contributions will be about 1100-1200 PLN).
Employment Contract
gross gross 5500 7500 10000 15000
gross 4560,15 6218,39 8291,19 12436,78
to hand 3243,81 4398,92 5843,57 8731,85
Business
Net on FV 5500 7500 10000 15000
– ZUS 487,9 487,9 487,9 487,9
– accountancy 150 150 150 150
– 19% PIT 923,799 1303,799 1778,799 2728,799
to hand 3938,301 5558,301 7583,301 11633,301

Taking into account the differences in quotas – if we meet with a prospective mid-sized contractor between the gross and gross amounts … the DG will still pay.

Summary

In conclusion there is no clear answer, which billing model is better, but surely after exceeding a certain threshold of monthly income will be more profitable DG.

But remember that DG is not for everyone – in order to be able to settle with the contractor in this way, the nature of such cooperation must allow it.