1. Legal Framework Differentiating Employees from Independent Contractors

In Poland, the legal basis for performing work may be based on a relationship governed by civil law or by administrative law, or the employment relationship. The most common form of performing work is either performing it within the employment relationship based on contracts regulated by the Labour Code, or within the framework of civil law contracts ('contract of mandate', contract for the provision of services’, ‘contract for a specific task') regulated by the Civil Code.

a. Factors that Determine Who is an Employee and Who is an Independent Contractor

Performing work on the basis of the contract of employment

Definitely the most common contract regulating the performance of work is the contract of employment. Polish law provides for several types of such contracts. The Labour Code lists the following contracts: for a trial period, for a fixed period and for an indefinite period. Only an individual person having the capacity to conclude the contract of employment may be an employee. The employer, on the other hand, may be a legal person as well as a natural person, and also an organisational unit without the status of a legal person, if they employ workers. Therefore, one does not have to run a business to be an employer.

The Polish Labour Code lists the obligatory elements of every employment relationship. This listing can serve as a basis for the construction of a legal, positive definition of the employment relationship concept. The employment relationship arises when an employee undertakes to perform work of a specified type for the employer, under the employer's supervision and in the place and time indicated by the employer, and the employer commits itself to employing the worker for remuneration. It is, therefore, a mutually binding relationship, in which the two parties to the contract, both the employee and the employer, are at the same time bound and entitled to specific considerations. However, the fact that the contract of employment is mutually binding does not at all result in the considerations of the parties being always mutual and fully equivalent.

According to the rulings of the Supreme Court, the constitutive elements of each employment relationship, which always have to occur jointly, are: voluntary character of performing the work, personal performance of the work in a continuous manner, the employee's subordination to the employer, performing work for the employer, and the paid character of employment.

The voluntary character of performing work by an employee assumes in the first place that forced labour is inadmissible. At the same time, the voluntary character of performing work manifests itself in the fact that an employee is not obliged to perform work of another type other than that resulting from the content of the concluded contract of employment. Thus, the employer cannot order an employee to do work of a type different than the type specified in the contract, unless there is a clear statutory base. Otherwise, this could be considered as forced labour. An employee's consent to perform a different type of work alone is not sufficient, either. If the parties intend to permanently change the type of work performed by the employee, they have to change the terms of the contract either by terminating these terms, or by mutual agreement.

Employees are required to perform their work personally. Appointing a substitute or subcontractor is not permitted, even in the event of temporary obstacles such as illness.

The employment relationship is a continuous relationship, which should be understood functionally, as being performed in a repeated manner. The employment relationship cannot be reduced to a one-time action or a one-time completion of a certain work. The continuity of the employment relationship does not mean that it has to be performed every day. It is important for the work to be performed in a repeated manner, so it is acceptable that work is performed either on an everyday basis or in specified intervals of time.

Another, crucial and characteristic element of the employment relationship is the employee's subordination. It is the employer who manages the work of his employees, and it is he who decides about the way it is to be performed. An employee cannot decide about the way the work is to be performed, even if he were a specialist in a given field, and even if it could result in a positive outcome for the employer. The employer may give the employee binding orders relating to work which, unless illegal, have to be respected by the employee. In the body of the Supreme Court's rulings, failure to carry out the employer's orders at work without a legally justified reason is considered to be a gross violation of the employee's basic duties, and such behaviour by an employee justifies the termination of the employee’s contract of employment without notice (so-called disciplinary dismissal).

Performing work for the employer means that, as a rule, the effects of an employee's work and the profits thereof should belong to the employer. This does not mean that the effects of the employee's work can be used or consumed only by the employer. The employer has the effects of the work of his employees at his disposal. The effects of an employee's work, as long as their properties allow it, can be the subject of a sale contract between the employer and a third party (e.g. a work produced by the employee, a work made as part of the employment), and they can even be abandoned, destroyed, or disposed of. As a rule, however, a situation where the effects of an employee's work go exclusively, or in the first place, to a third party that is not the employee's employer is inadmissible. An exception is temporary employment, under which an employee who is employed by a temporary employment agency performs work for and under the supervision of a third entity which is not his direct employer (the so-called user employer). The construction of temporary employment resembles the lease institution in property law, and being an exception from the principle of work for the employer, it is regulated in whole outside the Labour Code in the Temporary Employment Law.

Work based on an employment relationship can be performed only for remuneration. An employee's obligation to perform work “for free” is invalid. Furthermore, an employee cannot effectively relinquish his right to remuneration.

Work performed within an employment relationship is characterised by the fact that it is performed “at the risk” of the employer. In an employment relationship, the employer's risk appears in three forms. The first is personal risk – it is the employer who bears the consequences for non-culpable mistakes made by an employee in the process of work. In other words, an employee is not responsible if, despite his efforts and good intentions, he fails to achieve the effects of his work expected by the employer, or those he himself expected. The employer's second type of risk is the economic risk – the employer is responsible for the economic results of the business he runs. Thus, even if the financial balance is negative, the total loss bears on the employer and not the employees, even if the loss is caused by failure to reach the assumed effects by the employees. The employer's third type of risk is the technical risk – the employer is obliged to meet his obligation to an employee even during disturbances in the functioning of the workplace. A situation where an employee does not work because, for example, the workplace does not have orders for a specific product, the production line has broken down, etc. does not free the employer from the obligation to pay the remuneration for the time of such stoppage.

The above means that a contract of employment is a best-efforts contract rather than a contract to achieve a specific result. The parties to a contract of employment cannot specify in a binding way the expected results of the work and to make the employee's right to receive remuneration dependent on these results. It results from the nature of the employment relationship that an employee is to perform employee actions in a manner adequate to the type of work and possessed skills, and as effectively as possible.

Work based on a civil law contract

Employers are sometimes, in particular in the IT sector opting for civil law contracts rather than employment contracts. Switching to civil law contracts allows companies to gain three key benefits:

• lower labour costs;
• greater flexibility – no rigid regulations on working hours;
• easier termination – simplified and swift procedures for terminating contracts.

The Polish Civil Code provides for several contracts by which one of the parties commits itself to performing certain actions for the other party. These contracts are 'contract of mandate', ‘contract for provision of services’,  'contract for a specific task' and 'contract of agency'.

The contract of mandate and contract for provision of services are the most common alternatives to an employment relationship. The subject matter of a contract of mandate and a contract for the provision of services is the obligation of best efforts. The contractor undertakes to perform specified activities with due diligence. To contracts for the provision of services which are not regulated by other provisions, the rules on mandate shall apply accordingly. As the Labour Code regulations do not apply to contracts of mandate, persons carrying out a mandate have only such rights as result directly from the content of the concluded contract.

Both natural persons and legal persons may be parties to a contract of mandate. The contract of mandate cannot be concluded by an organisational unit, which does not have the status of legal person, because a party needs to have full capacity to legal transactions to conclude the said contract.

Under the Civil Code, a contract for services is presumed to be for remuneration. The performance of the contract without remuneration requires an explicit and unambiguous provision in the contract. Where the parties have neither specified the amount of remuneration nor stipulated that the contract is gratuitous, the contractor is entitled to remuneration commensurate with the amount of work involved and the market value of the services provided. In the case of contractors who are natural persons, the freedom to determine remuneration is limited by the provisions on the minimum wage.

The mandate relationship lacks subordination, which is characteristic of labour law, and the contractor does not remain at the disposal of the employer. The law theoretically allows for the possibility of issuing instructions to the contractor regarding how to carry out the tasks. In practice, however, it is advisable to avoid this, as overly detailed instructions and the imposition of working methods bring this relationship dangerously close to an employment contract.

As a rule, the contractor should perform the mandate in person. However, in practice, it is essential to include a clause in the contract allowing for the use of a substitute. The absence of such a clause makes the contract more akin to a employment relationship.

The contract of mandate provides the parties with an option to freely specify the place and time of performing the work. The working time is freely specified by the parties, because the parties are not restricted by working time limits, or daily or weekly periods of uninterrupted rest.

At this point, it is worth mentioning the management contract, which is an innominate contract (neither named nor defined by Civil Code), but is subject to the provisions governing contracts for of mandate. The essence of this contract is to act in the name and on behalf of company. It is concluded between a company and a person providing business management services. As it is a contract of due diligence a manager is not obliged to achieve a specific result but manager has to assure the highest degree of professional care and conduct. The manager is neither a subordinate nor subject to the management of a superior and enjoys considerable freedom in the day-to-day management and strategic planning of the company

By entering into the contract for a specific task the person taking the order undertakes to perform a specific task, and the person placing the order, to pay remuneration. The feature which very clearly distinguishes the contract for a specific task from the contract of employment and the contract of mandate is its character – because it is a contract for a result. The parties to the contract define within it a specific, individual result, which can have both a corporeal (e.g. preparing an opinion, a list) or incorporeal (e.g. giving a lecture) character.

The contract for a specific task does not require personal performance by the person taking the order. If, however, the performance of the work depends on specific, individualized attributes of the contractor (e.g. preparation of a legal opinion by an indicated individual lawyer), then the obligation to perform personally must be stipulated in the contract.

The parties may specify the parameters and quality requirements of the work, and the ordering party retains the right to monitor how the work is carried out. If the contractor performs the work in a defective manner or in breach of the contract, the client may require the contractor to rectify the manner of performance and set a reasonable deadline for this purpose, and subsequently withdraw from the contract or entrust its performance to another person.

b. Public-law obligations arising from the contract

Conclusion of a contract of employment and a civil law contract, gives rise to obligations of a public nature. These include i.a. payment of the personal income tax advance to the tax office and payment of contributions to the Social Insurance Institution (ZUS). The amount and type of deductions from the remuneration depends on the type of the concluded contract.

Employment Contract:

An employment contract triggers mandatory public-law obligations:

• Personal Income Tax (PIT): the employer acts as a tax withholding agent, calculating and remitting monthly PIT advances from the employee's gross salary to the tax office;
• social security contributions (ZUS): both parties co-finance statutory contributions covering retirement, disability, sickness, and accident insurance;
• health insurance: contributed solely by the employee and calculated on the basis of gross remuneration reduced by the employee's social insurance contributions;
• Labour Fund and FGŚP: The employer is solely responsible for contributions to the Labour Fund (a special-purpose fund, which finances measures relating to labour market participation) and the Guaranteed Employee Benefits Fund (FGŚP);
• Employee Capital Plans (PPK): The employer is obliged to enrol employees in the PPK scheme and contribute a mandatory 1.5% of gross remuneration, with an option to increase this voluntarily up to 4% (Employees contribute as well). An employee may opt out at any time by submitting a written declaration. Employer with micro-enterprise status whose employees have all submitted a declaration stating that they wish to opt out of making contributions to the PPK is exempt from the obligation to enter into a PPK;
• PFRON: Employers with at least 25 full-time equivalent employees are subject to mandatory contributions to the State Fund for Rehabilitation of Persons with Disabilities (PFRON), unless the share of disabled employees meets the statutory threshold.

Civil law contracts

Contract of Mandate

The following contributions are mandatory for the contractor:

• PIT: The principal acts as a tax withholding agent, calculating and remitting PIT advances from the contractor's remuneration.
• social security contributions: retirement and disability contributions are co-financed by both parties. Accident insurance is funded entirely by the principal. Sickness insurance is voluntary and, if opted into, funded entirely by the contractor.
• health insurance: mandatory and financed entirely by the contractor; the principal withholds and remits the contribution as a paying agent.
• Labour Fund and FGŚP: as a general rule, contributions are compulsory, but there are exceptions.
• Employee Capital Plans: Contractors under a contract of mandate are subject to PPK on the same basis as employees, provided they meet the minimum period of employment threshold.

Contractors who hold student or pupil status and are under 26 years of age are fully exempt from social insurance and health insurance contributions, Labour Fund and FGŚP payments, and income tax on remuneration up to PLN 85,528 per tax year. PPK enrolment is also excluded.

Contract for provision of services

Where the contract is concluded with a self-employed individual (sole trader), the principal bears no public-law obligations in respect of social insurance, health insurance, Labour Fund, FGŚP, PPK, or PIT. All applicable obligations are borne by the contractor as part of their business activity. The contractor self-calculates and pays their own social insurance and health insurance contributions to ZUS (with preferential reduced-contribution schemes available during the first years of activity, such as the „ulga na start” exemption and the „mały ZUS plus” reduced basis), and self-settles PIT according to the taxation method they have chosen for the business. The principal’s only public-law exposure connected with a genuine B2B contract is VAT, where applicable.

Contract for a specific task

Contrary to the contract of mandate, the contract for a specific task is not an independent title to insurance. The social insurance and health insurance contributions have to be paid only if the parties to the contract for a specific task are also parties to an employment relationship.

Income from a contract for specific work is subject to personal income tax, typically calculated under the standard progressive tax scale. Tax liability can be legally reduced through a tax-deductible expense allowance, which is standardly set at 20%. For creative works involving the transfer of intellectual property (such as software development or design), this allowance increases to 50%.

c. Differences in employment rights

Employees under an employment contract are covered by the full scope of labour law protections – both statutory and those arising from internal sources of labour law (remuneration and work regulations, collective agreements, individual contracts).

Contractors under civil law contracts fall outside this framework entirely. Provisions governing working time, overtime, rest periods, annual leave, and parental leaves do not apply. There are however exceptions regarding health and safety and the minimum wage - in this respect, selected provisions of the Labour Code and the minimum wage act apply to them.

d. Differences in Protection from Termination

Termination by notice and termination without notice of a contract of employment

The Labour Code provides extensive protection against termination, applying primarily as a restriction on the employer:

Termination by notice requires a genuine and specific (clear to the employee) reason in the case of contracts for an indefinite term and fixed-term contracts. The burden of proof rests with the employer. The Labour Code does not provide a closed list of justified reasons – these are defined by case law and include, among others: inability to work in a team, repeated and long-lasting absences caused by sickness, lack of the employee's cooperation with the employer, professional uselessness or incapability, minor violation of employee duties, alcohol consumption at work or appearance at work in a state of intoxication, breach of the principles of social coexistence, the employee's irascibility, or theft of the employer's property.

Employment contracts (fixed term and for an indefinite term) may be terminated with a notice period dependent on the period for which the contract has been signed and it ranges from two weeks to three months.

The special protection against termination of the contract of employment applies to employees who, due to special circumstances, are entitled to a temporary limitation of the possibility to terminate their contract. For example, the employer cannot terminate the contract of employment with notice with an employee who lacks not more than 4 years to his or her retirement age, if the employee's seniority allows him to acquire the right to retirement pension by reaching this age. Also, the employer cannot terminate by notice or without notice an employment contract with a pregnant woman or during her maternity leave, unless there are reasons for disciplinary dismissal and the trade union representing that employee has consented to the termination. The employer is not free to terminate the contract with a person who has a specific function in a trade union, unless the trade union agreed to terminate the contract.

Termination without notice by the employer is permitted in two scenarios: due to the employee's fault: in cases of gross breach of employee fundamental duties, commission of a crime during employment, culpable loss of the necessary qualifications and where the employee is unable to perform work due to prolonged illness or prolonged absence.

Termination of a civil contract
Termination  of the civil law contracts is regulated in the Civil Code. From the point of view of the person performing the work, these regulations are unquestionably less favourable, as they neither offer protection against unjustified dismissal in such extent as labour law regulations do, nor do they provide notice periods. Therefore, a contract of mandate or a contract for a specific task can be terminated with immediate effect if the contract does not provide for otherwise.

According to the regulations of the Civil Code:

• In the case of a contract for specific work: the ordering party may withdraw from the contract at any time before the completion of the work, but then must pay the agreed remuneration after deducting the amount, which the contractor saved due to the non-completion of the work;
• In the case of the contract of mandate: the principal may terminate the contract at any time. However, they are obliged to reimburse the contractor for expenses incurred and to pay a portion of the remuneration corresponding to the work performed to date. If the termination was without valid cause, the principal should compensate for the resulting loss.

Of course, in the civil contract, in compliance with the principle of freedom of contract, the parties may both include the reasons for termination and introduce the notice period. These will not be, however, labour regulations, but civil regulations, and hence the claims can be sought for only under the Civil code.

e. Local Limitations on Use of Independent Contractors

Polish law does not restrict the use of civil contracts. The parties are free to choose the basis for cooperation. Furthermore, there are no general rules concerning specific types of work or positions on which employees may be employed exclusively on the basis of the contract of employment or exclusively on the basis of a civil contract. In business practice, however, it is strongly discouraged to enter into civil law contracts for roles that are typically of an executive nature. This applies to any role in which the day-to-day and strict execution of a superior’s instructions constitutes the essence of the work performed.

It should be remembered that the substitution of a contract of employment by a civil law contract while maintaining the terms of employment as specified in the Labour Code is inadmissible.

Therefore, if an employee undertakes to perform work of a specific type (1) for the benefit of an employer, (2) under the employer's supervision, (3) and in a place and time fixed by the employer, (4) the work will be performed on the basis of the contract of employment, even though the parties label it a contract of mandate or a contract for a specific task. The establishment of the employment relationship is automatic if all the conditions defined by the Code are fulfilled. This is understandable, as contracts of employment are socially more readily acceptable than civil law contracts, which is the reason why the legislator introduced the described mechanism.

Additionally, the Penal Code contains penal regulations according to which an employer employing an employee on the basis of a civil law contract in a situation in which according to the Labour Code the employer should conclude a contract of employment with the employee commits an offence and thereby is liable to a fine of PLN 1,000 to 30,000 (EUR 250 to 7,500).

f. Leased or Seconded Employees

Effective business management requires flexibility in the allocation of human resources and the ability to respond swiftly to market changes. Polish law provides for two main mechanisms that allow for temporary adjustments to the workforce structure without the need to permanently amend employment contracts: temporary assignment to other work and the use of temporary workers.

Temporary assignment to other work/other place of work
Under standard employment law, an employee is protected against unilateral changes to the essential conditions of their employment and workplace. In order to make a permanent change in this regard, the employer must issue a so-called ‘notice of amendment’. This procedure is subject to the same strict requirements as definitive dismissal, which means, amongst other things, the need to state a reason and observe notice periods.

An exception to this rule is the employer’s right to unilaterally and immediately reassign an employee to other work. Such a reassignment is lawful without the need to amend the contract, provided that the following conditions are met:

• it arises from the employer’s legitimate business needs
• the work assigned corresponds to the employee’s qualifications
• the period of assignment does not exceed 3 months in a calendar year,
• the assignment does not result in a reduction in the employee’s remuneration.

When all of the above conditions have been fulfilled, secondment of an employee to another type of work is allowed. The secondment we are talking about can refer not only to the type of work, but the place in which it is performed, as well. For the employer, the advantage of a secondment under the said Labour Code regulation is that the employer does not have to bear additional costs, e.g. travelling expenses, which in lack of secondment would be associated with the necessary business trip to another place of work.

Temporary employees
A form of employment relationship, which makes this relationship more flexible is the institution of temporary work. The Temporary Employees Employment Law of July 9, 2003, implementing Council Directive 91/383/EEC of June 25, 1991, introduced the notion of temporary employment to the Polish legal order. Since then, this peculiar form of employment has become a stable element of the Polish labour market. The reasons for the popularity of temporary employment are complex. It seems that the party who benefits the most from this form of employment is the employer, though certain advantages for temporary employees can be seen, as well. This applies particularly to novice employees on the labour market and employees who have other duties in addition to work. Temporary employment is characterized by the fact that the user employer for whom and under whose supervision the temporary employee performs work, does not remain in a legal relationship with the latter.

A temporary employment agency enters into a relationship with a temporary employee on the basis of a fixed-term employment contract or a contract under civil law. The user employer is not an employer within the meaning of the Labour Code for the temporary employees. On the basis of an agreement with the agency, the temporary employee is sent to work at the user employer's workplace, the user employer being a third person for the temporary employee.

Due to the fact that an employment relationship occurs between the temporary work agency and the temporary employee, most duties resulting from this relationship rest with the agency and the employee, and not with the user employer. That is why the user employer does not pay remuneration to the temporary employee. The user employer's duties towards the temporary employee are limited exclusively to those provided for by law (e.g. assurance of safe and healthy working conditions, keeping a record of working hours, assurance of the use of the annual leave by the temporary employee) or those agreed upon with the temporary work agency, which has “rented out” its employee.

The above means also that the user employer cannot terminate the employee's contract of employment. This can be done only by the temporary work agency.  However, if the user employer intends to discontinue the services of a particular employee, they should notify the agency in writing of the expected date on which that employee’s work will cease, giving – where possible – sufficient notice to allow for the notice period under their employment contract.

An employer who intends to “rent” an employee from a temporary agency agrees with this agency in writing on the type of work to be entrusted to the temporary employee, the qualifications required to perform the work with which the temporary employee is to be entrusted, the expected period of performing the temporary work, the working time of the temporary employee, and the place of performing the temporary work. Additionally, the user employer informs the temporary work agency in writing about the remuneration for work which is to be entrusted to a temporary employee (and of the internal regulations concerning remuneration), and about the conditions of performing temporary work regarding health and safety at work.

From the relation linking the temporary work agency with the user employer, arises the agency's liability for damage done to the user employer by the temporary employee. The agency's liability is based on the Civil Code.

A temporary work agency bears liability for damages in case the user employer infringes on the rule of equal treatment in employment with regard to the temporary employee. This is understandable, because there is no employment relationship, which could be a basis for liability, between the temporary employee and the user employer. The temporary agency is entitled to a recourse claim towards the employer “renting” an employee in respect of paid compensation.