The National Labor Inspectorate reform came into force

The reform of the National Labor Inspectorate has become a reality. PIP inspectors have gained the ability to convert sham civil law and B2B contracts into employment contracts.

For entrepreneurs and employers, this means the need for even more detailed analysis of cooperation models and verification whether the manner of implementing concluded contracts does not have the characteristics of an employment relationship.

Below we present what we consider to be the 5 most important aspects of the PIP reform.

1. New PIP rights – the possibility of transforming the contract into an employment contract

The most important change is granting the National Labour Inspectorate the power to issue decisions regarding the transformation of fictitious civil law contracts and B2B contracts into employment contracts.

First, the labor inspector will be able to issue an order to remedy the identified violations. Only if the order is not followed will a decision be issued establishing the existence of an employment relationship.

Both the employer and the employee will be able to appeal such a decision to a labor court within 30 days. An appeal will generally stay the decision’s execution until the case is resolved. At the same time, the employee’s claims may be secured for the duration of the proceedings.

2. Remote inspections and electronic documentation

The reform allows for PIP inspections to be conducted remotely if this is justified by the nature of the entrepreneur’s activity and does not hinder the achievement of the inspection objective.

Labor inspectors will be able to conduct activities via online transmission, request electronic documents, personal files, and other employment-related materials, among other things. Some inspection documentation, including reports and decisions, will also be able to be prepared electronically.

3. Closer cooperation between PIP, ZUS and KAS

The new regulations provide for increased information exchange between the National Labor Inspectorate, the Social Insurance Institution, and the National Revenue Administration. These institutions will collaborate to identify entities where employment relationships may be replaced by other forms of cooperation. In practice, this means more targeted inspections and greater coordination of the activities of these bodies. This cooperation also impacts potential tax risks.

4. Elements of cooperation that may indicate the existence of an employment relationship

When assessing the validity of the cooperation models used, the actual manner in which obligations are performed will be crucial. The risk of contract challenges may be increased in particular by:

• organizational subordination of the contractor,
• performing work in a manner typical of an employee,
• limited independence and self-reliance,
• no real economic risk on the part of the contractor,
• no liability to third parties,
• the presence of other elements characteristic of employee employment.

It should be remembered that not only the wording of the contract, but also the manner of its execution will influence the outcome of a possible inspection.

5. New PIP entitlements also pose tax risks

New regulations may not only lead to reclassification of the relationship as an employment relationship, but also generate significant tax risks (PIT, VAT, CIT).

Recommendations

With the new regulations coming into force, employers and entrepreneurs should review their existing collaboration models, documentation, and contract execution practices. Identifying risk areas and implementing secure collaboration models is particularly important.

The new powers of the National Labor Inspectorate (PIP) require a new approach to B2B cooperation and civil law contracts. Benefit from professional analysis and ensure that the solutions adopted are safe.