External employment. Principles of cooperation with service providers

The separation of some tasks from the organisational structure of a given company and the commissioning of them to an external entity (so-called outsourcing) is an attractive form of cooperation in current business realities. Such solutions provide flexibility in conducting business activities, without bureaucracy related to the employment of their own crew. However, it is not always for external operators to be aware that the greatest risks lie with them in the case of controls.

Control bodies often seek to undermine the principles of cooperation. In practice, the involvement of mainly human capital in the outsourcing model, without technical infrastructure, may lead to a risk of such benefits being classified as apparent.

The auditors assume that the actual employer of the persons by whom the external entity provides the services is the recipient of the service. This entails consequences not only of a legal nature, but also of social and tax contributions, and often also of legalising the work of foreigners.

What situations are of greatest interest to controllers and what rules to avoid risks are outlined in the following article.

What we're talking about is what outsourcing is.

The business phenomenon described in the introduction has no uniform name. In general, outsourcing is spoken of, often with the addition of "worker".

The concept of outsourcing, in turn, is not a concept of legal language, but is an economic phenomenon defined in science as the separation and transfer of tasks, functions, projects and processes to an external company and the aim of increasing productivity or quality, or reducing the cost of operations[1] .

Since legislation does not define such a concept, outsourcing is the result of practice, particularly often found in production, logistics or e-commerce. The term outsourcing is also used by courts in increasingly rich case law concerning this subject.

You can also see the term “employee leasing”, body leasing, outsourcing of services or process.

Outsourcing is a form of atypical employment, and regardless of the differences in its definition, it boils down to the provision to another entity of a service rendered by its own employees and, crucially, subordinate to the whole provider of the service. In every situation, it is a kind of cooperation based on subcontracting.

The Civil Code does not provide a general definition of a legal subcontract for subcontracting outside a subcontract for works (Article 647(10)(1) k.c., whose aim was to protect the interests of construction subcontractors.

Article 7(27) Act 11 September 2019 Public procurement law[2] The subcontracting agreement shall, in principle, be defined as a written contract of a paid nature involving services, supplies or works forming part of a public contract concluded between the contractor and the subcontractor under which the subcontractor undertakes to perform part of the contract.

However, this definition applies only to public procurement.

Therefore, the outsourcing agreement is considered to be a non-named contract under the Civil Code which, as such, benefits from the general rule on the freedom of contract (Article 353(1) k.c.) and falls within the category of service contracts to which the contract rules apply (except for the subcontracting mentioned in the Public Procurement Act).

Outsourcing and Temporary Work

From the perspective of working with an external entity, outsourcing is similar to temporary work. At the same time, however, steps must be taken to distinguish it from temporary work.

The employment of temporary workers has been included in the legal framework for many years[3] , and the limitations resulting from these regulations have contributed to the evolution of the form of cooperation called outsourcing.

Temporary work is subject to restrictions on the performance of work, in particular to maximum 18-a monthly period of work by a temporary worker addressed to the user's employer. The legislator also provided for a number of situations in which temporary work cannot be carried out at all, e.g.

in the performance of particularly dangerous work within the meaning of the provisions issued under Article 237(15) k.p.4 , at the workplace where the employee of the user's employer is employed during the period of participation of that worker in the strike, the same kind of work as that performed by the user's employer's employee with whom the employment relationship for reasons not affecting employees has been terminated.

At the same time, temporary work and outsourcing show many similarities. Both structures are tripartite.

Namely, there is a contract of employment (or civil law) concluded between the person providing the work and the agency providing temporary work or the provider of the service, in turn this entity connects the relevant contract (generally of a framework nature) with the employer of the user or recipient of the service (contractor, principal, etc.) respectively.

Consistently, in both situations, the work is provided by staff who are not employed by the entity for which they work. The key difference is that, in the case of temporary work, the temporary agency provides the labour force, while outsourcing is to provide certain services, e.g.

the creation of an element in the entire production process, palletization, etc. of the subject. From this perspective, it is extremely important to properly identify the service to be provided by an external entity. This task does not cause problems for e.g. accounting or wage services, but already on production it is a big challenge.

The establishment of a clear framework, which is to be performed by an external entity, is an absolute basis for minimising the risks associated with questioning outsourcing.

Control practice: early employment of outsourced workers

The doubts of the audit authorities regarding outsourcing largely concern the facts in which the employees were taken over by another entity and then did the same work for the former employer. As a high risk situation, both parties should be considered to have an agreement on the transition of the establishment in a mode Article 23(1) k.p., as well as such, when employment contracts are terminated with employees, also under the so-called ‘group exemptions’ procedure, or even the period for which a fixed-term employment contract is concluded, and In the next the stage of the person employed by the outsourcing provider performs the same work at the previous place of employment, within the same working capacity.

In connection with the outsourcing agreement with the structure of the transfer of part of the workplace to another employer, but also when leaving management over employees to the previous employer, such created outsourcing is considered to be contrary to Article 22(1) K.P. and Article 23(1) k.p., constitutes an apparent act and leads to an application for annulment of that act on the basis of Article 58(1) k.c.

In the light of the case-law, employee outsourcing is not excluded, but the employer entrusts the tasks of ancillary to an external body providing outsourcing services, cannot constitute the transition of part of the establishment to another employer unless there is a comprehensive assessment of circumstances such as the type of establishment, the acquisition of assets and intangible assets, the acquisition of most employees, the acquisition of clients, and in particular the degree of similarity of activities carried out before and after taking over the task[5].

Particularly closely examined during possible checks is whether and in what positions workers provide the same kind of work and in the same place as in the employment relationship with the previous employer, to which they currently provide services from the formal role of the new employer. The audit shall also verify who effectively manages and supervises employees, grants staff leave and other dismissals, determines the working time schedule and keeps records of working time; and whether the service provider employs its own employees on the premises of the establishment in charge as leaders/ foremen.

The main characteristic distinguishing the outsourcing of workers from the employment of their own workers or the provision of work by temporary workers is the lack of direct and permanent subordination (both legal and actual) of the personnel of the contractor of the service in relation to the entity with which such services or work are performed. Therefore, the key element in outsourcing contracts is the day-to-day management of the work of employees by their employer and its organisational separation in the customer’s establishment[6].

In terms of the apparent outsourcing of the Supreme Court in a judgment given on 2 October 2019[7] He took an interesting perspective, but the sentence has not yet reached a further line of judgment.

The Supreme Court accepted that there should not be a situation where the appearance of the employee outsourcing structure is assumed to be ‘automatically’ and that the optimisation of costs would lead to circumvention of the law. This is often the approach of control bodies.

In this case, contrary to the findings of the courts of the lower instance, the Supreme Court did not grant the Social Security Office the right to believe that there was an employment relationship between external staff members and the service provider.

The appearance must be demonstrated in a given situation, on the basis of previous factual findings and legal assessments, on all grounds for applying a design of the apparent legal activity covering another legal activity.

The consequences of improper outsourcing

Mistakes in the implementation of outsourcing contracts may lead to an alleged breach of the rules on the provision of temporary labour services, subject to regulatory sanctions Article 27(27a)(27b) UoZPT. If external workers become directly under the direction of the recipient of the service, and the role of the contractor is limited, for example, to payment of salaries and settlement of ZUS, this will be a pattern characteristic of temporary work.

The service provider should therefore continue to maintain the management of employees working for its counterparty. Only the existence of such a link, giving him the right to give orders and to direct his work, excludes the recognition of the recipient of the service as a user's employer within the meaning of UoZPT.

In order to exclude doubt, provision should be made for one or several persons from the crew of the contractor of the service that would serve as coordinators, leaders, or foremans overseeing and only communicate the instructions through them.

It is also important to pay attention to other factors, which are characteristic of contracts for the assignment of temporary workers, such as the use of tools, the extensive duties of the user's employer in the field of occupational safety.

As part of the arrangements between the parties to the service outsourcing agreement, the service/subcontractor’s task should be identified and performed with the help of the persons employed by it.

In practice, it will be important that the recipient of the service does not take on the role of the employer, hence the contract should not specify a specific number of external staff.

When requiring specific qualifications, it is important to avoid situations where the recipient of the service participates in recruitment, as happens when outsourcing services requiring access to the recipients' internal systems. The consequence of such outsourcing should also be an adequate accounting, i.e.

calculating the remuneration of the service provider at the rate of the effect achieved, or maintaining the process, but not for the working hours of staff to the recipient of the service.

Penalties for the defective application of such contracts where it is established that an entity carries on regulated activities as a temporary labour agency within the meaning of UoZPT without entry in the register is a threat to a fine to 100,000 zł[8] .

A mirroring of this situation should the outsourcing contract be challenged and, in particular, the finding that the service constitutes an actual temporary service will be the responsibility of the recipient.

In the case of the provision of such services, UoZPT provides for a number of obligations on the employer of the user, including, in particular, the limit on the use of temporary staff by 18 months during the period of 36 the following months, the obligation to ensure compliance with the health and safety regulations, or to keep records of temporary staff working time in scope and in accordance with the rules applicable to staff.

For failing to fulfil these obligations, the user's employer is liable to a fine from 1000 to 30,000 PLN.

However, this responsibility is much more mild than the findings of the situations sought by the audit authorities, namely the identification of the apparent outsourcing and the establishment of an employment relationship between external staff and the recipient of the service. Such a prospect makes the recipient of the service liable and liable to the employer.

In this case, he could be considered obliged to clear employees of an external entity, in relation to the Social Security Office and tax authorities.

The risk would therefore entail a failure to comply with the obligation to notify, settle insurance premiums and advances on taxes and related sanctions, plus interest on public arrears and additional administrative sanctions to 100% late contributions, as well as penalties under criminal and criminal tax legislation.

In practice, these are mainly fines, often very severe.

Furthermore, in the event that the tax found that the service shown on the VAT invoice was not actually carried out, it would result in such an invoice being regarded as defective. This calls into question the right to deduct VAT on the basis of Article 88(3a)(4a)) VAT Act.

According to that provision, they do not constitute grounds for reducing the tax due and for refunding the difference in the tax or refund of input tax and customs documents where invoices issued state the operations which have not been carried out.

Summary

In conclusion, safe outsourcing for all parties to this business model should be based on the following principles: it is intended to cover areas where organisational separation (missions, projects or processes from the organisational structure of the company) is possible in general; the project contract cannot rely on the procurement of the indicated number of staff under the management of the counterparty; it is intended to maintain day-to-day management (including planning and accounting of working time) and management of employees working for the counterparty; it is intended to be based on accounting for the service rendered or the effect of work, not only for the number of hours of work provided As part of the project.

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[1] Lt. M. Trocki, “Outsourcing”, Warsaw 2001, p. 13

[2] Journal of Laws of 2019, item 2019