An extract from The Employment Law Review, 11th Edition

Basics of entering into an employment relationship

i Employment relationship

An employment relationship is, in principle, established on the basis of an employment agreement. There are additional bases for the establishment of an employment relationship, in particular appointment or nomination, but they are relatively insignificant.

Polish law defines the employment relationship as an obligation of the employee to perform a certain type of work under the supervision of the employer at a location and time defined by the employer for remuneration paid by the employer. Regardless of the type of contract the parties have executed, performance of work according to the aforementioned terms and conditions is always considered employment; in particular, a civil law contract may not be concluded instead of an employment agreement.

The Labour Code defines two major types of employment agreements:

  1. for an unspecified period (open-ended); and
  2. for a specified period (fixed-term).

Open-ended agreements are offered to employees with whom the employer wishes to have a long-term relationship and are strongly preferred by employees.

A fixed-term employment agreement is also commonly used. This type of agreement provides for a specific duration and termination date (upon which it terminates automatically).

Employment agreements should contain provisions on:

  1. conditions of employment and remuneration, such as type of work, place of performance of work and remuneration;
  2. working time (full-time or part-time); and
  3. date of commencement of work.

It is advisable that additional issues be regulated in the agreement, such as intellectual property and confidentiality. A written employment contract must be executed and signed by both parties.

The terms and conditions of employment may be changed by the parties upon a mutual alteration agreement or by unilateral notice on the alteration of terms and conditions of employment served by the employer. If the employee is not willing to accept the alteration notice, he or she may appeal to the courts or decide to terminate the employment.

ii Probationary periods

Polish law provides for the possibility to execute a separate probationary period agreement, which may precede both open-ended and fixed-term employment agreements. The maximum permissible probationary period is three months. The employer has no obligation to continue the employment after the probationary period has elapsed.

The probationary period employment agreement may be terminated by either party with notice before the probationary period expires. The notice period depends on the duration of the probationary period and ranges from three days to two weeks.

iii Establishing a presence

A foreign company may employ workers without being registered to carry on business in Poland. It may also use temporary workers provided by an agency or engage individual contractors.

Most of the double tax treaties (DTTs) to which Poland is a signatory are based on the Organisation for Economic Co-operation and Development's Model Tax Convention and set forth regulations allowing a contractor to be considered a permanent establishment (PE) of the company. A contractor is considered a PE when it acts on behalf of the company and habitually exercises, in a given country, the authority to conclude contracts in the name of the company. In such cases, the company is deemed to have a PE in that country in respect of any activities of the contractor, unless they are limited to those listed in the DTT that, if exercised through a fixed place of business, would not make the contractor a PE unless it acts merely as an 'independent agent' under the DTT.

The commencement of activity by the foreign company in the form of a PE is treated as the start of business activity in Poland. Therefore, the company would be subject to corporate income tax (in relation to profits derived from activities performed in Poland) and any business activity by the company performed through a PE would be subject to value added tax in Poland. However, in principle, Polish law requires a foreign entrepreneur conducting business activity in Poland to establish either a branch or a representative office in Poland.

A Polish branch or a representative office of a foreign company becoming an employer is obliged to deduct and pay to the tax authorities income tax advances for each employee who is a Polish tax resident. In principle, it is also necessary to deduct social security dues from the gross amount of the employee's remuneration. Anyone who is employed directly by a foreign company is responsible themselves for payment of the income tax advances during the year. In certain instances (in particular when someone is employed by a company from the European Union), deduction of social security dues remains the responsibility of the foreign employer. An EU-based foreign employer and an employee may execute an agreement regarding payment of social security dues on the basis of which the employee undertakes to pay his or her social security dues.