Analysis

Prepare for changes in civil law contracts

The minimum hourly rate causes additional obligations for employers

Employer zone: taxes and law 3/2016 | 8 December 2016

Less than a month is left to prepare for amendments to the Act on the minimum wages (the "Act") that introduce the minimum hourly rate for individuals working on contracts of mandate (Article 734 of the Civil Code) or on service agreements (Article 750 of the Civil Code), coming into effect on 1 January 2017. Importantly, the Act does not apply to contracts of specific work. Amendments will apply both to new agreements concluded after the effective date, and to those concluded before the date, if not terminated as at 1 January 2017.

What will change as of 1 January 2017?

The minimum hourly rate of a person working on a contract of mandate or a service contract (including sole entrepreneurs who do not have employees or subcontractors)  will amount to PLN 13 in 2017.  

The minimum wages must have the form of cash. Additionally, if a contract is concluded for longer than a month, the wages should be paid at least once a month.  The lawmakers have decided that an individual cannot renounce the amount of wages arising from the minimum hourly rate.

Therefore, entities employing individuals on the contracts indicated above should:

  • adjust provisions of the concluded contracts to new regulations;
  • introduce relevant provisions to new contracts concluded after 1 January 2017. 

First: application of the minimum hourly rate

As of 1 January 2017, entities employing people based on the above types of civil law contracts should adjust the contractor/service provider's remuneration rate so that it is not lower than the minimum hourly rate.  The principle applies also to cases with remuneration determined in the form of a monthly lump sum.

If remuneration does not comply with the minimum hourly rate, contractors/service providers may claim at court the amount calculated based on that rate.

In order to limit risks related to such claims, employers are recommended to adjust their contractual provisions so that the minimum contractual remuneration complies with the minimum hourly rate.

Please note that National Labor Inspectorate may check whether the remuneration paid complies with the minimum hourly rate principle. Entities paying their contractors/service providers less than the minimum rate per hour shall be subject to a fine of up to PLN 30,000

Second: recording the work time of contractors / service providers Amendments

Amendments to be introduced to binding and newly concluded contracts include provisions regarding confirmation of the number of hours spent to deliver the contracted works or services.

Please note that the amendments to the Act give an employer substantial freedom in terms of selecting the manner to confirm the number of hours worked by contractors / service providers.

Importantly, if an entity fails to introduce relevant provisions to a contract, those of the amended Act will apply, which may be less favorable for the employing entity.

According to the provisions, should the manner of confirming the number of hours worked in a contract not be determined, a contractor shall present the employing entity with information about the number of hours spent to deliver the contracted works/services.  This may result in a loss of control of the time contractors / service providers actually spend on the provision of services. Consequently, the employing entity may incur additional costs.

Special attention is required from employers-users who employ people based on contracts of mandate or service contracts, seconded by a temporary employment agency,  since according to the amendments, the above principles do not apply to them.  Instead, employers-users are obliged to keep records of the number of hours spent to deliver the contracted works or services. 

In certain cases, amendments to civil law contracts will not be necessary.

Certain cases are exempted.

The minimum hourly rate shall not apply among others to contracts of mandate or service contracts, if:  (i) the contractor/service provider decides about the place and time of providing the services; (ii) the contractor/service provider is entitled to a commission only.

Pursuant to the Act, a commission means remuneration linked to the performance of:

  1. a cooperant, achieved in the course of performing a contracted task or delivering contracted services; or
  2. an entity ordering the performance of a task or delivery of services,

such as the number and value of concluded contracts, sales, revenue, orders won, provided services or receivables.

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Therefore, entities employing individuals on contracts of mandate or service contracts should check whether the new regulations result in new obligations for them or whether they qualify as an exception.

Further, in many cases, binding contracts of mandate / service contracts will need amendments, and so will contract templates used by employing entities. 

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