Outsourcing under the Supreme Court’s scrutiny – who is responsible for paying social security contributions?

The term “performs work for the employer”, mentioned in Article 8(2a) of the Act of 13 October 1998 on the Social Insurance System (consolidated text: Journal of Laws 2021, item 423), includes performing a contract of mandate (or another contract for the provision of services to which the provisions concerning contracts of mandate apply) concluded by an employee with an entrepreneur engaged in the sale of goods of their employer (e.g., via the Internet), to whom this entrepreneur is personally or capital-related, even if the scope of duties under the contract of mandate differs from those under the employment contract and the place of performing the contract of mandate is outside the place of performing the employment contract. This is stated in the Resolution of the Supreme Court of 26 August 2021, ref. III UZP 3/21.

It concerns the so-called triangular contracts, that is situations where an employer additionally employs their employee (e.g., under a contract of mandate) through another entity (e.g., a labour agency). In such a relationship, a person performing work under an agency contract, contract of mandate, other service contract, or contract for specific work, if concluded with the employer with whom they have an employment relationship, and also if they perform work for the employer under such a contract, is also considered an employee. Such a worker is mandatorily subject to insurance both under contracts of mandate and employment contracts.

Supreme Court’s position

In jurisprudence and doctrine, it is accepted that Article 8(2a) of the Social Insurance System Act extends the concept of an employee for social insurance purposes beyond the scope of an employment relationship. From the latter part of this provision—in connection with several provisions of social insurance law and health insurance—it follows that the employer, by virtue of recognising a person performing work under a civil law contract concluded with a third party as an employee for social insurance purposes, is the payer of social insurance and health insurance contributions for such a civil law contract (based on the income earned by the employee under the contract of mandate). The definition of “employee” adopted in Article 8(2a) creates certain difficulties for employers in fulfilling their social insurance obligations regarding these persons, which has been noted in case law and legal literature. These difficulties are evidenced by extensive jurisprudence interpreting this provision, including rulings and resolutions of the Supreme Court. However, in the case submitted to the Supreme Court for resolution, the legal issue did not directly concern the fact that Article 8(2a) in connection with Article 18(1a) imposes on the employer contribution payer obligations, even though the civil law contract is concluded with another entity (a third party). This issue has already been resolved in earlier case law, especially in the Supreme Court’s Resolution of 2 September 2009 (OSNP 2010 No. 3-4, item 46), which held that an employer whose employee performs work for them under a contract for specific work concluded with a third party is the payer of pension, disability, sickness and accident insurance contributions under that contract. It follows that social insurance law provisions impose contribution payer obligations on employers concerning a civil law contract concluded by an employee with a third party if, under such a contract, the employee performed work for the employer with whom they have an employment relationship.

In the legal question submitted to the Supreme Court, the issue concerned directly the interpretation of the phrase “performs work for the employer”, which is the factual basis for applying Article 8(2a) with further consequences under the Social Insurance System Act to determine the contribution payer.

Justification

The Court noted that, according to case law, “work performed for the employer” means work whose actual beneficiary is the employer, regardless of the formal legal relationship connecting the employee with the third party. This means that irrespective of the type of activities performed by the employee arising from the employment contract and the contract concluded with the third party, and irrespective of the nature of the activity conducted by the employer and the third party, a sufficient condition for applying Article 8(2a) of the Social Insurance System Act is the employer’s benefit from the tangible results of their employee’s work, remunerated by the third party with funds obtained from the employer based on the contract linking the employer with the third party (it need not be a subcontract, it may be any type of cooperation contract). From the perspective of financial flows, the employer transfers funds to the third party to finance a specific task that constitutes the subject of their own business, and the third party, fulfilling their obligation, employs the employer’s employees (see Supreme Court judgment of 7 February 2017, II UK 693/15, LEX No. 2238708). Financial flows may have different titles and forms (see Supreme Court resolution of 26 August 2021, III UZP 6/21, according to which financing by the employer in any way of remuneration for the work performed by the employee under a contract concluded with a third party speaks in favour of applying Article 8(2a) of the Social Insurance System Act).

How to correctly calculate the contribution?

According to Article 18(1a) of the Social Insurance System Act, the contribution assessment base for social insurance contributions also includes income from agency contracts, contracts of mandate, or other service contracts, to which, pursuant to the Civil Code, the provisions on contracts of mandate or contracts for specific work apply.