The working alternative called “employment b2b contract”

As a dedicated Job Board for the IT community with over 2000 job ads, we follow the IT sector and have noticed a long established practice that is taken extremely seriously in Western Europe – b2b employment contracts. The pandemic and the related changes, uncertainties and new job opportunities “brought” this employment option to Bulgaria. Although timidly, already in the summer various IT companies from abroad started to explore the mood towards b2b contracts. And since this phenomenon is yet to take off in our country, we will try to bring clarity to what it is with its main pros and cons, why companies have been offering such contracts for years and most of all – why programmers sign them.

The b2b employment contract in a nutshell

As the name suggests, a b2b contract is an agreement between two legal entities. It is the most common alternative to the familiar employment contracts that fall under the umbrella of the Labour Code. In this case, however, we are talking about a civil contract for the provision of services between the contracting company (the “employer”) and you as the contractor. How does this happen? You register your own company (the minimum start-up capital is still BGN 2) and become its manager and employee, and at the end of the month, instead of receiving a salary, you issue an invoice to the principal, which he is obliged to pay according to the previously agreed terms in the b2b contract.

Why do employers resort to b2b employment contracts?

There are two main reasons – they save themselves paperwork by giving themselves more flexibility.

Imagine the following: a company from the USA, Finland or Malta is in a hurry to hire quality software developers for its key project and quite logically reaches the Bulgarian IT talent market. Instead of wasting time in studying the specifics of our labor legislation (payment of salaries, insurance coverage, mandatory medical check-ups, safety training, etc.), it is much easier and time-efficient for the company to sign a b2b contract with the developer, because then the process is simplified to invoice→bank transfer. The exercise makes even more sense if the company wants to use your services for a longer period of time without having to set up a company in the country.

The other advantage of b2b contracts for the contracting company is that they allow for many more and different clauses to be included than standard employment contracts, which cannot keep up with the rapid development of the IT sector and the needs of its employees, e.g. greater independence, non-standard working hours and coding from a personally chosen location (be it in Bulgaria or abroad). In addition, the company also pays for the extra hours you have invested in the project and, of course, you are also billed.

The logical question arises: why not hire you as a freelancer? The main reason is that freelancer services are usually used for junior tasks, “on call” and for a shorter time compared to a b2b contract. In addition, a freelancer may work with several clients in parallel, which would be a conflict of interest for the b2b contracting company. For the freelancer himself, working “piecemeal” means insecure and lower personal income, and let’s not forget that if you are a freelancer, you have to be registered as such with the Registry Agency and the NRA, and file a lot of returns on a monthly and yearly basis.

More importantly – why would a developer prefer an employment b2b contract over a standard one?

We asked around the community and here’s what we found out about the workings of b2b contracts.

Money ranks as one of the main factors for a developer to go down this path, because under a standard employment contract, their salary is just one of many costs the employer incurs. A b2b contract does not oblige the contracting company to cover insurance, for example, which automatically means a higher salary. This, in turn, puts the onus on you to pay them yourself. A rough example: if your monthly gross salary is £10,600, you receive a net £9,170 and the total cost to the employer for you would be £11,200. From the company’s point of view, these costs are the same whether they are linked to a salary under a labour contract or an invoice under a b2b contract. But in the eyes of the programmer there is a significant difference, because after paying the necessary social security contributions the net amount for a b2b contract is 9 700 BGN. Some companies are even willing to split these costs with the contractor, which increases the net at the end of the month even more. Of course, you shouldn’t forget the other obligations that come with running your company such as the annual 10% corporation tax, accountancy costs (if you use one) and the like.

The greater flexibility of the b2b contract in terms of working hours and location is another big motivator, while giving you the freedom to choose the senior project you will work on. The same goes for hours. According to the Labour Code, the standard working week is 40 hours, and anything over that is paid extra between 50% and 100% depending on the day you put in the extra work (working day, weekend or public holiday). In the case of b2b contracts, programmers negotiate higher hourly rates and often more hours for a given project.

However, what happens to holidays and fringe benefits?

You guessed it, a b2b contract by definition offers none. If you accidentally get sick and don’t work, you won’t have a reason to run an invoice and get paid, but that’s also negotiable in the form of a certain number of non-work days that you’ll be paid, or “paid time off”. On the other hand, making up for the lack of benefits comes from higher pay, and the option for the sponsoring company to cover the one-time cost of certain benefits (e.g., a company laptop and phone) against an invoice also works.

An employment b2b contract is like any other business contract, legally allowing you to negotiate the best terms for your favourite job as you personally want it to be, but often requires life experience as well as work experience so you don’t miss out on any small but crucial detail. Ask, clarify, balance the scales, and if you work remotely, don’t mind getting involved with the business side of your job, aim for higher pay and a greater variety of projects, then perhaps a b2b employment contract will suit you just fine.