Full-time job or self-employment - pros and cons

Service Business

Full-time job or starting your own business? The choice of the form of employment is one of the key dilemmas that all employees will face sooner or later. Check which solution to choose - full-time or self-employment?

Full-time job or self-employment - what to choose?

Self-employment is a tempting option for many. Non-standard working hours, full freedom in taking action and unlimited development opportunities are just a few factors that may determine the resignation from a job and becoming self-employed.

Own business gives a lot of independence, but running it entails many challenges and difficulties. According to the data presented by the Public Opinion Research Center and the National Agency for Enterprise Development, entrepreneurs devote much more to work than their full-time colleagues. As indicated by the report, people in the business work 52 hours a week on average. The development and maintenance of the company, especially in the first years of operation, is not a piece of cake - it requires self-denial, consistency and good organization of work.

The decision to start your own business is not for everyone. Such a format of work will not work especially for people who value the convenience and stability that full-time work gives. Employed under a contract of employment do not have to bother with paying taxes or paying social security contributions. These responsibilities lie with the employer, or rather the accounting department that supports the company. A great convenience for employees is the ability to choose paid leave, use L4 and additional benefits such as the MultiSport card or meal subsidies.

Employment contract or your own business? We check in what aspects these forms of work differ.

Form of taxation

Full time

Full-time employees are subject to a permanent form of taxation according to the tax scale. Each month, 18% of the tax is deducted from their salary, provided that the annual amount of earnings does not exceed PLN 85,528. People who earn more have a second tax bracket and therefore a higher tax of 32%. It is worth noting that the 32% taxation applies only to earnings above PLN 85,528 (it is not calculated on the total income).

Self-employment

The need to pay high taxes is often the first signal to consider switching to a business. Self-employed people have more freedom in choosing the form of taxation. They can settle their work in the form of:

● income tax (18% or 32% according to the tax scale),

● flat tax (19% regardless of the amount of income),

● flat-rate income tax,

● tax card.

When you run your own business, you choose the form of taxation yourself, but you also undertake to pay taxes and contributions yourself. Many people, especially at later stages of activity, decide to delegate these duties and establish cooperation with an accounting office.

Social Security contributions

Full time

Employment under a contract of employment is associated with the obligation to regularly pay social security contributions. They are paid by both the employee and the employer (this is an amount that is not included in gross earnings). The employee pays for retirement and disability insurance as well as the entire sickness and health insurance. On the other hand, the employer is obliged to cover part of the retirement and disability insurance, as well as the overall accident insurance, the Labor Fund and the Guaranteed Legal Benefits Fund "out of pocket".

The sum of all contributions is higher for full-time employees than for the self-employed. However, higher contributions mean more privileges, e.g. the possibility to start the benefit immediately after the termination of the contract or to receive a larger pension in old age.

Self-employment

Self-payment of social security contributions may be a factor discouraging you from starting your own business. In 2019, the monthly fee for the entrepreneur was PLN 1,246.92 without the voluntary sickness contribution or PLN 1,316.97 after adding this contribution.

People who set up a new company can take advantage of a special preferential ZUS contribution. This means that for the first 24 months of operation, the entrepreneur pays only the so-called small ZUS. For 6 months, it is obligatory to pay only health insurance contributions ("start-up allowance"), then the amount for ZUS increases, but still remains at an attractive level. In 2019, the obligatory contributions amounted to PLN 539.35 or PLN 555.89, respectively.

Who cannot benefit from preferential ZUS contributions?

The following were excluded from the possibility of paying the minimum social security contributions:

● partners of a general partnership, limited partnership and partnership,

● founders of a sole proprietorship limited liability company,

● creators, artists,

● persons who conducted other non-agricultural activities during the last 60 months before starting their business activity,

● entrepreneurs who, as part of their activity, provide the same services for the former employer that they performed for him during the last two years, while remaining in the employment relationship.

From January 1, 2019, entrepreneurs were given the opportunity to pay lower ZUS contributions in proportion to the income they achieved in the previous tax year. The convenience is dedicated to companies whose revenues did not exceed PLN 63 thousand. PLN per year. In 2020, this amount will increase, and the small ZUS will be used by companies that did not earn more than PLN 120,000 in 2019.

Cost of getting income

The final amount of earnings - whether on a full-time job or on your own business - depends not only on the amount of taxes and insurance premiums. They should also include tax deductible costs, i.e. the amount by which the tax base can be reduced.

Full time

The maximum tax-deductible cost for people working full-time is fixed and regulated by law. Pursuant to the Personal Income Tax Act, it amounts to PLN 111.25 per month and not more than PLN 1,335 per year. Creators and artists can count on slightly more favorable settlement terms - 50% of tax deductible costs apply to them (with an annual limit of PLN 42,764).

Self-employment

The situation of entrepreneurs in this matter is completely different. Self-employed persons have the option of settling direct as well as indirect costs resulting from their activity. In this matter, they are not limited by any amount; However, the presented costs must be incurred for profit-making purposes and it is, in case of doubt, for the entrepreneur to prove this relationship.

Tax-deductible costs may include, for example, expenses related to the operation of a car, purchase of software necessary for work, such as graphic or video programs, fees for accounting services, company equipment (laptop, scanner, printer, etc.) or equipment of the premises - the company's seat. What can be counted as costs is closely related to the specificity of the business.

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Full-time business - for whom will the combined solution work?

Polish law allows you to work full-time and run your own business at the same time. This is a good solution for people whose duties in the company do not preclude taking up other forms of activity. Before applying for a business, make sure that your business will not compete with your current employer to some extent. Breaking the non-competition agreement can have unpleasant consequences.

The combined model (full-time + self-employment) allows you to take the first steps on the market and test your business idea with virtually minimal financial risk. A person who earns an amount equal to or higher than the national minimum on the contract of employment is required to pay only the health insurance premium in the amount of PLN 297.28 for additional activity.