Maris Tepers, CEO of international IT recruitment agency MateHR
Already before the pandemic, IT companies increasingly realized the benefits of hiring employees as B2B contractors. However, since Covid-19 and the subsequent rise of remote work, B2B contracts are rapidly growing in popularity and transforming the world of IT recruitment and remuneration.
Companies from countries with high salaries and cost of living are using B2B contracts to search for international tech talent and increase the competitiveness of their job offers. On the other hand, a growing number of candidates become interested in such contracts because of the flexibility and the option to earn significantly more money today.
To find out how B2B contracts transform the European IT industry, we spoke to Maris Tepers, the CEO of international IT recruitment agency MateHR. In this article, Maris shares how B2B contracts can benefit IT specialists, aid companies in their search for tech talent, and help countries attract new businesses and investors.
Why are B2B contracts becoming more popular?
In the IT industry, employees generally feel safe and stable, and the majority have an above-average or high salary – in fact, the ICT industry is the highest paying sector in the EU. Nowadays, IT specialists don’t have to feel insecure about losing their jobs because they would anyway be demanded elsewhere. In addition, most IT professionals are younger than 45, making them less concerned about social benefits such as pension funds and sick leaves.
For all these reasons, many IT workers who sign up for B2B contracts feel confident that they can take care of their own social security and wellbeing and choose not to pay high taxes to the state. They are motivated by higher net earnings, which are more than enough to create a personal pension fund, pay their health insurance, and afford different sports & wellness initiatives.
“The data from our vast network of clients and tech recruiters suggests that the increase in signing B2B contracts has been around 300% over the last two years. More and more companies of all sizes seek the assistance of tech recruitment agencies in finding B2B contractors across Europe,” Maris Tepers, the CEO of MateHR.
From the employer’s perspective, there are several benefits to signing B2B contracts with recruitees:
B2B contracts allow companies to pay higher net salaries and be more competitive in the job market without increasing their expenses per employee.
B2B contracts can help to solve the issue of finding skilled specialists in a particular country or region by broadening the search across more countries.
Employers can also save money by hiring candidates in countries with a lower cost of living.
B2B contracts are much more flexible – you can determine the duration of the contract and the number of hours worked per month, and include almost any other provision you want.
Signing a B2B contract is much simpler in terms of bureaucracy, and making payments is straightforward – all it takes is a single invoice and a bank transfer.
For example, a highly skilled IT specialist in Slovenia can have a yearly salary of between 50 and 100 thousand euros or even more. Having a regular employment contract means that ~40% of that salary would be paid in taxes. However, if such a specialist signs a B2B contract with the company, he or she only has to pay under 10% in taxes. This means that the candidate would get a significantly higher salary today, while the company wouldn’t need to raise its expenses – a win-win for both sides.
How do B2B contracts work?
In many cases, traditional employment contracts are rather outdated. For example, there’s a common condition that allows working abroad no more than 3 months per year. A B2B contract, on the other hand, lets you live and work anywhere, as long as you pay taxes to the country you’re registered in.
A B2B contract is essentially an agreement between two independent companies, where they agree on the services the contractor’s “company” delivers to the client. However, in practice, B2B contractors are no different from regular employees, and they can be working either full-time or part-time; on-site or remotely. What differs is the bureaucratic side and the percentage such employees pay in taxes. There can be different types of contracts – e.g., with an hour-based wage or fixed salary.
Nowadays, most companies that hire candidates based in another country, do it on the basis of B2B contracts, facilitated by international tech recruitment agencies. Some businesses choose to open a new local branch in a country they’re hiring in. In this scenario, each of the local employees can have a B2B contract, and they can be working on-site in this local office.
In a different scenario, hiring is done remotely without opening a physical location in the respective country, and B2B contractors work from home or from another place they've chosen.
For example, in the UK and Germany, it’s hard to find available local candidates, and their salary expectations are very high. B2B contracts enable employers to hire foreign IT talent on a B2B contract basis without opening a branch in another country. This way, employers gain access to a broader talent pool and can offer handsome salaries in countries with a lower cost of living.
Where do B2B contracts prevail?
Photo by Leon Seibert on Unsplash
B2B contracts are increasingly popular in countries with a friendly tax system for small businesses, allowing individual entrepreneurs to generate a substantial turnover. They are especially lucrative in the IT industry where salaries are high and the sum before and after taxes differs significantly.
For example, in Poland in 2021, the difference of the amount paid in taxes for a standard employee and a B2B contractor was around 25% of the net salary. It’s, therefore, no surprise that currently, 30-50% of IT specialists in Poland work based on B2B contracts.
Ukraine is another country where B2B contracts are increasingly popular. More and more international corporations open their branches in Ukraine every year, hiring every team member via a B2B contract.
“It may seem that B2B contracts “rob” the state of taxes, but it’s not entirely true. Countries with friendly B2B contract conditions attract significant numbers of businesses, investors, and international talent. In addition, people with higher salaries spend more, pay more VAT and thus contribute to the country’s growth”, says Maris.
“Romania is one such country with a vast talent pool and friendly tax conditions, which have attracted a growing number of our clients. Other countries where B2B contracts are rapidly becoming the norm include Poland, Slovenia, Bulgaria, as well as EU’s neighboring countries. We see that this type of “IT employment” contract is growing in popularity elsewhere, too,” Maris adds.
The drawbacks of B2B contracts
Technically, a B2B contract is an agreement between two companies, and the employer has no obligation or commitment to you as an employee. Such contracts are not protected by social guarantees, and the employer won’t pay any taxes for the contractor (unless agreed otherwise).
This means that B2B contractors have to take care of their retirement fund and be prepared to cover vacations, sick leaves, and sudden unemployment at their own expense. In most cases, there will be no compensation in case of bankruptcy or firing.
That said, any tech recruiter will tell you that candidates rule today’s competitive IT job market, and employers are continuously seeking new ways to offer bonuses to employees. This affects B2B contractors as well.
“The fight for the best tech talent is so fierce that employers are trying to stay ahead of the game by offering various perks to candidates. We already see companies beginning to pay sick leaves, vacations, and traineeships to B2B contractors similarly to full-fledged employees. But for now, such favorable conditions are rather exceptions than common practice,” says Maris Tepers.
Finally, having a B2B contract means more bureaucratic tasks for the employee. We strongly recommend reading B2B contracts much more carefully than standard employment contracts because such agreements don’t have the state's added layer of protection.
To sum up, during the last two years, companies have understood that it’s completely legal and acceptable to hire specialists based on B2B contracts. Even more – candidates welcome and even expect such an option, which allows them to earn more money for their work.
Before you decide to hire foreign talent via B2B contracts, make sure you consult an experienced tech recruitment agency to avoid any missteps and follow the corresponding laws in each respective country.