B2B Contract or Labour contract?

With the transition to remote work, programmers have become more open to B2B contracts. However, both sides should be aware of the advantages and risks involved in this type of arrangement.

Key Disadvantages for the Employee:

• Vacation and sick leave are not paid.
• The notice period is typically 2-4 weeks, but the client can terminate the contract at any time.
• Higher interest rates for loans/mortgages.

Key Disadvantages for the Employer:

• Terminating the employment contract after the probationary period can be costly.
• Labour contract comes with additional expenses.

At first glance, both parties seem to gain significant benefits from B2B contracts. However, these contracts rarely offer a fixed rate and often rely on hourly payment.

The hourly rate includes various risks for the employee, making it higher than the hourly rate under an annual labor contract. Depending on the B2B contract, payment can be based solely on worked hours or tied to the achievement of intermediate goals.

In the latter case, the contractor tracks the number of hours worked, and the client evaluates the appropriateness of those hours.

For example, if the contractor worked 60 hours but the client believes the task could have been completed in 20 hours given their competence, the final invoice may be revised.

However, this model increases the hourly rate.

As an alternative, it is sometimes beneficial to discuss intermediate results (sprints) and establish payment based on completed sprints.

This does not make the services cheaper for the employer since the price includes the risks of "unexpected difficulties," but it ensures more stable relationships between the contractor and the employer.

Another option is for some of our clients to agree on a fixed fee (flat fee) for purchasing 2-4 working hours of a programmer per day, per week, or per month.

I recommend discussing all contract details and conditions with a consultant or lawyer to choose the most suitable employment model and protect the interests of both parties.