Choosing the Right Contract for Remote Teams

One of the most important strategic decisions when building a remote team is selecting the correct type of contract for your workers. The legal landscape across Europe varies significantly. We work closely with countries like Germany, Poland, Croatia, and Romania, and thus focus on these examples, as each has its own labour laws and cultural norms, presenting a distinct set of challenges and opportunities.

This article aims to simplify the concepts of full time employment contracts, business to business (B2B) contracts, and freelance arrangements. We compare their key advantages, drawbacks, and the essential compliance considerations within these European Union (EU) markets. Our goal is to empower HR professionals and hiring managers to make informed choices that perfectly balance legal compliance with the operational needs of their geographically distributed tech teams.

Why Contract Type Matters in a Remote Team

Choosing the right contract model influences much more than simply payroll. It directly affects tax obligations, legal risk, worker benefits, and even your ability to attract and retain top talent.

For example, many tech professionals highly value flexibility. In Poland, approximately 65% of software developers choose to work under B2B contracts, with only 35% on traditional employment contracts (Myśluk Landowska, 2024). Conversely, Germany's strict labour regulations mean that misclassifying an employee as a “contractor” can result in severe financial and legal penalties (Burgess Yang, 2025). Clearly, the optimal arrangement can differ significantly from one country to the next.

Let's explore each contract type and how they stack up in Germany, Poland, Croatia, and Romania.

Full Time Employment Contracts (Local Payroll Employees)

A full time employment contract establishes the worker as a salaried employee on your company’s (or its local entity’s) payroll. This is the classic hiring model, providing the individual with a fixed salary and a mandated package of benefits. The employer must fully comply with the labour laws of the employee’s country, which in the EU translates to robust legal protections for the worker.

Key Features: Employees work defined hours and duties, and they receive statutory benefits such as paid annual leave, sick pay, and social insurance coverage. The employer is responsible for withholding income tax and paying required social contributions on the employee’s behalf. In exchange, the company gains the ability to fully integrate the worker into the team structure and direct their work as needed.

The Advantages and Drawbacks

Full time employment offers significant advantages. Firstly, there is Stability and Integration; employees are typically better integrated into the company’s culture and long term projects, often demonstrating greater loyalty. Secondly, there is Legal Clarity; the worker’s status is unambiguously defined, and the risk of misclassification is completely eliminated. Finally, this model aids in Talent Attraction; in highly regulated markets like Germany, many candidates expect the security that an employment contract provides, making the mandatory benefits highly appealing.

However, there are serious considerations. One major drawback is Higher Costs, as employers face significant associated costs, or "on costs," due to mandatory social contributions. For instance, in Poland, an employee on a gross budget of 15,000 PLN might take home only about 9,000 PLN, with the remainder covering taxes and contributions (Myśluk Landowska, 2024). Another challenge is Administration and Compliance. Hiring in a foreign country requires adhering to local payroll, tax reporting, and employment regulations. German law, for example, enforces long statutory notice periods (up to seven months for employees with 20 or more years of service in Germany) (Remote.com, 2025). This leads to less flexibility, as it is inherently harder to terminate or adjust employment contracts, given that all four countries have legal protections against unfair dismissal. Croatia’s Labour Act caps most fixed-term contracts at three years, after which the employee must be made permanent (Boundless, 2025a).

Important Country Highlights 

• Germany: Known for highly protective employment laws. Employees must receive a minimum of 20 days paid leave (often 25–30 in practice) and full sick pay for six weeks. Hiring without a local entity usually means engaging a local partner or EOR.
• Poland: Employment contracts (umowa o pracę) guarantee at least 20 days of paid annual leave (rising to 26 days after 10 years). Employers contribute to ZUS (social security), health, and other funds—roughly adding about 20% or more on top of gross wages.
• Croatia: Employees are protected by the Labour Act. Employers must pay health and pension funds. Importantly, Croatia heavily punishes the misuse of contractors as employees; companies can be fined and even have operations temporarily suspended (Boundless, 2025a).
• Romania: Employees enjoy at least 20 days of paid leave and social security benefits. Romanian authorities will recharacterise any relationship that operates like employment to enforce tax and labour laws (Boundless, 2025b).

Full time contracts are best for core team members and long term roles where the company is ready to invest in compliance. They offer the strongest job security and alignment with company values but come with higher costs and regulatory burdens in each country.

B2B Contracts (Independent Contractors via Business to Business Agreements)

A B2B contract is an arrangement where the worker is engaged as an independent contractor through their own registered business entity. The company signs a service contract with the individual’s sole proprietorship or company, not the person as an employee. This is a very common and flexible model in European tech hubs, but it carries a significant compliance risk if misused to bypass employment obligations.

How It Works: The contractor typically invoices the company for their services. They are legally a separate business and are responsible for paying their own taxes and social insurance from the fee. This tax efficiency is a major reason why Polish IT contractors favour B2B engagements (Myśluk Landowska, 2024).

The Advantages and Drawbacks

B2B arrangements offer substantial benefits. The primary one is Cost Efficiency, as these arrangements can substantially reduce the overall cost for the hiring company by eliminating employer social contributions or withholding obligations. This often results in a contractor taking home more net income than an equivalently costly employee. Secondly, there is Flexibility in Terms, as business contracts are not bound by most labour code restrictions, allowing the company and contractor to freely agree on contract length, termination notice, and scope of work. Finally, and crucially for remote first companies, there is No Entity Needed; you typically do not need a local corporate entity or payroll in the contractor’s country, greatly simplifying cross border hiring.

However, the drawbacks are serious. Firstly, there is No Benefits and Less Security for the Worker; contractors are not entitled to employment benefits by law. They do not get paid holidays, sick pay, or employer provided health insurance by default (Myśluk Landowska, 2024; Boundless, 2025b). The critical concern, however, is the Risk of Misclassification. If a contractor is, in practice, treated exactly like an employee (e.g., working under strict schedules and direct supervision), authorities may deem the relationship a de facto employment.

The Critical Risk: Misclassification 

• Germany: Misclassifying an employee as “self employed” (Scheinselbstständigkeit) is called false self employment. The company faces harsh fines, back paid social security contributions, and potentially criminal charges (Burgess Yang, 2025). German law does not tolerate “disguised” full time roles billed as freelance.
• Croatia: Misclassification is a serious offence. Companies can be fined €2,654.92 per misclassified worker, and labour inspectors have the power to temporarily suspend the company’s operations (Boundless, 2025a).
• Poland: While enforcement has been historically more relaxed in the IT sector, the law states that if work is performed under the employer’s direction, at a set place and time for a wage, “it constitutes an employment relationship, regardless of how the contract is labelled” (Myśluk Landowska, 2024).

To safely use B2B contracts, clearly outline the scope as a business service, avoid treating the contractor as you would an employee, and ensure they have autonomy in how and when they perform their tasks. B2B is ideal for highly skilled professionals who prefer tax advantages or for project-based work.

Freelance Arrangements (Individual Freelancers/Gig Contractors)

A freelance arrangement is similar to a B2B contract in that the person is not an employee. It often suggests an even more flexible, short term, or part time engagement. Freelancers are typically self employed individuals who may take on multiple clients and operate as independent contractors in the eyes of the law.

Freelancing is growing across Europe. Over 75% of European freelancers report they do not wish to return to traditional full time jobs, citing autonomy and work life balance as key reasons (Umalis Group, 2025). This large talent pool is highly relevant for remote focused companies. Freelancers are commonly used for short term projects, consulting tasks, or highly specialised work. This allows companies to tap into specific expertise on demand without a long term commitment.

The legal considerations and misclassification risks are the same as for B2B contractors. Legally, a “freelancer” is an independent contractor. Hiring freelancers is extremely agile. You can quickly bring in talent to pilot a project or fill a skills gap without setting up a subsidiary. The main challenges are ensuring correct invoicing, enforcing confidentiality, and protecting Intellectual Property (IP). Crucially, if your “freelancer” begins to resemble a de facto employee, you must consider converting them to a full employment contract to avoid penalties.

Choosing the Right Model: Key Takeaways and Recommendations

Selecting the best contract type for your remote team members in Germany, Poland, Croatia, and Romania requires carefully balancing legal risk, cost, and talent expectations.

Match the Contract to the Role and Talent

If the role is long term, core to your team, and you need full control over working hours, a full time employment contract is usually the correct choice. Conversely, for project based or part time work or when engaging a specialist who prefers independence, a B2B/freelance contract is a better fit. Many companies successfully use a hybrid approach.

Beware of Misclassification – When in Doubt, Don’t “Fake” a Contractor

Compliance is not optional. German and Croatian authorities are notably proactive in penalising companies for misclassification (Burgess Yang, 2025; Boundless, 2025a). The legal and financial consequences are serious.

To avoid this, regularly review your contracts by asking:

• Does the contractor have freedom in how to do the work?
• Are they free to take other clients?
• Are they being treated equivalently to an employee in terms of schedule or management structure?

If the answer to the last question is “yes,” strongly consider shifting them to an employment model. It is always wise to consult local legal experts.

Consider the Talent’s Perspective

In competitive tech fields, candidates may have a preferred contract type. Many Polish and Romanian IT contractors enjoy the higher net pay and autonomy of B2B contracts (Myśluk Landowska, 2024), whereas a German professional might be more wary of freelance status. Discussing contract preferences openly during recruitment can be a differentiator in securing top remote talent.

Document and Educate

Have solid written agreements in place, whether an employment contract or a contractor agreement. Educate your remote managers as well—they should understand that they cannot treat a freelancer in Croatia the same way as their office employee in Berlin without potentially causing compliance issues.

Conclusion

There is no one size fits all answer. The “right fit” contract depends entirely on the nature of the job, the individual’s preference, and the legal framework in each country. Successful remote first companies use a hybrid approach, combining employment and contractor arrangements strategically.

The guiding principle must be compliance and fairness: choose the model that legitimately reflects the actual working relationship. With robust planning and the right advice, you can successfully navigate Germany’s firm labour laws, Poland’s contractor friendly environment, and everything in between, building an international team that is both agile and compliant.

‍

‍

References 

1. Myśluk-Landowska, A. (2024, November 20). Guide to B2B Contract in Poland. Dudkowiak & Partners Law Firm. Retrieved from https://www.dudkowiak.com/contract-law-in-poland/b2b-contract-in-poland/ dudkowiak.comdudkowiak.com
   
   
2. Burgess Yang, A. (2025, March 26). False Self-Employment in Germany: What to Know. Remofirst. Retrieved from https://www.remofirst.com/post/false-self-employment-germany remofirst.comremofirst.com
   
   
3. Boundless. (2025). Independent Contracting in Croatia – Employment Guidelines. Boundless Global Guide. Retrieved from https://boundlesshq.com/guides/croatia/independent-contracting/ boundlesshq.com
   
   
4. Boundless. (2025). Independent Contractor Contract & Employment Guidelines in Romania. Boundless Global Guide. Retrieved from https://boundlesshq.com/guides/romania/independent-contracting/ boundlesshq.comboundlesshq.com
   
   
5. Umalis Group. (2025, January 19). Thrive as a Freelancer in Europe: Tips and Advice. Umalis Blog. Retrieved from https://en.blog.umalis.fr/freelancing-in-europe/ en.blog.umalis.fren.blog.umalis.fr
   
   
6. Remote.com. (2025, February 5). How to Hire and Pay Independent Contractors in Germany (E. Sutton, Author). Remote.com Blog. Retrieved from https://remote.com/blog/contractor-management/how-to-hire-pay-contractors-in-germany remote.comremote.com

‍