Business License or Employment? How to Avoid Legal Risks in B2B Cooperation

As the state seeks ways to consolidate public finances, regulatory bodies are increasingly focusing on areas where budget revenues may be leaking. One such area is improperly structured B2B cooperation—commonly referred to as “pseudo self-employment”—which is becoming the target of more frequent and stricter inspections. For companies in the IT sector, where working with contractors is common, it’s crucial to understand the line between a legitimate business relationship and a disguised employment relationship.

Case Study: What (Not) to Do

Imagine a successful IT company with a turnover of over €3 million, developing software solutions for corporate clients in Slovakia and abroad. The internal team includes five key employees (management, HR), but the core development team is made up of 20 sole traders (freelancers).

Current collaboration setup:

• All developers (in-house and external) attend a joint daily stand-up at 9:00 a.m., where they report on their tasks and receive assignments for the day.
• The project manager (an employee) directly manages and monitors the work of all contractors.
• Each contractor is provided with a company laptop and access to internal systems.
• Contracts do not allow subcontracting—work must be performed personally.
• Invoices are issued as monthly flat rates tied to “hours worked.”

While this model may offer flexibility, it’s a textbook example of dependent work from the perspective of the Labor Inspectorate. A controller would likely conclude this is not a relationship between two independent businesses but rather illegal employment.

How to Structure B2B Cooperation Legally: 5 Key Steps

The difference between a legitimate B2B relationship and pseudo self-employment doesn’t lie in the contract title—it lies in how the cooperation actually works. The Labor Code defines dependent work as work carried out under a relationship of superiority and subordination, personally, following the client’s instructions, in the client’s name, and during working hours set by the client. To minimize risks, focus on these five areas:

1. Payment should be tied to deliverables, not time. Instead of invoicing monthly flat rates or hours worked, set up compensation for specific deliverables. Invoice for a completed module, finished project, or a clearly defined outcome. This proves you’re paying for results—not for the contractor’s time.
2. The contractor organizes their own time and work. It’s fine to coordinate deadlines, but managing daily tasks directly is not. The contractor should be free to choose when and where to work, as long as they meet agreed goals. They shouldn’t be subject to internal rules about attendance or fixed working hours.
3. The work does not have to be performed personally. A true entrepreneur has the right to subcontract work. Allow the contractor (at least contractually) to involve a third party in completing the tasks—with your prior consent. Requiring exclusive personal performance is a strong indicator of dependent work.
4. The contractor uses their own tools. Ideally, the contractor should use their own hardware and software and cover the associated costs. If company tools are essential (e.g., specific software), this should be formally addressed via a rental or lending agreement—preferably with market-based compensation.
5. The contractor is not presented as part of the internal team. They should not appear in your org chart, carry company business cards, or be subject to employee benefits and internal policies. They are an external supplier—not a subordinate colleague.

Practical Risk Assessment Checklist

The more “Yes” answers you give, the safer your collaboration model is.

Risk assessment question	Yes / No
Is invoicing tied to a specific deliverable (e.g. project, module), not time?
Can the contractor subcontract part of the work?
Can the contractor decide independently when and where to work (not bound to 9-to-5 office hours)?
Does the contractor bear their own business costs (e.g. hardware, software)?
Is the contractor not managed and supervised daily like an employee?
Can the contractor (even theoretically) work for other clients simultaneously?

What Are the Risks and Penalties of Improper Setup?

If authorities classify the cooperation as disguised employment (illegal work), both parties face serious consequences.

• High fines for the company. The Labor Inspectorate can impose penalties ranging from €2,000 to €200,000. If more than one person is involved, the minimum fine is €5,000—enough to seriously endanger a company’s financial stability.
• Back payments of taxes and social contributions. Often the largest financial burden. The company must pay back all employer and employee contributions, as well as income tax on dependent work—including penalties. If the duration of cooperation isn’t provable, the law assumes at least three months.
• Ban on public tenders and state aid. A company found guilty of illegal employment cannot apply for public funding or grants for five years—a major issue for those relying on tenders or EU funds.
• Contractors may claim employee benefits retroactively. If reclassified as employment, the contractor becomes an employee—entitled to back pay for unused leave, overtime compensation, and potentially severance pay.
• Fines for the contractor. The individual performing illegal work may be fined up to €331. While smaller, it’s still an unpleasant penalty.

Conclusion

B2B cooperation is legitimate—but when improperly set up, it poses serious legal risks. B2B should never be used to avoid paying taxes or social contributions. If the relationship functions like employment, any financial advantage is short-lived and may lead to steep penalties.

For companies focused on long-term cooperation and taking full responsibility toward clients, formal employment is often the safer and more stable option.

An example is bart.sk, where most team members are regular employees—a foundation for long-term relationships. Especially in projects involving NDAs or sensitive data, employment provides a stronger legal framework for liability. Unlike a freelancer, an employee acts on behalf of the employer, who bears full responsibility. Choosing employment is not outdated—it’s a strategic decision for companies focused on quality and sustainability.

FAQ: How to Avoid Pseudo Self-Employment in IT

What is pseudo self-employment?

It’s a form of illegal employment where a relationship is structured as B2B on paper, but functions like employment in practice—meaning the contractor works as an employee without legal protection or contributions.

What are common signs of illegal dependent work?

Typical signs include: billing based on time worked, fixed working hours, direct supervision, prohibition of subcontracting, and use of company equipment without the contractor covering the cost.

How can I structure B2B cooperation legally?

Ensure payment is result-based, the contractor organizes their work and time, subcontracting is permitted, their own tools are used, and they are not presented as internal staff.

What are the penalties for pseudo self-employment?

Companies may face fines from €2,000 to €200,000, back payments of taxes and contributions, bans on public contracts, and retroactive employee claims. Contractors can also be fined.

How can an IT company prepare for an inspection?

Have clear contracts, ensure genuine business activity from contractors, and prepare evidence that supports a true B2B relationship rather than hidden employment.