Understanding Payroll in Poland
Jul 6, 2016
It is no big secret that Eastern Europe is a source of business development and a prime destination for multi-national organizations looking to expand their global footprint. Leading the pack in this region is Poland, which offers employers access to a highly educated workforce with a wide variety of expertise with some of the cheapest employment costs in all of Europe. As such, Poland has become an increasingly popular destination for multinationals looking to expand to the emerging markets of Eastern Europe.
Despite the welcoming business environment, employers that plan to leverage the Polish workforce to meet their business goals will encounter several challenges. While there are the typical difficulties in establishing operations and hiring employees in a new country with a different language and culture, employers will find several challenges specific to Poland. Some major areas of concern include:
Up until three years ago, Poland had been relatively slow to embrace the efficiencies of automated and online documentation processing. However this process has now changed and all statutory submissions to governmental offices are provided electronically. All forms employers will have to fill out when hiring, onboarding and compensating new employers are available online, and electronic signature certificates are now used as accepted methods of authorizing statutory documents.
Onboarding New Employees
Unfortunately, organizations hiring workers in Poland will have to contend with a lot of paperwork. The country’s extensive employment laws dictate that the employer will have to collect several pieces of information when onboarding new employees. These include some basic information (name, date of birth, address, bank account information), a work certificate from their previous employers, personal income tax form and, if applicable, a statement on joint spouse taxation, statement of higher costs of obtaining income and a statement on disability and retirement funds paid to date by the employee in a given year. All these forms of paperwork must be stored by the HR department for each employee under their personal employee record. This only applies to employees hired on a standard contract of employment. For other alternative hiring options, such as, civil contracts, the paperwork process is less formal. New employees must be registered electronically to the social security authorities.
Getting a Grasp on Taxation
Also challenging is Poland’s taxation policies. Employers are required to deduct personal income tax from their employees’ paychecks and submit those payments to the proper tax office by the 20th of each month. Interestingly, although employers are required to have an in-country bank account to submit taxation, employers are not actually required to have a business establishment in the country. Poland currently has two different tax rates which apply according to an employee’s level of income.
In addition, employers are responsible for preparing the PIT-11, which provides basic information about revenues, income, costs and withholding income tax, and social security contributions for every employee.
Certain employees can ask for their annual tax return PIT-40 which is the final statement sent to the tax office, however they need to fulfil certain conditions, such as, work the whole tax year and do not have any other sources of income, This also only applies to employees who are on a contract of employment. It does not apply to a civil contract.
Compensating Your Employees
Ensuring employees receive proper compensation in Poland can be challenging. Part of the reason is that the company is still in the process of modernizing its electronic payment systems. While many older businesses in Poland and those in rural areas still pay employees in cash, most employers now pay by bank transfer, which can be prepared manually or submitted remotely through electronic banking software or internet banking. Most employers in Poland utilize ELIXIR, the country’s electronic clearing system used by local payroll offices to submit employee payments. Still, in order to benefit from ELIXIR, the employer must have a bank account in the country as well as a local signatory authorized to represent the company.
Social Security Payments
As with other countries, Poland’s social security system requires that both employers and employees make contributions, with the employee’s share being deducted from their salaries. What makes the social security system complicated for employers is that there are different pay schedules for each area covered. For instance, contributions for Pension and Disability are split between the employer and employee, Sickness is covered by just the employee, and Accident, Labor Fund and Guaranteed Benefits contributions are paid for by the employer. In addition to social security, employees must also pay a health care contribution of 9 percent of their annual salaries, 7.75 percent of which is deductible from their personal income tax liability.
Another important factor in conducting payroll in Poland is understanding the country’s leave policies, of which there are three main components: sickness, maternity and holiday.
- Sickness – The employer is required to finance statutory sick pay for the first 33 days of illness in a given calendar year. Any sickness that requires the employee to miss work for longer than 33 days (or just 14 days for employers over the age of 50), is to be financed through social insurance payments.
- Maternity - The issue of maternity leave can be particularly challenging in Poland. In the past, pregnancy prevented many women from being hired. However, as more international companies establish operations in the country, attitudes are starting to change. Today, employers are required to grant employees maternity leave, starting at 20 weeks for one child and increasing for multiple children born in a single childbirth.
- Holiday – Poland’s Employment Law gives employees the right to holiday entitlements. Interestingly, the amount of holiday time given depends on the total length of employment history (including time with current and former employers, as well as periods of instruction), rather than just their time with the current employer. Those employees with less than 10 years of combined employment history and continued education are eligible for 20 vacation days, while those with more than 10 years of experience receive 26 days.
Although Poland presents the growing multinational organization with an inviting business climate, the process of setting up operations in Poland, hiring employees and ensuring they are compensated accurately and on time can be difficult. Complicated employment laws, constantly changing legislation and some outdated processes add further complexity. Despite the difficulties, employees will find many benefits in expanding their footprint to this part of the world. To ensure greatest success, the company can benefit from working with an experienced global payroll provider that is familiar with all of the nuances of Polish payroll and can help bring positive results and ensure continuous compliance.