A country of 38 million hard-working, well-educated people, Poland is one of the largest countries in eastern Europe, and has emerged from Communist rule as an exciting place for multinational businesses to expand into. Manufacturing, energy and heavy industry have proved particularly successful for companies operating in Poland, but many other sectors have grown as Poland builds ever-closer ties with Western markets.
Poland’s economy has enjoyed significant growth since the country joined the European Union in 2004. The size of its economy has more than doubled since accession to the trading bloc, and passed $600 billion for the first time in 2019.
Poland has the sixth-largest economy in the EU, but also has the sixth-lowest average wages. This makes it ideal for running a highly profitable operation that maximizes output while keeping costs down. However, Poland has a unique set of compliance guidelines, tax requirements and reporting constraints that incoming organizations must bear in mind. This guide sets out the basics of Poland payroll:
Business registration in Poland is relatively straightforward. Most companies will set up as one of two business entities: a limited-liability company (known as an Sp. z. o. o.) or a joint-stock company (an S.A.). The former is preferable for many organizations as the minimum share capital is only 5000 złoty (approximately £1000; $1250; €1100), and because only one official director and one official shareholder are required. Larger businesses, on the other hand, may choose to run an SA which is listed on the stock exchange; the minimum share capital for an SA is 100,000 złoty (approx. £20,000; $25,000; €22,000).
Companies should register at the National Court Register (KRS) once a bank account has been opened and the Articles of Incorporation have been notarized. Once this is completed, a KRS number will be issued, and then an application can be made for a tax registration (NIP) number.
It’s also important to register for Płatnik, an online government portal for reporting and payments for tax and national insurance. New employees should be registered on Płatnik within seven days of starting. Departing employees should be de-registered within seven days of leaving.
Employees can be taken on for a trial period of a maximum of three months, before they are taken on a fixed-term, ‘definite’ contract (maximum 33 months in length) or a rolling ‘indefinite’ contract. Non-EU residents are employed on the same terms as EU citizens, provided they have a valid work permit.
Working hours may not exceed eight hours in a 24-hour period, or more than 40 hours in a week. The latter figure is calculated over a four-month rolling average. Anything over and above this is overtime, paid at 150% the normal rate, or 200% if on a Sunday or a public holiday. An extra 20% premium is also payable for work between 9pm and 6am. The maximum overtime allowed is eight hours per week or 150 hours per year.
Poland also has an alternative form of employment called ‘civil law agreements’ (‘umowa-zlecenie’ in Polish), which is similar to freelancing in that people are employed to perform specific tasks. These agreements are free of many of the Polish labor laws applicable to normal employees. However, to combat abuse of the system by some businesses, who were using these agreements to save money on full-time work, a minimum wage for civil law agreements was introduced in 2017 (see section below).
Compensation, Bonuses and Severance
Employees in Poland are typically paid on a monthly basis. For regularly employed workers, the minimum wage was increased by over 15% for 2020 to 2600 złoty per month (approx. £525; $650; €580). The rate has been raised every year since 2002, so businesses moving into Poland should expect further rises in the future. The minimum rate for those employed under civil law agreements is now 17 złoty per hour (approx. £3.45; $4.30; €3.80).
Paying bonuses to employees in Poland is common, especially as there are no strict rules around the amounts and forms of them, other than that they are taxed at the capital gains rate of 19%. Compared to the top rate of personal income tax (see below), this can make bonuses very attractive to higher earners.
The use of benefit-in-kind is a grey area within Polish law, especially on fuel for company cars, around which there have been a number of court cases in recent years. Caution should be applied and extensive research should be undertaken before offering BiK to employees.
Severance pay in Poland varies, depending on the length of service of the employee. Those who have worked for the employer for less than two years are entitled to one month’s pay, rising to two months for between two and eight years of service, and three months for those with more than eight years of service.
Tax and Withholding Considerations
All employers who have a physical presence in Poland must operate withholding of tax and social insurance from salary. Despite this, employees must still fill out an annual tax return for administrative reasons.
Personal Income Tax (PIT) is administered by the Urzad Skarbowy (Tax Office) and is set at two progressive bands. Annual income up to 85,528 złoty (approx. £17,300; $21,500; $19,100) is taxed at 17%; income above this is taxed at 32%. However, workers under the age of 26, including foreign workers, are exempt from the 17% tax rate and pay no income tax at all unless they reach the 32% threshold. Given that as of 2020, the national average salary is around 64,000 złoty (approx. £12,900; $16,100; €14,300), it means the majority of Poland’s workforce benefits from a relatively low income tax rate. Workers on civil law agreements pay a flat rate of 17% income tax.
Poland also has a wide variety of tax relief schemes that allow certain amounts to be earned free of income tax. These include (but are not limited to):
- 3000 złoty per year for all regular employed workers
- 3600 złoty per year for employees working away from home
- 4500 złoty per year for employees working away from home in multiple jobs
Employers and employees are also required to contribute to Social Insurance (ZUS). Employers must contribute 16.26% of employee’s salary for pensions and disability insurance (employee contributes 11.26%), and between 0.67% and 3.33% for accident pay, depending on the nature and size of the businesses. Further employer contributions of 2.45% for the Labor Fund and 0.1% for the Employee Guaranteed Benefits Fund must be made. Civil law contracts do not require any ZUS contributions to be made.
Holiday and Leave Considerations
Poland has 13 days of public holidays each year. Outside of these, employees in Poland are entitled to 20 days’ paid leave each year, rising to 26 days after ten years of service with an employer. Years of service do not have to be consecutive: previous spells with the same employer are counted, irrespective of the reason for their previous departure. Employees can also request unpaid leave over any period of time, although granting this is at the discretion of the employer.
Maternity leave entitled in Poland is set at 20 weeks, six of which are taken prior to the birth. Additional time is given for multiple births, while pregnant women or those on maternity or parental leave cannot be dismissed by their employer. The rate of maternity pay depends on whether a mother also takes the additional 32 weeks of parental leave available. A woman solely taking maternity leave receives 100% of her usual salary, but if extending her time off using the parental leave entitlement, this drops to 80% for the full period.
Paternity leave entitlement is two weeks at 100% of usual salary, to be taken any time before the child reaches two years of age.
If an employee is signed off sick by a doctor, then the employer pays for the first 33 days of illness (14 days for employees over 50), after which payments are made through Social Insurance. The rates applicable vary: although they are at 100% for most reasons, they reduce to 70-80% for illness or accidents.
With a low-cost and highly-skilled workforce, along with links to Europe and clearly defined tax regulations, Poland can be a great place to do business. But to make sure you’re compliant with all requirements right from the start, it’s recommended to deploy a global payroll partner who can deliver local expertise, and integrate your new Polish operation into your wider international payroll.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.