Submit An Inquiry

Global Payroll Resources

Understanding Payroll in Poland: What Global Companies Need to Know About Polish Payroll

Feb 21, 2017 

Dzień dobry Polska! Poland has a dynamic business environment and a well-educated workforce – providing plenty of justification for any global company to be there. As the largest economy in Central Europe, and the sixth largest in the European Union (EU), Poland has experienced slowing growth amid an uncertain political landscape and shifting monetary policies, but indicators suggest its growth is on the upswing.

To operate payroll is Poland, organizations need to be mindful of the country’s unique compliance guidelines, tax requirements, and reporting constraints. Read on for a primer on navigating Poland’s role in your global payroll strategy.

Tax Considerations

The payroll function is usually viewed as an accounting activity, and for this reason payroll is often located within the Finance function. All employers regardless of size who have a physical presence in Poland must operate withholding of tax and social insurance from salary. With the sudden creation of a market economy after almost 50 years of Communism it was necessary to design systems that would be easy to operate and transparent to oversee.

Personal Income Tax (PIT) is administered by the Urzad Skarbowy (Tax Office) and requires employers to deduct tax at 18% and on incomes over 85,528 Zloty (about $21,000) at 32%. Pay is calculated using a simple cumulative system which front loads the 18% tax rate into the first months of the year rather than evenly spreading it throughout the year (the fiscal year matches the calendar year). This means that only one rate of tax is applied to a salary payment, making the tax deduction easier to explain to employees.

Example
Marek has taxable income of PLN 45,000 per month. In January and February tax at a flat 18% (PLN 8,100)is deducted from salary. In March the cumulative pay for the year exceeds PLN 85,528 and therefore tax at a flat 32% (PLN 14,400) is deducted. The following January cumulative pay reverts to zero and 18% will be used until the higher rate threshold has been reached.

The system works well because Poles are required to submit an annual tax return. Although the system will provide a fluctuating net pay for those who reach the higher tax rate bracket, it must be remembered that the majority of Poles are not troubled by this feature. Any personal deductions from income are all handled via the tax return, so the inevitable over and under payments can be dealt with at this time. The system also ensures that individual taxpayers have to engage with the tax system and take personal responsibility that they have paid the correct tax.

Poland also uses a simple flat rate personal tax relief which is operated as a credit deducted from the calculated tax amount. The credit is currently set at PLN46.33 (about £10) per month. With personal allowances set at one figure for all, and with the taxpayer being responsible for claiming anything over and above this amount via the tax return there is no regular traffic between employer and tax office making PIT easy to administer. However access to this personal allowance has changed from 2017.

Once annual cumulative income exceeds PLN 85,528 no further grant of the monthly tax credit is given through the payroll calculation. Those whose taxable annual income exceeds PLN 127,000 will have to repay any tax credits awarded in the months prior to crossing the threshold, but any person whose income sits between PLN 85,528 and PLN 127,000 will retain the credit awarded through payroll. Our example would clearly exceed the annual threshold of PLN 127,000, and in this case Marek can formally ask his employer to stop awarding the credit by asking to withdraw his initial claim made on form PIT-2. As this restriction on access to the tax credit is new for 2017, expect queries when higher paid employees find out at tax return time they have lost entitlement to it, and owe tax as a result of the payroll calculation awarding the credit through the correct operation of PIT.

Click Here

Benefits Considerations

Benefits In Kind must be valorised and added to gross pay as a notional amount at the time the benefit is provided. However the valuation of benefits in kind for payrolling purposes can sometimes be a grey area in Polish law, with no clear steer as to how to value certain items. The accepted practice is to use the price that the employer has paid for the benefit, but this could be significantly different from the more usual global practice of considering fair market value. For example, a company buys a picture from an up and coming artist for PLN 1,000 and hangs it in the lobby of head office. After six years they decide to give the lobby a refurbishment, and gift the picture to a senior executive. But the artist has now become established and the market value of the picture is now PLN 10,000. Standard practice would require the gift of the picture to be valued at just PLN 1,000. It is recommended that where there is a significant difference between the price paid and fair market value, companies write to the Tax Office explaining how they propose to value the item – if no reply is received within 30 days the company can assume that their proposed use of price paid for the item is accepted. 

Company cars are now valued using a standard valuation of PLN 400 per month. But the provision of fuel for private use (which is not a common practice in Poland) is ambiguous. The accepted practice is for the driver of the car to keep a detailed journey log and total each month the number of kilometres travelled in private mileage. The value of the benefit is then calculated using the mileage amount that may be paid out tax free when an employee uses their own vehicle on company business (currently PLN 0.8358/KM). Thus an employee who travelled 585 private kilometres in a month would have a value of PLN 488.94 assessed as the taxable benefit in that month. No doubt as the economy grows and as more employees start to be offered benefits such as a car the tax office will become more interested in the mechanics of how exactly to value the benefit.

Date

Poland's Public Holiday Schedule

 January 1st  New Year's Day
 January 6th  Epiphany
 A Sunday in April  Easter Sunday
 Monday after Easter Sunday  Easter Monday
 May 1st  Labor Day
 May 3rd  Constitution Day
 50 Days after Easter  Pentecost Sunday
 9th Thursday after Easter  Corpus Christi
 August 15th  Assumption Day
 November 1st  All Saints Day
 November 11th  Independence Day
 December 25th  Christmas Day
 December 26th  St. Stephen's Day

Calculation & Reporting Considerations

While the tax system does not require a monthly transfer of data, there is an annual return of data to be performed. The PIT-11 form must be issued for all employees as a two part document, with one copy being sent to the tax office and the other given to the employee. In a throwback to the bureaucratic procedures loved in communist times, the form requires a physical stamp and signature for each copy – a tiresome job for any substantial payroll. Employees with simple tax affairs who only have one job may request the issue of the alternative PIT-40. This document then takes the place of the employee’s tax return and saves the individual from having to submit their own declaration.

There are a number of steps that must be performed to calculate tax, which reflect certain deductions from income that the employer must make. The standard social insurance contribution must be deducted, along with a standard allowance awarded to reflect the cost of travelling to work. The steps to calculating tax are:

  1. Calculate gross pay using cash and BIK
  2. Subtract the standard social insurance contribution
  3. Subtract the travel deduction (PLN 139.06)
  4. Compare taxable pay for the year to date with the higher rate tax threshold to decide whether to deduct 18% or 32%
  5. From the tax calculated figure deduct the standard personal tax relief of PLN 46.33 unless cumulative taxable income exceeds PLN 85,528
  6. Then deduct the allowable part of the healthcare portion of social insurance
  7. Round the remaining balance to the nearest Zloty 

There is no formal monthly return of income to make to the tax office, and no need to pass pay details from one employer to the next when an individual takes up a new job. Details on Polish tax can be found at www.pit.pl 

This informality does not extend to social security (known as ZUS). The Polish social security system had to replace the cradle to grave entitlements awarded under communism and therefore had to strike a careful balance between the expectations of the population and affordability. A traditional insurance style model was chosen, with different levels of contribution set to provide coverage for various insured lifestyle events. ZUS currently requires separate contributions to be calculated to cover retirement, disability, sickness, work accidents, unemployment and employer bankruptcy.

Each contribution type must be calculated and recorded separately and the total sums deducted split between three distinct collection accounts run by ZUS in order to ensure that the necessary insurance contributions are credited to the correct part of the records. An additional contribution is also calculated in respect of healthcare to be provided by the state system. In order to receive treatment from the Polish state medical service an employee must produce evidence that they have paid the requisite contribution – today this is done electronically via the eWus system. The table below summarises the deductions due:

Contribution

Employee %

Employer %

Retirement (Emerytalna)

9.76

9.76

Disability (Rentowa)

1.5

6.5

Sickness (Chorobowa)

2.45

-

Accidents (Wypadkowa)

-

067 – 3.33

Labour Fund (Fundsz Pracy)

-

2.45

Bankruptcy Fund (FGSP)

-

0.1

Health contribution

9

 

Registration Considerations

Although the taxation system was designed to ensure the minimum contact between employer and tax office, this hands off approach is not repeated with ZUS. All employers are required to make comprehensive returns of monthly pay data to ZUS using free software known as Płatnik, which can be downloaded from the internet. The return must provide a detailed breakdown for each employee of the type of insurance contribution, together with all other notifiable data such as sickness and maternity leave and address changes.

 In addition to the monthly data feed, all employers must also use Płatnik to register new starters within seven days of commencement of employment and de-register leavers within seven days of termination. The Polish benefits system relies on the prompt submission of data in order to function. Płatnik records must be kept for up to fifty years, and in the event of an employer changing payroll systems or supplies the old Płatnik records must be passed from old to new system.

As well as calculating PIT and ZUS, the employer may also be liable for a further charge known as PFRON. This is levied once the employer has at least 25 full time employees, and is designed to encourage employers to hire from the disabled community. It will be applied if the employer fails to hire at least 6% disabled staff and is calculated on a sliding scale dependent upon how many disabled staff have been hired. The bill can also be reduced by buying goods and services from companies set up to provide employment for disabled people, but this reduction has recently been restricted to a maximum of 50% of the initial charge.

Compensation Considerations

One notable change in 2017 is the introduction of a minimum wage level for those hired under a civil contract or specific task contract. This style of contract is not deemed to be an employment contract, and those engaged under it are not entitled to the many protections of the Polish labour law. Specific task contracts are used to produce a tangible outcome as a result of the work – for example an artist commissioned to produce a painting. These contracts are free of ZUS contributions and are taxed using a flat 18% rate. Civil contracts are used where the worker has been hired on a casual basis, with no hours of work specified. The worker has been hired under subcontracting arrangements and has no direct supervision – an example would be an office cleaner who works after everyone has gone home. A minimum wage of PLN 13 per hour has been introduced for these workers from January 2017.

Finally the table below provides an at a glance summary of key Polish payroll facts for 2017:

Item

Value

Monthly minimum wage

PLN 2,000 (or PLN 11.90/hour)

Minimum wage for civil contracts

PLN 13/hour

Basic rate of tax

18%

Higher rate of tax

32%

Higher tax rate threshold

PLN 85,528

Tax free per diem for incidental expenses for coffee/lunch/overnight stay

PLN 6/30/45

Standard monthly travel deduction for PIT

PLN 111.25

Higher monthly travel deduction for PIT

PLN 139.06

Personal monthly tax credit

PLN 46.33

Amount of healthcare contribution treated as tax deductible

7.75%

Penalty charged for late payment of PIT

8%

ZUS annual earnings ceiling for assessing contributions

PLN 127,890

Maximum employer contribution per employee to company social benefit fund

PLN 1,093

Monthly protected net earnings where garnishment or earnings issued

PLN 1,459.94

 

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.


Recent Articles

What to Expect in Global Payroll in 2019

This has been a significant year for global payroll and HR teams, with important technology developments, fundamental

5 Essentials for the Future of Payroll Shared Service Centers

Shared service centers (SSCs) have been in existence for many years, implemented primarily to reduce business’ costs.

Country Payroll Spotlight: 7 Key Facts about Payroll in Spain

As part of our continuing effort to help payroll professionals everywhere address the complexity of global payroll,

6 Keys to a Successful Global Payroll Implementation

Implementing a new global payroll solution can be a daunting prospect. Whether it’s the first global solution for your

HCM & Payroll Integration: A Look at CloudPay Connect 2.0

As organizations of all sizes continue to re-evaluate and address legacy HR and payroll systems and processes en route


About CloudPay

 
next generation payroll analytics

Next Generation Global Payroll Analytics: Your journey to building process transparency and making payroll a catalyst for improved business performance.

global payroll implementation

Global Payroll Implementation: A comprehensive guide to building a business case, selecting a solution and successfully deploying global payroll.

building a business case for global payroll

Building a Business Case for a Global Payroll Solution: Learn how to build a benefits-driven business case for a change in global payroll.

Unlock the
Possibility in
Your Payroll

Whether you manage payroll in five countries or 50, you need a global solution that ensures compliance beyond borders and insights that will move your company forward.

Contact Us Today
SIGN UP FOR OUR NEWSLETTER