Planned abolishing the top limit for the social contributions base in Poland

The planned changes in Polish Social Security Act are going to abolish top limits on social security contributions (pension and long-disability insurance). It will have a negative impact on employee salaries and labour costs incur by an employer. The draft regulations have been already voted in the parliament, however the changes have been referred to the Constitutional Court before the new act was signed by President. The planned effective date of the act is 1st January, 2019, however keeping this date is doubtful as the case will not be recognized by the court rapidly.

 

The current annual amount of the pension and the long-disability insurance (hereinafter SS contributions) that amounts to 19,52% (pension insurance payable at 9,76% both by employer and employee) and 8% (long-disability insurance payable at 8%, 6,5% by employer and 1,5% by employee). The SS contribution base shall not exceed in a reporting year the amount corresponding to 30 times the projected average monthly remuneration (so-called thirty-fold limit) in the national economy. The social security law allows the Polish employers to stop charging monthly SS contributions after their income exceeds PLN 133 290,00 (2018). This benefits that after reaching this limit, an employee gets more net salary (which partly compensate the higher Personal Income Tax threshold), and an employer has lower labour costs.

 

However, if the regulation enters into force, the SS contributions will be calculated due on total income. In consequence of this labour costs of the employer increase, and the workers will earn less money.

 

Having the above in mind, entrepreneurs are wondering how they could prevent negative consequences both for themselves as well as for its employees. From the solutions employers are currently considering we can list as follows:

1. change of the relationship with the employee from the contract of employment or civil contract to the provision of services within sole-trader or single shareholder ltd company towards the current employer

2. increase remuneration as a compensation of the employee net loss

 

The employers must however, bear in mind that there is no a perfect solution. Considering the above examples, the first one is burden with risk that the shift of the relationship will be recognized by Polish authorities as an attempt of SS avoidance, which may result with court disputes, while the second solution may be treated only as a relief for employees, which increase the labour costs even more.

 

 

UPDATE November 15th, 2018

 

Yesterday (November 14th, 2018), the Constitutional court ruled that proceeding of amending the act on amending the social insurance act by Polish parliament was incompatible with the constitution, and therefore the law was declared unconstitutional, which means that in this case, the new law does not have legal effects.