Former Communist states in Eastern Europe are still recovering from their time “behind the Iron Curtain.” Poland, however, has grown economically at a faster rate than all other Eastern European countries. Rich in history and home to citizens with an amazing work ethic, Poland offers global businesses a respectable environment in which to expand. In this article we take a look at some considerations multinational companies should take into account when expanding into Poland from a payroll point of view.
Ease of Doing Business in Poland: An Overview
The cost of doing business in Poland is relatively low from a payroll perspective. Poland currency, the PLN, is worth .26 USD, and the average annual salary is 58,800 PLN, or $15,464. The country is a member of the European Union and is therefore subject to applicable trade agreements and economic regulations.
However, corporate tax, sales tax, and social security contributions quickly add up. These rates – 19%, 23%, and +-20.5% respectively – cut fairly deep into company profits.
United States employers expanding into Poland usually feel a bit surprised at the “old fashioned” processes that Polish employers/employees still embrace. This older, unchallenged way of life forces foreign employers to become more culturally aware, as well as become calibrated with Polish labor laws.
Recent Developments in Poland’s Payroll Laws
When it comes to Poland’s payroll and labor law, not much has changed since it shed the weight of economic downturn during of the Cold War. The income tax system is also many decades old.
That being said, long-needed changes have taken place recently regarding employee pension programs, employee information management/security, trade union law, and minimum wage.
Basic Facts about Payroll in Poland
Thankfully, there are no payroll taxes in Poland. Employers may pay their employees on any schedule upon which they agree (daily, weekly, every other week, monthly, quarterly, or annually).
While electronic payroll and tax filing exists, it is not as advanced as Poland’s non-Eastern Block peers in Europe. Many Polish employers still choose to pay their employees in cash. Employee income and social security taxes are withheld from each paycheck, regardless of frequency.
The most important cost consideration for employers in Poland is the nature of social security contributions. These contributions can range from 19.48-22.14% of an employee’s gross earnings.
After that, employers may come to payment frequency terms directly with their employees. It is legal in Poland to pay your employees daily, weekly, monthly, or even quarterly. Employers withhold an employee’s income and social security taxes from each paycheck, regardless of frequency.
Rates and Thresholds
Income taxes in Poland are a bit more straightforward than the United States. There exist only two tax brackets – 18% and 32% – with the watershed income set at 85,528 PLN.
Employees also pay social security taxes (which includes retirement, disability, and healthcare) at a flat rate of 13.26%. For more information, consult the tax chart below.
How Withholding Works
From each paycheck, the employer must deduct 18% in income taxes. Should any employees reach an annual salary threshold of 85,528 PLN, their employer is required to increase withheld income taxes to 32% of gross pay until the end of the year.
Employers also withhold 13.26% social security taxes, while also making social security contributions of their own as discussed above and below (tax chart).The Polish government requires employers to file monthly returns via their Platnik software. These monthly returns must be submitted by the 15th of the month.
Returns and Tax Credits
All employers in Poland must complete government forms PIT-4R (due at the end of January) and PIT-11 (due at the end of February). These forms are the United States’ equivalent of a W2 or 1099. And as frustrating as it may sound, employers must get physical, handwritten signatures (the Polish government does not recognize digital signatures) from every employee on both forms before they can be filed.
Employers distribute PIT-11 forms to their employees. Employees are required to pay any non-withheld taxes owed upon filing their taxes by the April 30 deadline. Any employee paid less than 127,000 PLN are allowed certain tax allowances. There also exist tax credits for employees with dependents.
Employee Stock/Share Plans
It is somewhat customary for employers to offer their employees a variety of equity and stock options. Interestingly, corporate perks (such as company cars) are also common.
As one would expect, late filings and/or tax payments are subject to fines and excessive interest rates. Tax fraud is a serious offense that often results in jail time.
Tax Rate Chart
|USD Comparison||Income Range||Income Tax Rate||Social Security Taxes**|
|$1 – 22,493||1 – 85,528 PLN||18%||13.26%|
*The 32% tax rate only applies to annual income above 85,528 PLN. For example, an employee that makes 125,000 PLN a year pays 18% on 85,528 PLN and 32% on the remaining 39,472. Further, an employer deducts these taxes only at the time of year that the employee exceeds 85,528 PLN. Polish employees’ net pay shrinks at the latter part of the year once they’ve reached the 32% tax bracket.
**Social security taxes fund retirement, disability, and healthcare benefits. Employers also contribute toward retirement and disability. Depending upon the industry, an employer may also be required to contribute toward accident insurance, a labor fund, and a bankruptcy fund. These employer contributions amount to 19.48-22.14% of an employee’s gross earnings.
Compensation and Benefits
There is a decent amount of leeway for employees that agree to work for their employer a large number of hours during a workweek. Polish labor law does set a minimum wage, as well as overtime and minimum paid leave.
Currently, Poland requires employers to pay their employees a minimum 2,250 PLN/month if they work full-time. Contracted employees (independent contractors) must be paid a minimum 14.70 PLN/hour.
Employees may negotiate with their employers for either premium overtime pay or days off instead of overtime pay. If an employee works nights, Sundays, or holidays, they are entitled to double pay.
For overtime merely beyond a regular 46-hour workweek, employees receive pay and a half.
Hours of Work
A normal workweek in Poland is 46 hours. Work days begin at 8am and end at 4pm. Naturally, many industries – healthcare, retail, hospitality, etc. – work on different business hours, but the 46-hour workweek remains a general standard.
Under normal circumstances, employees are off Sundays and holidays unless they are being paid overtime.
Holiday & Leave
In Poland, there are 13 national holidays to include Christmas, New Years, Independence Day, and Christian holidays.
Employees working for their employers 10 years or less are entitled to 20 paid vacation days each year. After an employee exceeds 10 years, they are permitted 26 days a year.
For medical leave, employees receive 80-100% of their regular pay depending upon their illness or injury. Maternity leave starts at 20 weeks and can become as long as 45 weeks depending upon birth complications or multiple children to one birth.
While there are a number of exceptions, all foreign employees working in Poland must obtain a work permit. Upon acquiring their work permit, they must complete a visa application and submit all necessary documentation for their employer to process.
For more information about how our Global Payroll Technology integrates with local payroll providers in Poland, contact us today