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3. How Does Payroll Work in Poland?

How Does Payroll Work in Poland?

The payroll is a document that explains the origin of each pay component and takes into account all applicable contributions paid by the employer and the employee. The payroll confirms the settlement of salaries of employees employed by a given enterprise together with due contributions to the Social Insurance Institution and advance payments for income tax. Pay documents like payroll determine salary amounts. Under the Labor Code, the main document defining employer and employee rights and duties, payment of wages cannot be waived or given to someone else. Employers running their business in Poland must pay salaries on time and cannot pass this duty to others. The payroll calculates the salary amount.

Wages in Poland should be paid at least every 30 days. According to Article 85, Section 1 of the Polish Labor Code, “Payment of wages for work is made at least once a month, on a fixed, predetermined date.” The Labor Code defines the deadline as immediately after determining the wages due for the current month, or by the 10th of the next month at the latest.

The payment methods available for wages in Poland are bank transfer or cash. Currently, the default payment method for wages is direct bank transfer. At the employee’s request, the employer is able to pay the salary in cash. Another option few employees know about is requesting part payment to one account and part to another. This is useful when having multiple accounts, like spouses with a joint and personal account.

In addition to the employee’s net salary amount, the payroll includes all deductions from gross pay, like social security contributions, health insurance, advance income tax and other voluntary deductions. It also includes the costs to the employer for employee compensation. Along with gross pay, this includes the employer’s social security contributions.

How to start creating a payroll when establishing a company in Poland? When starting a new business or hiring the first employee, entrepreneurs wonder where to begin with payroll. Although it is possible to create the document manually, payroll software is highly recommended.

What is payroll tax in Poland?

Payroll tax in Poland is tax that is paid on the salary of employees. The amount of payroll tax depends on the employee’s tax bracket. Employees in the first bracket with an annual salary under 120,000 Polish Złoty, pay 12% tax per year. Employees earning more than 120,000 Polish Złoty a year, pay 32% tax on every Polish Złoty they earned above this amount.

Each year, the taxpayer uses the tax-free amount, currently 30,000 Polish Złoty. This means only income above 30,001 Polish Złoty per year is taxed. Often employees use the tax-free amount monthly, taking 1/12 off the tax advance from their salary each month. To do this, they submit a PIT-2 to the employer, reducing the tax advance by 1/12 of the tax reduction amount, increasing their monthly salary by 300 Polish Złoty. Those preferring to use the exemption in the annual settlement do not reduce the monthly tax advance, but receive a 3,600 Polish Złoty refund from the Tax Office.

How much is payroll tax in Poland?

The payroll tax in Poland is 12% or 32% depending on the income threshold. Along with gross salary, the payroll tax calculation uses social security contributions and tax deductible costs.

How to calculate the Polish payroll components?

To calculate payroll components in Poland you need to perform 12 steps.

1. Calculate Polish pension insurance.
2. Determine the amount of disability insurance.
3. Count sickness insurance.
4. Calculate total social security contributions.
5. Subtract the amount of tax deductible costs.
6. Estimate the taxable income.
7. Calculate the payroll tax.
8. Compute the advance income tax payable to the Tax Office.
9. Extract the due health insurance quote.
10. Calculate the total cost of contributions paid by the employer.
11. Quantify the salary to be paid to the employee.
12. Calculate the total cost of the employer.

Calculating payroll components for the minimum wage that is 3,600 Polish Złoty gross is done in the example below.

1. Calculate Polish pension insurance, which is the major part of social security contributions in Poland, by multiplying the wage gross with 9.76%.

Calculate pension insurance in Poland for the minimum wage by multiplying 3,600 PLN with 9.76%, which results in 351.36 Polish Złoty.

2. Determine the amount of disability insurance by calculating 1.5% from the gross payment amount.

Determine the amount of disability insurance in Poland for the minimum wage by multiplying 3,600 PLN with 1.5%, which results in 54 Polish Złoty.

3. Count mandatory sickness insurance by multiplying your employee’s wage gross by 2.45%.

Count the quote of sickness insurance in Poland for the minimum wage by multiplying 3,600 PLN with 2.45%, which results in 88.20 Polish Złoty.

4. Calculating total social security contributions for employees in Poland is done by adding 3 elements, namely Polish pension insurance, disability insurance and mandatory sickness insurance.

Calculate total social security contributions for the minimum wage of 3,600 PLN by adding 351.35 PLN for pension insurance, 54 Polish Złoty for disability insurance, and 88.20 PLN for sickness insurance, which makes 493.56 Polish Złoty in total.

5. Subtract the amount of tax deductible costs in Poland that are set as 250 PLN for persons living in the town where the workplace is located, or 300 PLN for persons living outside the town of the workplace. To calculate the amount of tax deductible costs for the example, we will assume that the employee works in the same city as the company.

Subtract the amount of tax deductible costs, 250 PLN, from the minimum wage of 3,600 PLN.

6. Estimate the taxable income for Polish employees by deducting total social security contributions and tax deductible costs from the gross income.

Estimate the taxable income for the minimum wage of 3,600 PLN by deducting 493.56 PLN for social security contributions and 250 PLN for tax deductible cost, which makes 2856.44 Polish Złoty. Then, round the quote of the taxable income to the full amount, which makes 2,856 Polish Złoty.

7. Calculate the payroll tax in Poland by multiplying the taxable income with 12%.

Calculate payroll tax in Poland for the minimum wage by multiplying the taxable income of 2856.44 PLN with 12%, which results in 342.72 Polish Złoty.

8. Compute the advance income tax payable to the Tax Office. For the calculation we will assume that an employee chooses to deduct 1/12 of the 3,600 tax-reducing amount proportionally each month, that makes 300 Polish Złotych.

Compute the advance income tax payable to the Tax Office each month for the minimum wage by subtracting 300 PLN of monthly tax-reducing amount from 342.72 PLN of the calculated payroll tax, which results in 43 Polish Złoty.

9. Extract the health insurance due in Poland by subtracting social security contributions from the gross salary, and computing 9% of the resulting quote.

Extract the health insurance for the minimum wage of 3,600 PLN by subtracting total social security contributions of 493.56 PLN, that results in 3,106.44 PLN. Then, multiply the resulting quote by 9% for the final health insurance due of 279.58 Polish Złoty.

10. Calculate the total cost of contributions paid by the employer by summing up 4 components, a pension, disability, and accident insurances to a contribution for Labor and Guaranteed Employee Benefits Fund.

Calculate the cost of contributions paid by the employer for an employee earning the minimum wage of 3,600 PLN by adding 351.36 PLN, which results from calculation of 9.76% of pension insurance; 234.00 which results from calculation of 6.5% of disability insurance; 88.20 PLN of accident insurance determined on the basis of PKD, Polish Business Classification, for young companies, or by ZUS, Social Insurance Institution for companies running for over one year; 3.60 PLN of Guaranteed Employee Benefits Fund that is 0.10% of the minimum wage. The total cost of contributions paid by the employer is 730.08 Polish Złoty.

11. Quantify the salary to be paid to the employee by subtracting total social security contributions, an advance income tax, and health insurance contributions from the gross salary.

Quantify the salary to be paid to the employee earning 3,600 PLN gross by subtracting 493.56 PLN of total social security contributions, 43 of an advance income tax, 279.58 PLN of health insurance contributions from 3,600 PLN. The result of the computation of the salary to be paid is 2783.86 Polish Złoty.

12. To calculate the total cost of the employer, add the total cost of contributions paid by the employer to the gross salary of the employee.

Calculate the total cost of the employer by adding the minimum wage of 3,600 PLN to the total cost to the employer that consists of a pension, disability, and accident insurances and a contribution for Labor and Guaranteed Employee Benefits Fund calculated as 730.08, that results in quote of total costs of the employer of 4,330.08 Polish Złoty.

What data is needed to calculate the payroll tax in Poland?

To calculate the payroll tax in Poland you need to know the gross salary quote, the value of social security contributions, and the amount of tax deductible costs.

How often should payroll be paid in Poland?

Payroll in Poland must be paid at least monthly, but can be paid more often. Payment frequency is specified in a company’s work or remuneration regulations. It should be a fixed, predetermined date like “the 10th of the month.” The correct formula is “salary is paid on the 10th of the month” but not “salary is paid before the 8th of the month”. The day must be predetermined. Paying early is allowed, but late pay violates employee rights to timely wages.

At employee request, the employer is allowed to pay once early per month but is not obligated to accept the request.

New companies in Poland should establish work regulations, pay regulations, or at least an announcement with exact pay rules and dates.

How to set up a payroll for a new company in Poland?

To set up a payroll for a new company in Poland, use external accounting services. While registering a company in Poland, choose external accountants, since it is cheaper than employing a specialist. Accounting fees range from a few hundred to two thousand Polish Złoty, while minimum wage payroll employment costs over 4,000 Polish Złoty.

Self-preparing payroll with a program seems more budget-friendly but requires learning and annual software subscription that cost 1,000 Polish Złoty per year for _Gratyfikant _by INSERT. Gratyfikant is one of the most popular choices in Poland, it handles 60 employees maximum. A non-professional cannot verify calculated accuracy. Inspections revealing errors result in penalties regardless of payroll knowledge level.

For new, small companies, external accounting is definitely more cost-effective and often includes accounting services.

However, before choosing payroll options in Poland, the following requirements for running payroll must be met.

What are the requirements to run a payroll in Poland?

In order to run the payroll in Poland, you must run a registered business, and meet all 4 of the following requirements.

1. Obtain NIP, which is a federal tax identification number in Poland.
2. Obtain REGON, which is an employer identification number in Poland,
3. Choose tax form - PIT for a sole proprietorship, CIT for a company.
4. At least one employed staff under employment contract.

Each employee must be registered in ZUS (Social Insurance Institution), while the company must be entered in the register of the Social Insurance Institution as a payer of social and health insurance contributions.

In case of employing more employees and creating a common payroll for them, it is worth ensuring that the Data Protection Officer develops procedures to protect this data.

Can foreign companies payroll in Poland? Yes, foreign companies can payroll in Poland. In order to calculate and pay salaries in accordance with Polish law, it is necessary to register your business in Poland. It is also possible without setting up a business in Poland, as you can establish a Polish branch or representative office, or provide cross-border services.

Is payroll mandatory in Poland?

No, payroll is not mandatory in Poland. No laws require employers to create documents like payroll. However, per Article 85, Section 5 of Labor Code, employees are able to request documents showing their wage calculations. Without monthly payroll companies will struggle to provide exact calculations if requested by staff or inspections. This is why most of the companies in Poland choose to prepare it.