Legal Eye: Death and taxes

Unfortunately for business in Poland, the taxes that maintain Poland's healthcare and pension system are high, and the saying is accurate - it's hard to avoid them.

High five
I admit it - I'm no genius at finance. Thus, with the humbleness of a penitent, I went straight to our bookkeeper for a quick explanation of what makes up those taxes we pay by the 15th day of every month. A half-hour and several diagrams later, the eureka moment occurred (and this is from a person who is able to parse through convoluted legal writing in a single bound). Social insurance taxes consist of five different payments: retirement, disability, long-term illness, accident, and healthcare. In addition, employers must also make contributions to the Work Fund and Guaranteed Employees Benefits Fund.

Adding up the minimum current percentages of all these components, I counted a potential contribution of 47.17 percent of an employee's salary. I deliberately write "potential" because each of these components uses a specific "wage base" for calculation, some contributions are unlimited while others have ceilings, the amount of the accident fund depends on the employer's business, and some amounts change on a quarterly basis.

Funds for all
Albeit a small component of the overall cost, employers pay 2.55 percent of their employees' wages to two different funds. The smaller of the two (a mere 0.1 percent) is the Guaranteed Employees Benefits Fund. This serves to cover employees' wages, severance payments, and social-insurance benefits and contributions when their employer becomes insolvent.

The Work Fund was created in response to the goal of reducing unemployment in Poland as part of Poland's overall human resources development plans upon EU accession. It finances job centers and activities designed to create jobs and provide job skills, counseling and assistance for the unemployed.

Beyond the percentages is the question of who pays. The two largest components, retirement and disability (32.52 percent), are paid half each by employers and employees. Employees pay the long-term illness and healthcare component (11.2 percent), but employers pick up the rest.

Employee versus contractor
Now comes the fun part. Is there anything you can do to reduce social-insurance costs? Unfortunately, the answer is not much. Social-insurance taxes do not differentiate between the size of an employer or the number of employees (except perhaps in calculating the accident contribution).

One popular tool is hiring people on the basis of civil-law agreements, whether contractor agreements (umowa zlecenia) or specific task agreements (umowa o dzieło). If done right, an employer pays no social-insurance taxes, and a worker on a contractor agreement only pays the healthcare component, but pays nothing on a specific task agreement.

Some significant limitations exist. First, to qualify, your worker must be either employed elsewhere or otherwise have social-insurance taxes covered by another source. Typically, this latter exception applies to students and unemployed persons. Second, just naming an agreement a "civil-law agreement" is not enough to make it so. Civil-law agreements that "look and feel" like employment contracts may be re-classified as such, with unpleasant consequences for the employer.

Judith Gliniecki is the managing partner of Rymar and Partners