EMPLOYER ACTION CODE: MONITOR

Employer and employee social security contributions for retirement, death and disability benefits in Poland are currently calculated on pay capped at PLN 127,890 (~ USD 36,200) per annum, while contributions for sickness, workers compensation and unemployment benefits are due on full earnings.

Legislation approved by parliament in December will eliminate the earnings ceiling as of January 1, 2019. The bill was originally intended to take effect from 2018, but on encountering significant pushback from the business community, the effective date was delayed to 2019.

KEY DETAILS

The elimination of the ceiling will increase labor costs and the tax burden for the highest paid staff as outlined below:

Example: Employee earning PLN 175,000 per annum

Current social security pension contributions
Benefit program Employer contribution rate Employee contribution rate Annual earnings ceiling Annual employer contribution Annual employee contribution
Retirement 9.76% 9.76% PLN 127,890 PLN 12,482 PLN 12,482
Death and disability 6.50% 1.50% PLN 127,890 PLN 8,313 PLN 1,918
From 2019
Benefit program Employer contribution rate Employee contribution rate Annual earnings ceiling Annual employer contribution Annual employee contribution
Retirement 9.76% 9.76% None PLN 17,080 PLN 17,080
Death and disability 6.50% 1.50% None PLN 11,375 PLN 2,625

EMPLOYER IMPLICATIONS

It should be noted that while the change will reduce net take-home pay for individuals with earned income in excess of the ceiling, the change will have other effects.

  • It will increase social security retirement, death and disability benefits as follows:
    • For employees who remained in the old defined benefit state pension system (optional for those born between 1949 and 1968), the earnings-related part of the pension would go up as the current cap on covered earnings (250% of national average annual earnings) would be eliminated.
    • Benefits under the new (notional defined contributions) system would accumulate in accordance with the higher contributions.
  • Since social security contributions are tax deductible, the contribution increase will be offset somewhat by the reduction in the employee’s income tax base.
  • Health care is funded through employee premiums of 9% of earnings after social security contributions (7.75% of the same base is taken as a tax credit). As such, the higher social security contributions will result in a reduction in employee health care premiums.

Other pension news

Earlier this year, the government announced its intention to require that employees be automatically enrolled in new supplemental, defined contribution (DC) retirement vehicles, known as Employee Capital Plans (PPK – Pracownicze Plany Kapitalowe) and Individual Capital Plans (IPK – Indywidualne Plany Kapitalowe), with the aim to increase the overall pool of retirement savings. The mandate was to be rolled out in three phases: January 1, 2018; July 1, 2019; and January 1, 2020, depending on employer size. Employers already offering a PPE plan (an existing retirement plan) offering equivalent or greater benefits would be exempted from the mandate.

The project is still on the government’s agenda but has been postponed, with the first phase (for companies employing more than 250 employees) now projected to start on January 1, 2019, subject to the approval of parliament.