As of 01 January 2021, employers are obliged to register all contracts for specific work (umowa o dzieło) in the Social Insurance Institution (ZUS). This seemingly innocuous inconvenience may in practice lead to a significant rise in the costs of labour. Why?
SUMMARY:
- What are the potential consequences of the obligation to register all contracts for specific work in ZUS, introduced as of 01 January 2021, with respect to social insurance contributions on such contracts.
- How will the introduction of changes in social security in the case of several concurrent contracts of mandate (umowa zlecenia) impact on both clients’ and contractors’ pockets.
Deputy Minister of Family, Labour and Social Policy Stanisław Szwed offered some reassurance in mid-September regarding the obligation to pay full social insurance contributions on contracts of mandate, saying that “no decisions have been made so far, and the government is in no rush to introduce the new regulations in just a few months”. This statement from the Ministry’s representative was provoked by a publication in the Rzeczpospolita daily, which quoted Szwed as saying: “We are working on such changes (…). We would like to see them in effect as soon as possible”. At the time, the subject ended up on the back burner, overshadowed by frictions in the United Right coalition camp. When, after the most recent cabinet reshuffle, the family department fell into the hands of Jarosław Gowin – hitherto openly critical of the idea of imposing social insurance contributions on contracts of mandate – it seemed that employers and contractors could (at least for the time being) breathe a sigh of relief. Unfortunately, the media now report that the government is again analysing different variants and holding talks on making contracts of mandate subject to full social insurance contributions. This is taking place despite the second wave of the pandemic and the dramatic economic situation afflicting particularly those businesses where contracts of mandate are prevalent – generally in the hospitality sector.
Social security obligations with several concurrent contracts of mandate
Apart from the above-mentioned works on imposing full social security contributions on contracts of mandate, the government is working on amending provisions regulating concurrent contracts subject to social security – which may soon be introduced into Parliament. Let us briefly recount what is at stake.
The provisions apply to contractors who are subject to mandatory social insurance under several concurrent contracts (for instance, contracts of mandate). Under the current legislation, all of these contracts are subject to mandatory social insurance contributions (if the contractor works under several contracts of mandate) as long as the total gross income in the given month from all the contracts subject to social insurance does not exceed statutory minimum pay, i.e. PLN 2600 in 2020.
According to the draft provisions, in the event of several concurrent contracts, the contractor will have to pay social insurance contributions on further contracts, irrespective of the total amount of remuneration taken into consideration in the calculation of contributions.
Obligation to register contracts for specific work
When analysing the prospects for the prompt introduction of changes in social insurance contributions on contracts of mandate and changes in social insurance on several concurrent contracts, it is worth noting the seemingly innocuous provisions which have already been enacted and will become effective as of 01 January 2021. From that day on, undertakings will be obliged to register contracts for specific work in ZUS – within 7 days of signing the contract. This obligation will apply to contracts for specific work signed with own employees, if the work is performed for a different entity than the employer, as well as contracts for specific work signed with persons who are not bound by a contract of employment with the given undertaking. What changes does this entail?
It is common knowledge that prior to now ZUS did not have aggregate information on the scale of contracts for specific work. The new provisions will make it easier for officials to select undertakings to be inspected in this regard – and consequently, potentially “reclassify” contracts for specific work into contracts of mandate by way of an administrative decision. Contribution remitters will then of course be entitled to an appeal against such a decision, but will have to take into consideration lengthy court proceedings going on for many years and the risk of loss (these days, courts often side with the social insurance institution in such cases).
Where there is a will, there is a way
In light of the above, businesses would do well to make time at the earliest opportunity for an audit, covering contracts for specific work at the least, and implement relevant preventive measures.
Please note that the discussions on amending the provisions governing social insurance contributions on civil-law contracts have been going on in Poland for a number of years. Yet, in the context of increasingly frequent signals from the Ministry of Family, Labour and Social Policy, it is a good idea to keep abreast of any news on this subject appearing in the public domain. At Grant Thornton, we have our ear to the ground and – as ever – we remain at your disposal for services like HR & Payroll and Finance & Accounting Outsourcing.
AUTHOR: Ewa Gulczyńska, HR & Payroll Specialist
