2023 has seen a continuation of the trends observed in the labor market for some time, primarily shortages of employees and growing wage pressure. Persistently high inflation, rising energy prices and unfavorable macroeconomic conditions make it difficult to build an attractive salary budget. Are there ways to stay efficient in personnel cost management? Yes, but this effectiveness must be sought on many levels.
Inflation and wage increase plans for 2023
These initiatives were not the only measures aimed at curbing high inflation. Great hopes were also pinned on the biggest tax reform in recent years, i.e. the Polish Deal. Last year's amendment to tax regulations was supposed to be an important economic change. As part of it, a number of significant changes in taxes were introduced, such as: increasing the tax-free amount, increasing the tax threshold, changing the rules for deducting health insurance contributions (this change is particularly unfavorable for people with higher incomes), and a relief for the middle class, which was then abolished in 2022. Changes in tax legislation, prepared and processed at a rapid pace, have in practice not proved to be positive for all taxpayers. They were mainly high earners who lost out on the new regulations.
When and how to increase the effectiveness of the remuneration structure?
Every employer seeking cost-effectiveness should analyze the pay structure and existing forms of employment in their company. It is worth remembering that a well-designed pay system is one that considers not only the company's objectives, but also its financial capacity. This system should be "tailor-made", i.e. well suited to the organizational culture of the company, and give the company a competitive edge in the market. Employee expectations should be taken into account even more today. Traditional patterns of establishing employment relationships in many cases are no longer attractive.
In addition to the traditional employment contract, companies are increasingly using other tools and new solutions related to the provision of services, e.g. a business-to-business (B2B) contract. Companies, subject to certain conditions, may cooperate with persons, inter alia, based on management or civil law contracts (commission or specific work contracts). It is therefore worth considering whether, due to the nature of the tasks performed, it is possible and beneficial to change the form of cooperation and pay. This may have a real impact on the amount of remuneration and costs borne by the companies. Both the very structure of forms of cooperation and its consequences in terms of income tax and social security contributions should be subject to verification. For example, if a company employs IT specialists, graphic designers, engineers, innovators, it will be reasonable to determine whether and on what terms 50% tax-deductible costs can be applied to their remuneration. The implementation of such a solution directly translates into an increase in the remuneration of concerned employees without increasing payroll costs on the part of the company.
Cooperation on a B2B basis gives the advantage of obtaining significant benefits in terms of income tax and social security contributions. Non-employment forms of cooperation- if supported by a solid business justification - convince numerous companies not only because of the potential financial benefits, but also, or perhaps, above all, because they are a response to the needs of (potential) (co)workers. Candidates are increasingly seeking solutions that give more freedom of work compared to full-time employment. Carrying out duties anywhere and anytime is becoming more and more important for the job seekers. As practice shows, a B2B contract can be a solution for persons who appreciate great flexibility and independence. This is a cooperation model recommended especially to responsible, well organised and motivated persons, as well as independent professionals who do not require constant supervision in their activities.
It is worth noting that savings can be achieved not only in the tax area, but also in the area of social security (ZUS) or PFRON (State Fund for Rehabilitation of Disabled People) contributions. According to the study, the statistics of the Social Insurance Institution (ZUS) and the frequent practice of experienced EY experts, many Polish enterprises unknowingly overpay their liabilities towards ZUS and PFRON. Inefficiencies can also be verified in this area and their proper management will allow for the release of additional funds.
More about constructing a compensation model that allows you to reduce the employer’s costs and at the same time increase the employee’s salary by up to several thousand zlotys a year can be found in the article "What to do when personnel costs in the company continue to grow?" (article available in Polish). The analysis of the pay scale should also account for the possibility of a wider use of tax reliefs and preferences, especially those introduced under the Polish Deal program. This will allow companies to build a safe tax cushion. More on this topic in the article "The new Polish Deal and the wage structure" (article available in Polish).
Remuneration of authors as an important aspect of the remuneration structure
The use of copyright tax-deductible costs in the amount of 50% of generated revenues may enhance the attractiveness of remuneration. This preference reduces the amount of advance payment for income tax, which increases the amount of the employee's net remuneration. This form of taxation can be used by authors/copyright holders who perform work under an employment contract.
In general, preferential tax-deductible costs will apply to creative activities in the field of architecture, construction engineering, urban planning, audio and audiovisual works, computer programs, computer games, journalistic activities and research and development activities. Importantly, in a tax year, the total tax-deductible costs may not exceed the amount of the upper limit of the first tax threshold i.e. PLN 120 thousand.
The amendment to the Polish Deal, effective from 1 July 2022, introduced many changes in the field of personal income tax. The most important of them was the reduction of the lower PIT rate from 17 to 12% and the liquidation of the relief for the middle class. Both of these modifications also affected the amount of author’s net remuneration. The advantages and requirements of introducing a compensation model based on copyright tax-deductible costs are presented in the article entitled "The authors benefited from the amendment to the Polish Deal" (article available in Polish).
Accounting for 50% of copyright tax-deductible costs in the wage structure should each time involve an analysis of the scope of duties performed by employees, as well as the preparation of an appropriate fee valuation system and records of time devoted to creative activity. Employers should also remember to adjust contracts and applicable company regulations in this regard.
When looking for savings in the area of salary scales, it is worth reviewing the remuneration of board members and senior management, in particular in terms of competitiveness and market practice (benchmarking). In addition, it may turn out that a tailor-made remuneration model will reduce the costs of the employer and at the same time increase the employee's salary by up to several dozen thousand zlotys per year. More on this topic can be found in the article entitled "Time to review executive management compensation structures (case study)" (article available in Polish).
The payment of performance-based bonus to executives is subject to compliance with social security regulations. Before the Polish Deal has come into effect, the remuneration of management board members was not subject to payment of sickness (health) insurance contributions. From 2022, the obligation to pay sickness insurance contributions applies to members of the management board who perform their functions based on the act of appointment. In this area, the greatest difficulty for companies is to determine whether the bonus due for the period before the entry into force of Polish Deal is subject to the obligation to collect health insurance contributions or is exempt from these contributions. Current decisions of competent pensions authorities indicate that persons performing their functions under the act of appointment before the entry into force of the Polish Deal regulations do not have to include in the basis of health insurance calculation the remuneration received after the entry into force of the new regulations (this is confirmed, inter alia, by the decision of the Social Insurance Institution (ZUS) of 31 March 2022 with file no. DI/100000/43/328/2022). When shaping the remuneration policy, companies should therefore carefully analyze all salary elements. This is particularly important for the correct taxation and calculation of health (sickness) insurance contributions on individual components of remuneration.