In force until the end of December 2021 where illegal employment is disclosed, the costs of public tribute for undisclosed sources of income shall be borne by both the employer and the employee. Introductory law ‘Polish Deal” It has radically changed these regulations. From 1 January 2022 all taxes and contributions shall be charged to the employer. This is designed to encourage whistleblowers to report black employment, and to discourage employers from doing so.
In the previous state of the law, the establishment of black employment or the disclosure of payments of part of the remuneration under the table did not exempt the natural person employed from the PIT clearing obligation.
Also in case of payment by the employer as a payer of late social security contributions and employee health insurance, he was entitled to claim the equivalent of the employee-funded contribution.
These circumstances led to a lack of motivation for the employee to assert his rights for irregularities in the way he was employed, as there was also a need to settle the backlog.
The new legislation on the fight against the black economy in employment appears to provide areas for abuse, which can effectively reduce the effectiveness of the solutions. They only concern the employment of workers, and only by economic operators
Amendment of provisions
To counter this phenomenon, according to the novel introduced Polish Deal, in the event of the dismissal of an employer's illegal employment, the income for each month of illegal employment will be attributed to the equivalent of the minimum wage for work under the minimum wage for work Act - on the date of the finding of illegal employment. This happened by adding to the revenue catalogue: point 20 of Article 14(2) the PIT Act and point 13 of Article 12(1) CIT Act (this is first, of a kind of “penal” income).
Moreover, this income will be attributed regardless of whether the unfair employer actually paid the illegally employed employee remuneration (and in what amount) or not - according to the newly added section 2j of Article 14 the PIT Act and section 3n of Article 12 CIT Act.
For an employee, income from illegal employment is exempt from the tax of the PIT in accordance with the new point 151 added to the exemption directory under Article 21(1) PIT Act. In addition, the employee's income is also the employer's income (according to Article 14(2)(21) the PIT Act and Article 12(1)(14) CIT Act – this is it second income).
Continued sharpening
In addition, the employer must face the following warnings:
exclusion from the costs of obtaining the remuneration paid for illegal employment (new points: 55c under Article 23(1) PIT Act and 57c under Article 16(1) CIT Act). This exemption also applies to the health contribution.
This is because general rules on the inclusion of salaries in tax costs do not separate these two concepts – in this area they should be treated together according to Article 22(6ba) PIT and Article 15(4g) CIT (other than social security contributions, which constitute a separate category referred to below);
exclusion from the employer's tax costs of social security contributions from remuneration for illegal employment despite being financed from its own funds as a contributor (Article 23(1)(55d) the PIT Act and Article 16(1)(57d) the CIT Act;
thus also, on the basis of Article 16(1e) Act on the social security system of an illegally employed worker will retain the full right to social security, although it will not participate in the financing of its insurance;
also in the case of health insurance contributions where illegal employment is identified, they will be fully financed by the employer. Thanks to this change, the employee will retain the right to health insurance, even though the contributions will be financed by the employer (change Article 83(3)(1) and addition point 15a under Article 86 Under section 1 in the Public-funded Health Care Services Act).
New rules gaps
The new legislation on the fight against the black economy in employment appears to provide areas for abuse, which can effectively reduce the effectiveness of the solutions. They concern only the employment of workers, and this is only by economic operators.
In all the above-mentioned regulations, it refers to an employee (except for a "penal" income where the legislator used the word "person"). Under these laws there is no separate definition of employee. It is therefore necessary to rely on the definition contained under Article 2 The labor code.
Under this provision, an employee is employed under an employment contract, appointment, election, appointment or cooperative employment contract. Thus, the contract of order, the contract of work or the contract of B2B will not be subject to the regulations in question.
The determination of the relationship between the two parties will in this case be left to the assessment of the Social Security Office, the tax authorities, and ultimately the court.
At the same time, it may take up to a few years to wait for appropriate decisions to verify the legality of employment and the reliability of the remuneration disclosed.
In this context, an unfair employer may try to argue that the person was employed by him not in the course of his business but privately. Private employment appears, for example, when hiring assistants, hiring babysitters for children, people cleaning houses or gardeners. However, it should be added that this form of employment is less tax-payable, as it is not possible to include expenditure on the employment of these persons in the cost of obtaining income.
Consequently, if the entrepreneur cooperates with a natural person conducting his own business (i.e. on a B2B basis) and will pay him ‘legally’ 3,000 PLN, and the rest of the ‘under the table’ will not be affected by the penalties provided for in Polish Deal. However, if such a person is employed on a contract of employment and some of the money is paid under the table, then the entrepreneur will pay taxes and contributions for the employee.
It is worth mentioning that sanctions will lead to both situations in which a person performs work without a contract, as well as those where a person provides work under a contract, but there is no notification of the person employed for insurance, for example in the case of a work contract. This will mean that the sanctions introduced will also affect the entrepreneurs to whom the Social Security Office will challenge the basis of employment of the person concerned and, for example, reclassify the work contract into a contract of employment.
In summary
As has already been mentioned, changes in this area have entered into force since 1 January 2022 On the other hand, the exemption from PIT for workers with income from illegal employment will also apply to periods before 1 January 2022 (except where, before that date, the competent authority has initiated proceedings relating to this illegal employment) pursuant to Article 69(2)) Amending Act Polish Deal.
It should be noted, however, that, given the "black" employment in the previous state of the law, a worker may be required to pay social and health contributions in part. In this regard, the same exemptions as for PIT were not applied.
Such a situation may result in an unwillingness of the employee to denunciation of the employer who employed him “black” before the day 1 January 2022
About the author: Mateusz Krawczyński. Junior tax consultant in Russell Bedford Poland. Graduated from bachelor's degree in Logistics and Master's degree in Finance and Accounting. He is currently studying law at the Łazarski University. Previous professional experience in tax matters gained in one of the so-called Big Four companies. He specializes in tax on goods and services, in particular with regard to VAT settlements in local government units.