Polish tax law provisions offer a pathway for employers to leverage higher tax deductible costs within employee remuneration structures. These higher deductible costs serve to reduce the taxable income base, ultimately bolstering the net earnings of employees.
However, it’s important to note that this is restricted to specific professional categories and demands the establishment of robust mechanisms to ensure its safe application. When executed properly, this method offers considerable advantages, allowing for the application of 50% deductible costs, capped at the equivalent of the initial income tax threshold, currently set at PLN 120,000. Particularly prevalent in the IT sector, this approach is commonly adopted for roles linked to creative activities in software and game development.
The legal landscape shifted notably following the 2020 issuance of a general interpretation by the Minister of Justice regarding the application of 50% deductible costs to author’s fees. This clarification led to a practical change in tax authority approach, with instances of challenge dwindling provided statutory conditions are met.
The conventional approach to implementing higher deductible costs involves dividing an employee’s remuneration into two parts, with only one portion subject to elevated deductible costs. However, incorrect apportionment can jeopardise not only the validity of tax relief application but also to violations of minimum wage regulations.
This concern was spotlighted by a Supreme Court ruling on October 18, 2017 (case no. I PK 278/16), revolving around a journalist’s compensation structure, which included “wierszówka” or author’s fees. The “wierszówka” was paid only when the text created by the journalist was published. Publication, however, depended on many factors, including those independent of the journalist, which actually meant that the employee could receive remuneration in a given month lower than required by law. The ruling underscored that basic remuneration, excluding “wierszówka,” must adhere to minimum wage standards. This stance stems from the consideration of remuneration components and other benefits attributed per employment and wage statistics principles (as specified by the Central Statistical Office), distinct from author’s fees.
An ongoing question for employers engaging individuals receiving author’s fees, and availing of higher tax deductible costs, pertains to whether non-author’s fee components of remuneration independently should always meet minimum wage requirements. This becomes especially complex when total remuneration far exceeds statutory minimums. The risk in such a case obviously lies with the employer. If it is deemed that the requirements of the minimum wage were not met, the employer may be obliged to adjust the basic part of the remuneration for up to 3 years retroactively.
The safest approach to reconcile these concerns involves structuring mechanisms to ensure the basic portion of remuneration aligns with minimum wage stipulations. Yet implementing such changes, particularly when longstanding practices are in place, poses challenges. An alternative avenue involves crafting rules to calculate higher deductible costs, ensuring adherence to minimum wage objectives. Contractual arrangements allowing for minimum wage guarantees, irrespective of author’s fee payouts, provide a viable strategy for employers. Strong arguments can thus be mounted against allegations of minimum wage breaches, though only time will determine their efficacy in potential disputes with tax authorities.
By navigating these intricacies diligently, employers can harmonise tax compliance with minimum wage obligations, safeguarding both their interests and those of their employees.
