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Taxation of bonuses in Poland – what contributions are paid?

11.12.2023
Taxation of bonuses in Poland – what contributions are paid?

Bonuses and cash rewards are an important part of the remuneration system in many companies. They are a motivational tool to reward employees for exceptional performance, commitment or goal achievement. However, both employers and employees are often faced with the question of how a bonus is taxed and what contributions are made on it.

Types of employee bonuses

Employers have two main categories of bonuses that they can award to their employees: discretionary bonuses and regulatory bonuses. Discretionary bonuses are distributed at the discretion of the employer and are not tied to any specific regulations, unlike regulatory bonuses, which are allocated according to specific criteria and conditions. In the case of regulatory bonuses, employees who meet the requirements set by the employer have the right to claim payment through the courts if it has not been paid to them.

As for regulatory bonuses, they are additional benefits for employees that are not part of their basic salary. There are different types of such bonuses, including rewards for length of service, for working in hazardous conditions and for being a team leader or performing a function. Regulatory bonuses can be an effective tool in recognising employees for their contributions, but also serve as an incentive for certain attitudes. For example, a company may offer a bonus for working in difficult conditions to motivate employees to take on risky tasks. Another example is team management bonuses to encourage managers to take on more responsibility. Whatever the reason, statutory bonuses are an essential part of a company’s remuneration system.

Employment Contract vs. Discretionary Bonus

In large organisations, such as corporations, it is recommended that the rules for discretionary bonuses are included in the employment contract or internal remuneration policy. This ensures that the company’s rules clearly define the conditions that employees must meet in order to qualify for a bonus.

In smaller companies with fewer than 50 employees, the possibility of a discretionary bonus may be included directly in the employment contract. However, as the employer is not obliged to grant such bonuses, it is also not required to create specific regulations on this issue.

Nevertheless, if the employer plans to pay discretionary bonuses, it is advisable to regulate the matter formally, whether this is done through regulations or individual contracts. In this way, the employer can avoid potential employee dissatisfaction, legal problems or the need to change the rules regarding additional elements of remuneration.

In the employment contract, the discretionary bonus clause can be worded in general terms. Simple wording will suffice, for example stating that the employer has the right to grant awards, the amount of which is determined at its discretion each time.

Discretionary bonus and social security contributions

A discretionary bonus is a form of additional remuneration awarded to an employee based on the employer’s subjective assessment of his or her performance. Unlike regular remuneration, discretionary bonuses are not a fixed element of salary and can be awarded at the employer’s discretion. The key here is to understand how discretionary bonuses affect the calculation of Social Security contributions. These bonuses, like regular salary, are taxable and subject to social security and health insurance contributions.

What percentage is tax on bonuses at work?

Tax on bonuses at work is calculated on the basis of the applicable tax rates. In Poland, there are two main tax rates – 17% and 32%, which are applied depending on the employee’s earnings. It is also worth remembering that the bonus may be subject to advance income tax, which means that the employee will receive the bonus already reduced by the appropriate amount of tax.

How to tax employee bonuses and cash rewards?

The taxation of bonuses and cash rewards is a process that requires consideration of several key issues. First, it must be determined whether the bonus or award qualifies as taxable income. Next, the employer must calculate the appropriate tax, taking into account both tax rates and the tax-free amount. It is also important to bear in mind the obligation to pay social security and health insurance contributions.

Taxation of employee bonuses and awards

In the context of bonus taxation, it is important to understand the difference between gross and net bonuses. The gross bonus is the amount before taxes and contributions are deducted, while the net bonus is the amount the employee receives on hand. Specialist tools, such as a gross-net discretionary bonus calculator or a bonus salary calculator, are used to calculate the difference between these amounts. These tools allow you to quickly and accurately calculate how much an employee will receive on hand after deducting all mandatory charges.

Bonus taxation is a process that requires the consideration of many variables, such as the type of bonus, tax rates, as well as mandatory social security and health insurance contributions. Both employers and employees should be aware of these aspects in order to properly manage and understand their finances. Using tools such as a discretionary bonus calculator or bonus tax calculator can make the process much easier.

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