2023 was a record year for Polish entrepreneurs running businesses as natural persons. However, this is not a proud record, because it concerns the number of closed (and suspended) business activities. The factors influencing this situation are undoubtedly the growing costs of doing business every year, in particular:
increasing Social Insurance Institution contributions,
increasingly complicated tax system after changes introduced by the previous government in 2022 as part of the Polish Order program,
increase in the minimum wage,
constant changes in law.
All these elements constitute a burden for entrepreneurs, forcing them more and more often to decide to resign from further running a business.
Promises to support entrepreneurs in the 2023 election campaign
The problems mentioned were raised at every pre-election meeting between politicians and voters, and politicians eagerly responded to these demands in their election promises. The list of election promises of the then-opposition included primarily the following issues:
return to the lump-sum health insurance contribution (without an additional amount calculated from income),
payment of sickness benefits by Social Insurance Institution from the first day of the employee’s illness, and not only after 33 days of sick leave;
introduction of the so-called leave for entrepreneurs, i.e. one month of exemption from social security contributions and payment of a leave benefit for this period in the amount of half the minimum wage;
cash PIT, i.e. the obligation to pay income tax only after receiving the amount due from the issued invoice;
limiting the duration of tax inspections for micro-entrepreneurs to 6 days a year;
abolition of the ban on Sunday trading with the simultaneous introduction of two weekends off and double pay for work on days off.
After the then opposition won the elections, it was time to fulfill the above-mentioned requirements. election promises, which is especially expected by people running their businesses.
And now the reality of 2024
The new coalition government was formed in December 2023, but, sensing public expectations, on January 9, 2024, it announced a draft law introducing a new relief, the so-called “holidays from Social Insurance Institution”.
Let’s look at the most important assumptions of the first version of this bill:
Only the smallest entrepreneurs:
only the so-called micro-entrepreneurs, including self-employed people (those who do not employ employees), so in practice, this will mean that the smallest companies will be eligible, for which it may be really difficult to pay social security contributions, especially when they do not generate any income;
the exemption from the obligation to pay contributions is to apply only to the micro-entrepreneur’s contributions (he will still have to pay contributions for his employees if he employs them).
Duration of holidays from Social Insurance Institution:
one month in each calendar year, to be indicated by the entrepreneur when applying, and he will be entitled to sickness allowance provided that the entrepreneur is subject to voluntary sickness insurance in the month of applying and in the previous month (it should not be confused with health insurance).
An application for exemption from the Social Insurance Institution:
submitted electronically should be submitted in the month preceding the month in which the entrepreneur wants to benefit from the relief, and the Social Insurance Institution has 40 days to consider the application.
Social Insurance Institution contributions for monthly holidays:
the exemption applies only to social security contributions and contributions to the Labor Fund and the Solidarity Fund, which for this period of benefiting from the relief will be financed for the entrepreneur by the state budget in the amount calculated based on the lowest basis for assessing these contributions applicable for a given insured entrepreneur (depending on whether he chose the tax scale/flat tax or lump sum),
the exemption does not cover health insurance contributions, which must be paid anyway during the “Social Insurance Institution holiday”;
contributions covered by the exemption for the period of the “Social Insurance Institution holiday” and covered by the state budget will not constitute the entrepreneur’s income,
the entrepreneur will maintain continuous sickness and retirement insurance coverage for this period,
the relief will constitute de minimis public aid,
for this month of benefiting from the relief, you must submit the required declarations to the Social Insurance Institution (DRA/RCA, etc.)
Limitations on the use of the relief – you will not benefit from the relief if, in a given calendar year or the preceding year, you worked for a given employer under an employment contract or a cooperative employment relationship, and then switched to running a business and, as a self-employed person, you perform the same activities for that employer. employer (e.g. in 2022 and 2023 you worked full-time for a given entrepreneur and you switch from full-time employment to self-employment in 2023, doing for this entrepreneur the same thing as you did before as a full-time employee).
Other rules regarding relief:
there is no need to suspend operations for the duration of the “the Social Insurance Institution holidays”,
you can earn income from your business during this time.
Are “National Insurance holidays” really as beneficial as they were supposed to be?
The relief in the Social Insurance Institution contributions may cover nearly 1.8 million micro-entrepreneurs entered in the Central Registration and Information on Economic Activity (CEIDG). Savings on the Social Insurance Institution contributions during the period of taking advantage of the “ZUS holiday”, depending on the number of contributions paid in a given period to your social security and (possibly too) the Labor Fund and the Solidarity Fund, may mean savings of up to PLN 1,600.32 in 2024.
But will this be the case?
Health insurance outside the relief – this relief does not apply to the health insurance contribution, which for now has to be paid monthly by the rules in force from 2022, i.e. the minimum contribution (which increases again from January 2024) + 9% from income under general rules or 4.9% of income under flat tax.
Social security contributions only reduce the tax base, which means that if the entrepreneur does not pay them, the base will be higher, and thus he will ultimately pay higher income tax (PIT) for this month of the “Social Insurance Institution holiday”.
If a given entrepreneur has chosen a higher Social Insurance Institution holiday contribution assessment base and consciously pays a higher contribution than the basic one most often chosen by entrepreneurs, then for the “holiday” period the state budget will cover only the part corresponding to this basic Social Insurance Institution holiday contribution for a given form of taxation (tax scale/flat tax, lump sum), which in the future will translate into, for example, lower maternity benefits.
Moreover, during the election campaign (and even in the draft version before its official announcement), as many as three months of “Social Insurance Institution holiday holidays” were promised, while the draft law introducing this relief only mentions one month of relief… Taking into account the fact that the burden on social contributions increased by as much as 33% in 2022-2023, this does not make this one month of “Social Insurance Institution holiday” as attractive as it might seem at the beginning.
Stopping the pace of the annual increase in Social Insurance Institution contributions for entrepreneurs could help entrepreneurs much more. A statutory reduction in monthly Social Insurance Institution contributions by 10% introduced by the government would have a similar saving effect for entrepreneurs as this relief, but without unnecessary formalism for them and the Social Insurance Institution itself in connection with applying for a new relief in the form of a “Social Insurance Institution holiday”.
It also seems that a change that is much more expected by entrepreneurs is the return to the old rules of calculating health insurance contributions in a fixed monthly amount (in the form of a lump sum), which previously could also be mostly deducted from tax.
When will the relief apply?
On January 9, 2024, the Council of Ministers adopted a schedule of legislative work regarding this bill, which stipulates that the bill will be adopted by the Council by the end of March 2024 and will enter into force on October 1, 2024. This means that probably in October it will be possible to submit applications for “ZUS holidays” for November or December 2024.
Currently, the draft law that is to introduce “holidays from the Social Insurance Institution” has been sent for public consultations by the Ministry of Development and Technology, and approximately 500 entities have been invited to participate in these consultations (comments on the draft can be submitted until February 6, 2024, to the e-mail address: firstname.lastname@example.org).
However, it is in the interest of entrepreneurs to monitor the progress of work on whether and how the government fulfills subsequent election promises, which have a real impact on decisions about the future of their business activities. All the more so because in his expose the Prime Minister also announced a holiday benefit in the amount of half the minimum wage during the period of taking “holidays from ZUS” (i.e. PLN 2,121 gross in the first half of 2024, PLN 2,150 gross – in the second half of the year), but this the promise has not yet been mentioned in writing in any of the new government’s officially announced draft laws so far. Will it ever come…?
These may be important factors for further progress in the process of abandoning self-employment by smaller entrepreneurs, who constitute over 98% of all enterprises in Poland. In the current market and legal realities, running your own business is, unfortunately, an increasingly less attractive idea for professional life, and entrepreneurs prefer to find employment based on an employment contract or other forms of employment rather than running a business on their account. Instead of holidays from the Social Insurance Institution, entrepreneurs prefer longer holidays for business activity.
Article written by: Izabela Wilczkowska
- The Act of March 6, 2018, Entrepreneurs’ Law, “micro-entrepreneurs” are persons conducting non-agricultural activities who, in at least one of the last two financial years, met the following criteria:a) employed less than 10 employees on average per year and b) achieved an annual net turnover from the sale of goods, products, and services and from financial operations not exceeding the PLN equivalent of EUR 2 million, or the total assets of their balance sheets prepared at the end of one of these years did not exceed the PLN equivalent of EUR 2 million.
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