Payroll and Tax Compliance in Poland: How an EOR Can Help

Expanding into Poland offers businesses access to a skilled workforce and a growing economy. However, managing payroll and tax compliance can be a complex challenge. From navigating local labor laws to ensuring accurate tax filings, companies must adhere to strict regulations to avoid legal and financial risks.

For businesses unfamiliar with Poland’s employment landscape, handling payroll in-house can be time-consuming and costly. This is where an Employer of Record (EOR) in Poland can make a significant difference.

What is an EOR?

An Employer of Record (EOR) manages payroll, tax compliance, and employee administration, helping companies operate in Poland efficiently – without the burden of setting up a local entity.

Key Payroll and Tax Compliance Challenges in Poland

Managing payroll and tax compliance in Poland requires businesses to navigate a complex regulatory framework. Strict labor laws, evolving tax regulations, and mandatory social security contributions make compliance essential to avoid penalties and operational disruptions.

1. Payroll Administration

Polish labor law mandates precise payroll processing to ensure compliance with employment regulations and tax obligations:

Monthly Salary Processing: Employers must calculate salaries on a gross-to-net basis, accounting for income tax, social security contributions, and deductions.
Minimum Wage and Overtime Compliance: Poland sets a statutory minimum wage that employers must adhere to, along with strict overtime payment regulations.
Payroll Reporting and Payslip Distribution: Companies must provide legally compliant payslips detailing salary breakdowns, deductions, and tax withholdings. Payroll records must be maintained for auditing purposes.

2. Taxation in Poland

Poland has a structured taxation system that businesses must comply with when hiring employees:

Personal Income Tax (PIT)

12% for annual income up to 120,000 PLN
32% for income exceeding 120,000 PLN
Additional solidarity tax of 4% for individuals earning more than 1 million PLN per year

Corporate Tax (CIT)

Standard rate: 19%
Reduced rate: 9% (for small businesses with annual revenue below 2 million EUR)

Value-Added Tax (VAT)

Standard rate: 23%
Reduced rates: 8% or 5%, depending on the type of goods/services

Social Security Contributions (ZUS)

Both employers and employees must contribute to Poland’s social security system, covering:

Health insurance
Pension fund
Disability fund
Accident insurance (paid entirely by the employer)

3. Legal and Compliance Risks

Operating in Poland requires strict adherence to labor laws and compliance regulations:

Employee vs. Contractor Misclassification

Polish labor law distinguishes between employees and independent contractors
Misclassifying employees as contractors can result in significant legal penalties, back payments, and reputational damage

Termination and Severance Regulations

Termination laws in Poland are highly regulated, with mandatory notice periods based on employee tenure
Employees may be entitled to severance pay, particularly in cases of collective dismissals or redundancy
Failure to follow due process can lead to lawsuits, reinstatement claims, or financial penalties

Frequent Labor Law Updates

Polish employment laws are subject to regular changes
Employers must stay updated with new regulations, such as amendments to remote work policies, minimum wage increases, or tax reforms

How an EOR Can Help with Payroll & Tax Compliance

An Employer of Record (EOR) simplifies this process by taking full responsibility for payroll administration, tax filings, and compliance with Polish labor laws.

1. Ensuring Payroll Accuracy and Compliance

An EOR handles all aspects of payroll processing:

Payroll Processing: Calculating salaries based on gross-to-net requirements, including overtime, bonuses, and deductions
Tax and Social Security Withholding: Accurately deducting Personal Income Tax (PIT) and social security contributions (ZUS)
Compliant Payslips and Reports: Generating legally required payslips and maintaining accurate payroll records

By ensuring payroll accuracy and compliance, an EOR reduces administrative burdens and allows companies to focus on their core business activities.

2. Managing Taxes and Contributions

An EOR ensures full compliance by managing tax filings and contributions:

Employee and Employer Tax Filings

Calculates and submits Personal Income Tax (PIT) deductions for employees
Handles employer tax obligations efficiently

Social Security Compliance (ZUS)

Ensures accurate payments to cover pensions, health insurance, and accident insurance
Reduces the risk of underpayment or miscalculations

VAT and Corporate Tax Management

Ensures businesses meet VAT obligations, including standard (23%) and reduced rates (8% or 5%)
Assists with corporate income tax (CIT) filings for companies operating as legal entities in Poland

By managing tax obligations efficiently, an EOR minimizes administrative burdens, reduces compliance risks, and helps businesses avoid costly penalties.

3. Reducing Legal Risks

An EOR helps companies stay compliant by handling:

Employment Contracts and Worker Classification

Ensures employment contracts align with Polish labor laws
Properly classifies workers as employees or independent contractors

Termination and Severance Compliance

Follows legal guidelines for terminations, minimizing the risk of wrongful dismissal claims
Manages severance pay requirements based on tenure and dismissal reasons

Keeping Up with Changing Regulations

Stays ahead of frequent updates to Polish labor laws
Ensures businesses remain compliant with evolving regulations

By managing these legal complexities, an EOR reduces risks, protects businesses from costly fines, and ensures smooth employment operations in Poland.

Benefits of Using an EOR in Poland

Partnering with an Employer of Record offers businesses a streamlined way to expand into Poland:

Faster Market Entry

No need to establish a Polish subsidiary or legal entity
Quickly hire and onboard employees while remaining compliant

Cost Efficiency

Eliminates expenses associated with entity registration and in-house payroll management
Reduces compliance risks that could lead to fines or legal disputes

Local Expertise

Ensures adherence to Polish labor laws, tax requirements, and employment regulations
Provides up-to-date guidance on legislative changes

Time-Saving

Businesses can focus on core operations while the EOR manages administrative tasks
Reduces administrative burdens, allowing companies to scale more efficiently

Conclusion

Expanding into Poland presents exciting opportunities, but navigating payroll, tax compliance, and labor laws can be challenging for foreign businesses.

By partnering with an Employer of Record (EOR) like All IT Club, businesses can streamline payroll, minimize compliance risks, and focus on growth without establishing a legal entity in Poland. An EOR handles everything from payroll administration and tax filings to employment contracts and legal compliance.

Looking to hire in Poland while staying compliant with local regulations? Contact All IT Club today to learn how our EOR services can support your business expansion in Poland!