The cost of hiring a contract employee
Undoubtedly, this is the most financially demanding way of establishing cooperation. At the same time, it is the form that best protects the interests of both the employee and the employer. It protects against overnight termination, for example.
Important!
In fact, according to the Labor Code, employee and employer are called entities that have signed an employment contract. In the case of civil law contracts (work, commission, etc.), there is no employment relationship, and all issues are regulated by the Civil Code. Colloquially, however, employee and employer are referred to regardless of the type of contract.
What does the salary consist of, what is its total cost, and what else should I pay attention to? Here’s a hint!
What does an employee’s salary consist of?
According to Art. 78. § 1. Labor Code: Remuneration for work should be determined in such a way that it corresponds, in particular, to the type of work performed and the qualifications required for its performance, as well as taking into account the quantity and quality of work provided.
The remuneration consists of:
- fixed elements, such as monthly base salary,
- variable elements, such as bonus or commission.
What does an employee’s salary consist of?
The cost of hiring an employee is not only the gross salary written in the employment contract. As an employer, you are also required to pay other Social Security contributions. This means that the total cost of wages consists of the gross amount + Social Security contributions financed by the employer.
The amount depends on the established salary. Taxes and contributions are calculated on a percentage basis. Social Security contributions charged to the employer are:
- pension insurance: 9,76%,
- disability insurance: 6,50%,
- Labor Fund (FP): 2,45%,
- Accident insurance: from 0.67% to 3.33%,
- Guaranteed Employee Benefits Fund (FGŚP): 0,1%.
How to calculate the cost of hiring an employee?
Taking into account the amount of the minimum wage in 2023, i.e. PLN 3,600 gross (we take into account the amount in effect from July 2023), the cost to the employer in total will be PLN 4,391.28. The employee, on the other hand, “on hand” will receive PLN 2,715.94. Where do these amounts come from? Here are the components of the employer’s costs! The percentages in parentheses correspond to what percentage of the gross salary should be allocated to a particular contribution:
- gross salary – PLN 3,600,
- pension contribution – PLN 351.36 (9.76%),
- disability contribution – PLN 234 (6.5%),
- accident contribution – PLN 60.12 (1.76%),
- Labor Fund contribution – PLN 88.20 (2.45%),
- contribution to the Guaranteed Employee Benefits Fund – PLN 3.60 (0.1%),
- basic payment for Employee Capital Plans – PLN 54 (1.5%).
Thus, the total amount that the employer “subsidizes” the gross salary of the employee hired for the lowest national salary is PLN 791.28. It’s easy to calculate that all contributions and contributions cost the employer an additional 21.98% from the gross salary.
Important!
Not all employees benefit from Employee Equity Plans. If an employee has opted out of PPK participation, the employer does not pay the base fee. However, if an employee is enrolled in the PPK, the employer is required to pay a contribution of 1.5% of gross salary.
Other costs related to the employment of an employee
When hiring a new person under an employment contract, also keep in mind other expenses. This includes, for example, providing medical examinations, health and safety training or sick pay for a specific period. The case is different for civil law contracts, where the employer’s costs are lower. The law specifies, among other things, that you must:
- Ensure that employees have access to regular health and safety training,
- Keep and maintain employee records for 10 years,
- Send employees for medical examinations (initial, periodic, follow-up),
- pay sick pay for the first 33 or 14 days of absence (depending on age),
- guarantee paid vacation (20 or 26 days) and compensate for overtime,
- provide personal protective equipment and, if necessary, work clothes and footwear.
These are all additional costs associated with hiring an employee that you, as the employer, incur. They are worth remembering!
Cost of hiring a contract employee
In the case of an assignment contract, the total cost of hiring an employee depends on several factors. The most important of these is whether the person has another title to social security.
So, in practice, you need to know if he works somewhere else (including on a contract of mandate), runs a business, is a student, receives maternity benefits, etc.
What is the employer’s cost when hiring a contract employee?
Contract of mandate with a person for whom this is the only source of income
If you enter into a contract of mandate with a person who doesn’t work anywhere, doesn’t have his own company, etc. – Such a contract is fully covered. This means that in addition to the gross amount, you are required to pay contributions to social security, FP and FGSP. The total cost of hiring an employee is therefore that of an employment contract.
Remember!
The situation is the same when you enter into an assignment contract with a person who works for you under an employment contract. Also, such a contract is fully covered.
Contractual agreement with a student under 26. year old
If you are hiring a student or pupil, you only pay the gross amount. Contractual agreements with pupils and students are not subject to contributions. So you don’t pay any extra amounts for social security, FP and FGSP.
Contractual agreement with a person who works elsewhere
Do you want to establish a contract with someone who is already working somewhere – on an employment or contract basis? If it earns the minimum monthly salary (PLN 3,600 gross) or more, you also do not pay Social Security contributions. Then you pay only the gross amount.
Remember!
In the case of a contract of mandate, the minimum wage in 2023. is PLN 23.50 per hour gross (as of July 2023).
The cost of hiring an employee on a contract for work
The work contract is not subject to taxation. You do not pay any Social Security contributions on it. Your cost is only the gross amount.
Attention!
There are two exceptions to this rule. If you enter into a work contract with your own employee (i.e., a person with an employment contract) or your employee enters into it with someone else, but performs the work for you – social security contributions are paid on the work contract.
The cost of hiring a B2B employee
A B2B – or business to business – contract is between two companies. They can be companies or sole proprietorships. It doesn’t matter. In this case, both parties agree to whatever terms they wish, obviously in accordance with the law and the rules of social intercourse.
Often this type is called self-employment. This is because many people provide services to one entity. However, it is not an employment relationship.
What, in this case, is the cost to the employer – and, in fact, to the company for which the services are provided?
EXAMPLE
In the case of a B2B contract, you contract with a contractor for PLN 10,000 gross. This is the total cost you pay. Income tax, Social Security contributions and all other costs are on the side of the company that performs the services. At the end of the billing period for which you have agreed, the contractor invoices your company, and you simply pay it.
You can include additional provisions in your B2B contract, such as benefits (medical services, private insurance, language lessons or training), for example. If you choose to do so, your company faces additional costs.
Is it possible to deduct the cost of hiring an employee?
Yes – the employee’s salary is a tax-deductible expense (DTC). What else belongs to the BUI if you hire employees? According to the law, you can deduct such expenses as:
- All parts of an employee’s salary, including overtime, bonuses, awards, etc.,
- Mandatory medical examinations or safety training,
- special events and integration events,
- Business travel, including car operating expenses,
- Further education and training of employees.
Such expenses are considered deductible in the month in which they are actually incurred (paid).
B2B – or business to business – is concluded between two companies. They can be companies or sole proprietorships. It doesn’t matter. In this case, both parties agree to whatever terms they wish, obviously in accordance with the law and the rules of social intercourse.
What type of employee contract should I choose?
What the employer’s cost is when hiring an employee depends primarily on the type of contract entered into. You will incur the lowest additional costs (related to premiums) for B2B and contracts for work.
Which type to choose? It all depends on:
- The type of business being conducted,
- The nature of the work performed.
If you just need temporary help or support on a specific project – a contract of mandate or contract for work will work. If, on the other hand, the work is continuous, an employment contract will be the best option.
Remember that if you choose the wrong type of contract, you expose yourself to inspection by the State Labor Inspectorate and the Social Security Administration.
The calculations and amounts given are for informational purposes only and apply to the standard case of employment under an employment contract. They are subject to change for individual situations.
