Jubilee awards - contribution and tax settlement
Jubilee awards, as the name suggests, are cash benefits due to employees who have achieved a certain length of service. As a rule, this applies to the general period of employment, but it may apply to work in a given company, as well as to the period of work in a specific industry. The jubilee awards are cash receivables, therefore it is connected with determining their status in terms of both contributions and tax. Information on these issues is contained in the article.
Anniversary award - what is it?
Jubilee awards, perhaps contrary to popular understanding, do not constitute benefits due to every employee. Yes, in the days of the so-called economy, the majority of employees working in state-owned enterprises were covered by wage systems providing for such an award.
In the current reality, obligatory jubilee awards are paid to employees employed in the broadly understood budgetary sphere. Then the basis for their payment are separate acts of statutory rank, the so-called service pragmatics, e.g. the Teacher's Charter or the Act on employees of state offices. The procedure for establishing creditable periods and the payment of the award is usually defined at the executive (regulation) level. This means that the following are statutorily entitled to the jubilee award:
- employees of state offices;
- local government employees;
- members of the civil service corps;
- academic teachers;
- employees of public health care institutions;
- firefighters of the State Fire Service;
Private employers do not have to introduce jubilee awards into their pay systems. For them, the jubilee award has a discretionary character, moreover, they can define the conditions for granting and paying this benefit in any way.
In private companies, jubilee awards are awarded on the basis of the provisions of the corporate labor law (collective labor agreement - UZP, remuneration regulations, a separate ordinance). A clause in the employment contract may also constitute the basis for the payment of this benefit.
This means that - as a rule - a private entrepreneur has no statutory obligation to pay jubilee awards. However, if he establishes company regulations providing for their payment, then he is obliged to pay them to employees on the terms set out in internal company regulations.
Taxation of jubilee awards
The jubilee awards are of the nature of income from the employment relationship, as a result of which they are subject to personal income tax according to the same rules as remuneration for work. Revenues from a service relationship, employment relationship, homework or a cooperative employment relationship are all types of cash payments, regardless of the source of their financing, in particular basic remuneration, overtime payments, various allowances, awards and all other amounts, irrespective of whether whether their amount was agreed in advance.
The jubilee awards belong to the above type of receivables, and therefore they fall under the concept of income from the employment relationship, as defined in Art. 12 sec. 1 of the Act of July 26, 1991 on personal income tax, hereinafter referred to as the "PIT Act".
The jubilee awards are therefore taxed according to the general rules applicable to employee income.
If the employer obliged to pay the jubilee bonus does not pay the benefit on time, the employee is entitled to interest on late payment of the amount due in connection with the employment relationship or service relationship between the employee and the employer. The amounts of interest received by the employee are exempt from taxation pursuant to Art. 21 sec. 1 point 95 of the PIT Act.
Payment of jubilee prizes
Employers from outside the budget sphere who intend to pay jubilee awards should pay attention to the rules of their payment, as it is closely related to the obligation to pay contributions to retirement and disability pension insurance.
In this respect, the provisions of § 2 para. 1 point 1 of the Regulation of the Minister of Labor and Social Policy of 18 December 1998 on the detailed rules for determining the basis for the calculation of contributions for retirement and disability pension insurance. Pursuant to this provision, jubilee bonuses (gratuities) are excluded from the contribution assessment base, if - according to the rules defining the conditions for granting them - the employee is entitled to them not more frequently than every 5 years.
In order to avoid the necessity to pay contributions for retirement and disability pension insurance, the rules for the payment of jubilee awards should be defined in such a way that their frequency is not less than 5 years. If the company introduces shorter payout periods, a contribution obligation will arise.
The fact of periodic - less than every 5 years - acquiring the right to the jubilee award is of decisive importance in the light of the lack of the obligation to pay social security contributions. Therefore, such a provision should be included in company regulations, i.e. in the Public Procurement Office, remuneration regulations or in another internal document.
There is also the issue of the payment - under certain circumstances - of the jubilee award more often than every 5 years, despite the provisions stating that it is due for periods not shorter than five years.
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It may happen that the payment of the jubilee award in a period shorter than five years will also be non-contributory, but there must be specific conditions. In relation to such situations, explanations and interpretations issued by ZUS are helpful.
So when - in the opinion of the Social Insurance Institution - the jubilee award paid before the deadline will be released from the obligation to pay contributions for retirement and disability pension insurance? This will take place when the employment relationship is terminated due to retirement or a disability pension due to an accident at work or occupational disease, or to a disability pension due to total or partial inability to work - if the employee is less than 12 months away from acquiring the right to the jubilee award. , counting from the date of termination of the employment relationship.
The award will not be accrued even if, under the above-mentioned conditions, the employee transfers to pre-retirement benefits.
In addition, it is assumed that contributions do not have to be paid if the employee documents employment, which was not taken into account when determining the right to the previous benefit, before the end of the next 5 years entitling to the award.
Paying ZUS contributions is also not necessary if the shortening of the jubilee bonus payment deadline results from a change in in-company regulations regulating the rules for granting industry gratuities.
The jubilee award is payable immediately after acquiring the right to it - interest is due from then on, even if the employee later proves the circumstances constituting the entitlement to the award, and the employer could not be blamed for the delay - found the Supreme Court in its judgment of August 19, 1999, I PKN 189/99, OSNAPiUS 2000/22/819. In the same document, the adjudicating panel stated that the claim for the payment of the jubilee award becomes due when the conditions for acquiring the right to it are met, i.e. when the appropriate length of service is obtained, and not when it is documented by the employee.
Anniversary awards - summary
The jubilee awards constitute income from the employment relationship, which is not exempt from personal income tax. This means that the jubilee gratification is subject to taxation on the general principles provided for in the PIT Act for employee income.
Contributions for retirement and disability insurance should be paid for jubilee awards, if these amounts are paid to the employee more frequently than every 5 years. In certain cases - as described in this article - the payment of this award will not be contributory, even though the minimum five-year period between payment of benefits will not be respected.
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