First employee - net and gross salary
When concluding a contract with an employee, the amount of remuneration that the new employee will receive each month should be stated on it. This is where terms such as net salary and gross salary come into play. What is the difference between the two phrases and where does the difference between net salary and gross salary come from?
Net salary versus gross salary
The amount specified in the contract is usually the gross amount. This is the entire remuneration, which will then be reduced by the due public law benefits (income tax, social security contributions in the employee's part). After deducting the obligatory levies from the gross remuneration, we receive the net remuneration. This is the real amount that the employee will receive for the work done on the pay day, which is what he will receive "on hand".
However, it must be remembered that the contributions that are deducted from the gross wage amount vary depending on the type of contract and the amount of remuneration. In order to convert an employee's remuneration from the net amount to the gross amount, it is worth using the remuneration calculator.
Contract of employment
Net salary and gross salary in the case of an employment contract is the difference between ZUS contributions and tax advance. It results from the fact that the amount of gross remuneration includes contributions paid to ZUS (retirement pension, disability pension, sickness), to the National Health Fund (health insurance) and an advance on income tax. Directly from the employee's remuneration are the contributions charged to the employee (part of the retirement and disability pension contributions and the entire sickness and health insurance contribution) as well as the entire income tax advance payment.
The pension contribution is 19.52% and is covered in equal parts by the employee and the employer - 9.76% each.
The disability pension insurance contribution is 8%, in which case the employer covers 6.5% and the employee 1.5%.
The amount of the sickness insurance contribution is 2.45% of gross remuneration and the employee covers it entirely himself. It goes the same way as the above contributions - to ZUS. Thanks to this contribution, an employee who is unable to work due to illness will receive an allowance. The amount of this allowance depends on the type of incapacity for work, and the basis for calculating the allowance is the average gross salary (less social security contributions) for the last 12 months before the incapacity for work.
The amount of the contribution for this insurance is 9% and is calculated on the gross remuneration reduced by the sum of the above three contributions (retirement, disability and sickness). Due to the payment of this contribution, the employee can use the services of the public health service free of charge. Importantly, the health insurance contribution of 7.75% of the calculation basis is deducted from income tax.
Advance payment for income tax
The amount of the advance payment for income tax is paid to the account of the tax office. To calculate the advance payment for income tax, we subtract tax deductible costs from the income (gross salary less social security contributions) (for employees working and living in the same town, they are PLN 250, and for employees living outside the town where the workplace is located. - PLN 300). We round the received amount to full zlotys and then calculate the income tax.
If the annual income of a given person does not exceed PLN 85,528, the personal tax rate is 17% (on income). From the calculated amount, we subtract the monthly tax relief, which is PLN 43.76, provided that the employee submits a PIT-2 declaration to the employer.
PIT-2 is an employee benefit for the purpose of calculating monthly personal income tax advances. In it, the employee declares that he does not earn income that is reduced by 1/12 of the amount that reduces the tax, e.g. income from:
- pensions or disability pensions;
- membership in an agricultural production cooperative or other cooperative engaged in agricultural production;
- cash benefits paid from the Labor Fund or the Guaranteed Employee Benefit Fund;
- from business activities;
- from rental or lease.
If the employee exceeds the first tax threshold at the time of payment, i.e. his annual income exceeds PLN 85,528, then the personal tax rate will be 32% - calculated on the surplus above the 1st threshold.
The health insurance contribution of 7.75% is deducted from the tax amount calculated. The obtained value, rounded off to full zlotys, is the tax amount that should be transferred to the account of the tax office. Start a free 30-day trial period with no strings attached!
Net salary - calculation
Stages of calculating the net remuneration from the gross amount on the example of the minimum wage in force in 2020 (applies to an employment contract):
Gross salary according to the minimum wage is PLN 2,600. We deduct social security contributions from gross salary:
- pension insurance:
PLN 2,600 x 9.76% = PLN 253.76
- disability insurance:
PLN 2,600 x 1.5% = PLN 39
- medical insurance
PLN 2,600 x 2.45% = PLN 63.70
TOTAL: PLN 356.46
Calculation of the amount of contributions for health insurance:
- the amount of social security contributions PLN 356.46
- remuneration less social security contributions is:
PLN 2,600 - PLN 356.46 = PLN 2,243.54
- the health insurance premium is:
PLN 2,243.54 x 9% = PLN 201.91
Calculation of the advance payment for income tax:
- remuneration less social security contributions is: PLN 2,243.54
- tax deductible costs are: PLN 250
PLN 2,243.54 - 250 = PLN 1,993.54 after rounding PLN 1,994
- the basis for calculating the advance income tax is PLN 1,994, and the tax threshold is 17%:
PLN 1,994 x 17% = PLN 338.98
- 1/12 of the tax-free amount should be subtracted from the above amount, which is: PLN 525.12 per year (it is set by law), per month PLN 43.76
PLN 338.98 - PLN 43.76 = PLN 295.22
- we calculate a tax deductible 7.75%
PLN 2,243.54 x 7.75% = PLN 173.87
- advance payment for income tax before deducting the health insurance contribution is: PLN 338.98 and the health insurance contribution to be deducted PLN 173.87
PLN 295.22 - PLN 173.87 = PLN 121.35
The above amount should be rounded and an advance payment for income tax is created to be transferred to the tax office for a given employee, which amounts to: PLN 121.
This is the last stage in which we calculate the net remuneration:
- from the gross amount, i.e. PLN 2,600, we deduct social security contributions, which are PLN 356.46, health insurance contributions: PLN 201.91 and an advance on income tax, which is PLN 121
PLN 2,600 - PLN 201.91 - PLN 174.74 - PLN 121 = PLN 1,920.63
The net salary for a given employee is PLN 1,920.63.
It has been presented above what contributions are deducted to the employee from the gross remuneration, thanks to which we receive a net remuneration. It should be remembered that the gross amount does not constitute the total cost of employing the employee, because the employer is obliged to pay contributions for the employee, which he must cover from his own funds. These are contributions to retirement, disability and accident insurance, as well as, in principle, to the Labor Fund and the Guaranteed Employee Benefits Fund.