Employment of a family member - on what terms?
Running a family business is a common type of economic activity. However, employing a family member is associated with tax and insurance aspects that many entrepreneurs may not be fully aware of. Employing a wife or child is subject to the obligation to pay ZUS contributions in the same amount as in the case of a self-employed person. Even if a person starting a business activity uses the so-called Start-up relief, which entered into force on April 30, 2018 and does not have to pay social security contributions, the full amount of contributions must be paid for the cooperating person. Do you want to benefit from the help of your loved ones in your business? In this article, you will learn how to do it to avoid costly mistakes in settlements with the Social Insurance Institution or the tax office.
Who is to be considered a collaborator?
Pursuant to the Act on the social insurance system of October 13, 1998 (Journal of Laws 2017.0.1778), a person cooperating with a person conducting non-agricultural business activity is:
child of the other spouse
mother and father
stepmother and stepfather
- if they stay in the same household and cooperate in running the business. This does not apply to persons with whom a contract has been concluded for the purpose of apprenticeship (Article 8 (11) of the Act).
Therefore, it will not be employment of a cooperating person, using the help of a sister or brother, as well as, for example, an adult child who lives under the same roof with the entrepreneur, but runs a separate household.
The concept of a shared household was specified in the judgment of the Supreme Court on February 2, 1996 (file reference number II URN 56/95). participation and mutual close cooperation in taking care of everyday matters related to running the house, not earning money and therefore remaining fully or partially dependent on the person with whom the household is run, and all this is additionally complemented by the features of stability that characterize this type of situation.
The cooperation of family members, e.g. spouses, which would result in the obligation to register for insurance as a cooperating person, must be permanent and - as the Supreme Court ruled in its judgment of May 20, 2008 (reference number II UK 286/07) - without which the income from this activity, constituting the joint property of the spouses, would not reach the level that would be ensured by their cooperation in this project.
The consequence of recognizing the help offered by family members as cooperation and recognizing the person as a cooperating person will be the obligation to register them for insurance as a cooperating person and to pay ZUS contributions for it.
Employment of a family member as a cooperating person
You can work with a family member in several ways:
1. On the basis of an employment contract - if an entrepreneur decides to sign an employment contract with a cooperating person, he should report it to ZUS within 7 days as a person cooperating with the code 05 11 XX. Such a person will be subject to compulsory retirement, disability and accident insurance as well as health insurance (Article 6 (1) (5), Article 12 (1) of the Law on susceptibility and Article 66 (1) (1) (c) of the Health Act). Applying for sickness insurance, as in the case of a self-employed person, is voluntary. However, it should be taken into account that in the event of illness, such a person will not receive a sickness benefit if he or she is not registered for this insurance. Even if a person is employed for 1/5 of a full-time job with a minimum gross salary of PLN 420, social security and FP contributions will still have to be paid as for an entrepreneur from the basis of assessment, currently PLN 2,665.80, and for health insurance - from the amount of PLN 3,554. , 93.
2. On the basis of a mandate contract - employment of a family member on the basis of a civil law contract is not treated as cooperation in running a business. The obligation to pay contributions is the same as for any such contract. It is only necessary to pay special attention to the fact that ZUS carefully observes these types of contracts and, in the event of an inspection, it must be shown that they actually meet the conditions and cannot be considered a contract of employment, which would involve the payment of overdue ZUS contributions.
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A contract of mandate may be considered a contract of employment if the following conditions listed in Art. 22 of the Labor Code:
subordinating the employee to the employer, organization and discipline functioning in the workplace
the personal nature of the work performed
performance of work for and at the risk of the employer
the subject of the contract on the part of the employee is the performance of work (or being ready to perform it)
the employer is obliged to pay remuneration for the work performed.
3. Without a contract - even if a family member works free of charge and no contract has been concluded with him, he is still subject to insurance as a cooperating person and must be reported to the Social Insurance Institution and paid for him contributions in the same amount as in the case of signing job contract. It is worth mentioning that although unpaid work is treated as income, the taxation obligation does not apply to cooperating persons.
Unpaid work of family members is not taxed.
What costs can be deducted for hiring a collaborator?
Art. 23 sec. 1 point 10 of the Act on the Personal Income Tax Act directly states that the taxpayer's own work value, his spouse and minor children are not considered to be tax deductible costs, and in the case of operating in the form of a company that is not a legal person - also the spouses and minor children of the partners of this company. The costs will include social security contributions and FP paid for the cooperating person, and health insurance will be tax deductible in the amount of 7.75% of the calculation basis (the same as in the case of the entrepreneur himself). It will also be possible to add to the costs the expenses incurred in connection with the business trip of the cooperating person, e.g. allowances or training costs related to the performed work. On the other hand, the remuneration of other family members (with the exception of the spouse and minor children) is a tax-deductible cost pursuant to the provisions of the Act.
How to calculate the remuneration of a collaborating person and its derivatives?
If the entrepreneur hires a full-time collaborator with a minimum gross remuneration of PLN 2,100 and receives a PIT-2 from him, the calculations will be as follows:
base salary - PLN 2,100.00
tax deductible cost - PLN 111.25
- basis for calculating the advance tax - PLN 1,989.00 (2,100.00-111.25) (rounded to full zlotys)
- advance tax - PLN 312.00 (1989x18% -46.33) (rounded to full zlotys)
- for payment - PLN 1,788.00 (2,100.00-312.00).
On the other hand, the entrepreneur will have to pay contributions to ZUS in the following amounts:
retirement pension - PLN 520.36
disability benefits - PLN 213.26
sick leave - PLN 65.31 (voluntary)
accident - 44.52 PLN
FP - PLN 65.31
health care - 319.94 PLN.
Total sum of contributions without voluntary sickness insurance: 1,163.39; with sickness: 1228.70.
Employer's obligations towards the tax office
When hiring an employee - a family member and paying him a salary, the employer must pay for him a monthly advance of PIT-4 income tax. It is calculated differently, because the salary is not deducted from social security contributions, but only the costs of obtaining. He must submit the PIT-4R declaration to the US by the end of January, and the PIT-11 declaration by the end of February. This document is also handed over to the cooperating person within this period.