Polish Deal – undeclared work

The issue of undeclared work is of great concern in Poland. What privileges do informal workers lose?

Working in the black economy has not been overlooked in the landmark overhaul of the Polish legal and tax system (the Polish Deal) implemented since 1 January 2022. 

A declared worker is subject to all the provisions of the labour law, social insurance law and tax law.

Undeclared work deprives workers of their necessary benefits and protections (healthcare system and sick pay) and undermines public finances. At the same time, many people decide to work on the black (or grey) market for economic reasons. 

From January 2021, the rules of liability for informal employment will change. What changes should we expect?

Before 1 January 2022, disclosing undeclared work resulted in the obligation for the employee concerned to settle the remuneration received and pay the tax; the employee was also required to return to the employer a relevant part of the social insurance contribution that is payable by the employee. These requirements discouraged employees from reporting undeclared work to the tax authorities. The Polish Deal places the liability for undeclared work on the employer only.

What does this mean?

In the grounds for the bill of the Polish Deal, the Ministry of Finance argued that modifying the regulations in this respect would encourage undeclared workers to pursue their rights and report their informal employment to the authorities. 

In accordance with the details of the bill, where informal employment is disclosed, the employer will be required to add to its income all salaries paid under the table. 

What amount of salary is it about? How will it be calculated? 

Employers will be assigned an income at the level of the minimum wage per month (in 2022, it is PLN 3,010) for each month of undeclared work detected. At the same time, amounts paid to undeclared workers are not tax-deductible. 

Employers will also be required to pay, out of their own funds, any outstanding taxes and social insurance contributions. 

Additionally, under the Polish Deal, disclosed income from undeclared work is exempt from tax.

Will undeclared workers bear any consequences for their disclosure?

Workers will not bear any consequences from disclosing undeclared work, since all the tax and social insurance-related burdens will be put on the employers. 

The new law states that these developments concerning illegal employment will be applicable to cases detected after 1 January 2022. At the same times, workers will be able to disclose their past undeclared work incidents, provided that such incidents are not subject to fiscal investigation.

Therefore, the application of the regulations of the Polish Deal may be very painful for unfair employers. It should be remembered that, in addition to the mentioned consequences with respect to taxes and social insurance, employers may also be liable for a criminal offence or a fiscal misdemeanour.

The Polish Deal materially changes the rules of liability for undeclared work. On the one hand, undeclared workers, being released from liability, may be more willing to report undeclared work to the authorities (such as after being fired by the employer). On the other hand, the risk may urge employers to move to regular employment.