CONSTITUTIONAL COURT RULES ON BASIS OF ASSESSMENT FOR SOCIAL SECURITY CONTRIBUTIONS

The Constitutional Court ("CC") ruled on 14 November 2018 (case no. Kp 1/2018) on the Act of 15 December 2017 to amend the Social Security System Act and certain other acts ("Amending Legislation").

With respect to pension insurance contributions and disability insurance contributions, the basis of assessment is currently limited to 30 times the projected average pay, which is PLN 133,290 for 2018. If a person's year-to-date total earnings exceed that cap, the person will no longer pay pension insurance contributions and disability insurance contributions until the end of the year.

The Amending Legislation wants to abolish that limitation as of 1 January 2019, one practical effect being that both the insureds (e.g. employees) and the withholding agents would feel a substantial increase in the cost of contributions.

The President applied to CC on 5 January 2018 to verify the constitutional compliance of the new law (see our Newsletter 3/2018). Ultimately, CC held that the Amending Legislation:

a) complies with Article 2 of the Constitution saying that the Republic of Poland is a democratic state governed by the rule of law and as such follows social justice principles;

b) does not comply with Article 7 of the Constitution saying that public authorities shall act in accordance with and within the limits of the law (here CC referred to procedural violations that occurred when the Amending Legislation was being processed in the Senate).

Please note that CC is critical only of the mode of procedure adopted to push the Amending Legislation through the Senate in December 2017, but not of its actual provisions (abolition of basis of assessment cap). Thus, it is not impossible that the same legislation will be re-enacted, this time properly, and CC's ruling will merely postpone the resulting increase in social security contributions.

If this issue pertains to your business and you are interested in our assistance, please contact your WTS&SAJA consultant or our office.

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