The pre-holiday period is a time of joy, but also of increased spending. Bonuses, company Christmas parties, shopping vouchers or gift packages are a common way of supporting and thanking employees for their commitment to their work and activities during the passing year.
The employer can choose whether Christmas benefits for employees will be financed from the Company Social Benefits Fund („ZFŚS„) or from operating funds. So what is the difference between the funding sources?
If the employer decides to cover the cost of the benefits from the company’s operating funds, the granted benefits shall be subject to taxation and social security contributions in full, as they are not entitled to exemption in this regard. At the same time, the employer will not be required to differentiate the amount of the granted assistance based on an individualized assessment of the employee’s life, family and material situation, i.e. the application of so-called social criteria.
Financing of additional benefits for employees from the funds of the ZFŚS, on the other hand, involves the necessity to act strictly in accordance with the provisions of the Act of 04.03.1994 on the Company Social Benefits Fund (the „Act„), including in particular the application of the social criteria indicated above each time. The contrary action, i.e. the granting of benefits of identical value to all employees, regardless of the social criteria, will constitute a violation of the principles of spending from the Social Fund and may be questioned by the Social Insurance Institution (ZUS). The granting of benefits to employees in accordance with the rules of the ZFŚS will entitle these benefits to be excluded from taxation in their entirety, as they do not constitute the basis for the assessment of pension and disability insurance contributions and are excluded from the basis for the assessment of health insurance contributions. A significant part (but not all) of the benefits financed entirely from ZFSŚ funds are also subject to exclusion from taxation up to a total amount of PLN 2,000 per year (in 2023). It should be remembered, however, that the aforementioned amount of PLN 2,000 entitling to tax exemption of benefits covers the entirety of benefits granted to an employee in a given calendar year. Benefits exceeding the amount of PLN 2,000 will be subject to taxation under the general rules.
However, may every benefit be financed with ZFŚS funds? Do Christmas and New Year’s holidays constitute a criteria for arbitrary disposal of ZFŚS funds? Below we present the rules for the proper disposal of ZFŚS funds using the example of the most common benefits for employees.
Granting employees prepared gift packages containing, for example, candy, snacks, etc., the employer is obliged to take into account social criteria. This means that when assembling such packages, their value should be adjusted according to the material situation of employees, using the statements submitted by employees in this regard.
Christmas packages as benefits in kind are exempt from taxation up to a total amount of PLN 2,000.
If the employer decides to grant Christmas packages of the same value to all employees, in order to avoid the charge of violating the law on the expenditure of the Social Fund, the employer should finance the packages from current funds, considering the necessity of their contribution and taxation.
The above rules also apply to Christmas packages prepared for employees’ children.
The employer, as part of its social activities, has the opportunity to organize a Christmas party for all employees. Such an event is treated as a social activity – a recreational activity. By organizing the meeting, the employer does not apply social criteria in the access of employees to participate in the event, because this type of benefit is granted on the basis of the so-called universal accessibility. This means that every employee has the opportunity to take part in it, regardless of social criteria.
Participation in such a meeting, if properly financed from the funds of the Social Fund, is not subject to taxation and contribution.
The most common form of holiday gratification is the granting of Christmas bonuses to employees in cash. When granting such a benefit from the funds of the Social Fund, the employer should again remember to comply with social criteria regarding the amount of bonuses awarded. It is not, in fact, permissible to grant all employees a bonus in an identical amount if the employer’s intention is to take advantage of the benefits of contribution and tax relief provided for benefits entirely financed from the ZFŚS funds.
However, if the employer is keen on providing benefits to employees in an equal amount (without applying the rules provided for in the Act), it should finance the bonuses, for example, from current funds.
The funds of the ZFŚS can also be used to finance vouchers, which will then be distributed to employees. In order to qualify vouchers as a benefit that is exempt from contributions, the employer should apply social criteria when distributing them. The principle of benefit vouchers remains unchanged if we want to qualify these expenses as funds of the Social Fund.
Shopping vouchers, on the other hand, are an exclusion from taxation, because regardless of the correctness of their disposition in accordance with the principles of the Act, their value will always be taxable as employee income from the employment relationship.
Random aid is a specific type of benefit from the Social Fund, which is intended to provide ad hoc support to an employee who is in a difficult situation due to fortuitous reasons. This means, therefore, that this type of benefit should not be considered as a way of granting an additional benefit to all employees.
An emergency benefit can be granted to employees who find themselves in a difficult financial situation, and due to the upcoming holidays, their planned expenses have additionally increased.
Properly (in accordance with the rules of the Act), the relief aid granted is not subject to taxation and contributions.
In conclusion, an employer operating a Company Social Benefits Fund is obliged to spend its funds in accordance with the provisions of the Act and the internal regulations of the Company Social Benefits Fund. Therefore, it is important to verify the scope of the internal regulations in force before deciding to allocate Company Social Benefit Fund resources to a particular type of benefit, as it is not permissible to finance benefits not included in the employer’s Company Social Benefit Fund regulations from the Fund’s resources.
Bearing in mind the need for an individual assessment of each case, we encourage you to contact us and seek our assistance in order to verify the planned activities.
Dominika Czaplewska | 11.16.2023
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