An employer's contribution towards an employee's stay in a sanatorium is a benefit that may be governed by a company collective labour agreement (zakładowy układ zbiorowy pracy). For social insurance contributions, the form in which the benefit is provided is of key importance. An individual ruling of ZUS (Social Insurance Institution) from August 2023 sheds new light on this issue and explains when pension and disability contributions can be avoided.
The facts of the case – a stay in a private sanatorium
In the case presented to ZUS, an employee completed a stay at a private sanatorium, using the provisions of the company collective labour agreement. The employer had included a clause in the agreement under which, at the employee's request supported by a referral for sanatorium treatment, it covers 90 percent of the costs of the employee's sanatorium stay related to the referral. The funding was to come from the company's working capital.
A company collective labour agreement may contain provisions on funding employees' sanatorium treatment. Such benefits, however, need to be properly documented with a referral for sanatorium treatment and a request from the employee concerned
Aware of this entitlement, the employee submitted the relevant request together with the medical documents and received the employer's approval to cover the costs of the stay. From the employee's perspective the situation seemed clear, but the HR and accounting departments faced a question about whether pension and disability contributions had to be charged on the value of this funding.
After analysing the law, the employer applied to ZUS for an individual ruling, relying on the regulation of the Minister of Labour and Social Policy on exclusions from the contribution base. It paid particular attention to § 2(1)(26) of that regulation, which concerns material benefits arising from collective labour agreements. Another ZUS procedure that contribution payers often ask about is writing off ZUS contribution debts.
The Regulation of the Minister of Labour and Social Policy of 18 December 1998 sets out detailed rules for determining the contribution base for pension and disability insurance. It contains a list of benefits excluded from contributions, which is of considerable importance for employers planning additional employee benefits
The employer's arguments and the provisions relied on
In its application for a ruling, the employer quoted § 2(1)(26) of the regulation, under which the contribution base does not include material benefits arising from collective labour agreements, remuneration regulations or remuneration provisions, consisting in the right to buy certain articles, items or services at prices below retail prices and to use free or partly paid travel by means of transport.
The employer's position was clear – in the case described, contributions should not be paid, because the benefit arises from the collective labour agreement and concerns a partly paid sanatorium service. The employer argued that the employee bears part of the cost of the stay (10 percent), which amounts to the partial payment provided for in the regulation.
The logic of this reasoning was that, since the employee shares the cost of the sanatorium treatment and the benefit arises from the collective labour agreement, the conditions for applying the exclusion from the pension and disability contribution base are met. This approach seemed consistent with the letter of the law and with the spirit of provisions intended to support additional employee benefits.
Material benefits arising from collective labour agreements may be excluded from the pension and disability contribution base, but they must meet certain formal conditions. The way the benefit is provided and its legal form are of key importance
The position of ZUS – the employer's arguments rejected
ZUS did not share the employer's position and found its view incorrect. In its detailed reasoning, ZUS pointed to the fundamental rules for determining the pension and disability contribution base, relying on Article 18(1) and (2) of the Social Insurance System Act (ustawa o systemie ubezpieczeń społecznych).
According to ZUS, the pension and disability contribution base for employees is income within the meaning of the PIT Act (personal income tax) from employment, excluding the income listed in the regulation of the Minister of Labour and Social Policy and pay for periods of incapacity for work and social insurance benefits. Whether ZUS contribution holidays affect entitlement to benefits is covered in a separate article.
ZUS stressed that income from employment includes all kinds of cash payments and the cash value of benefits in kind or their equivalents, regardless of how these payments and benefits are financed. This catalogue includes:
- basic pay
- overtime pay
- various allowances
- bonuses and awards
- payments in lieu of unused leave
- any other amounts paid to the employee
- cash benefits paid on the employee's behalf
- the value of other free or partly paid benefits
The pension and disability contribution base is income within the meaning of the PIT Act. It covers all cash payments and the cash value of benefits in kind, regardless of how the employer finances them
Analysis of the conditions for exclusion from the contribution base
ZUS analysed in detail the conditions for applying the exclusion in § 2(1)(26) of the regulation. The literal wording of this provision shows that only income meeting two conditions together is excluded from the pension and disability contribution base:
- The income must arise from collective labour agreements, remuneration regulations or remuneration provisions
- It must take a non-cash form, as a purchase at prices below retail or as a service
Both conditions must be met at the same time for the exclusion to apply.
In the light of this ruling, pension and disability contributions should not be charged on an employee's employment income that is a material benefit arising from collective labour agreements, but only where the benefit consists in enabling the employee to use articles, items or services against partial payment.
Partial payment within the meaning of the rules means the employee sharing the cost of buying certain articles, items or services. The employee must gain a benefit consisting in access to goods or services at a price lower than they would pay on the market if they bought them themselves
The key point is that the amount excluded from the contribution base is the difference between the purchase price of the service and the payment made by the employee. In practice, this means there is no obligation to pay pension and disability contributions on this difference, but only for non-cash benefits.
The difference between cash and non-cash benefits
The difference between a cash and a non-cash benefit proved to be the fundamental issue in the case. ZUS stated clearly that, for the exclusion to apply, the benefit obtained by the employee must be non-cash.
In the case analysed, the employee completed a stay at a private sanatorium and the employer accepted the request to reimburse 90 percent of the costs of the stay. The employer's benefit consisted in making a payment to the employee from the company's working capital, which means it was a cash benefit.
ZUS stated categorically that where the employee buys an article, item or service and then receives a refund of the amount spent, the exclusion in § 2(1)(26) of the regulation cannot apply. What matters is how the benefit is provided, not its source or legal basis.
In practice, this means that if the employee first pays for the sanatorium stay from their own money and the employer then refunds 90% of the costs by bank transfer, the benefit is a cash benefit and is subject to full ZUS contributions, even though it arises from the collective labour agreement.
The form of the benefit is of key importance for determining the obligation to pay social insurance contributions. A cash benefit consists in paying a specific amount of money, while a non-cash benefit requires its cash value to be determined separately on the basis of market prices
Characteristics of non-cash benefits in labour law
The characteristic feature of non-cash benefits, also called benefits in kind, is that while a cash benefit is by its nature expressed directly in money, the cash value of a benefit in kind has to be determined separately. This is of fundamental importance for settling contributions and taxes.
When determining employment income, remember that under Article 11 of the PIT Act, the cash value of benefits in kind is determined on the basis of market prices used in trading in things or rights of the same type and kind, taking into account their condition, degree of wear and the time and place of receipt.
In addition, under Article 12(2) of that Act, the cash value of benefits in kind to which employees are entitled under separate provisions is determined according to the average prices charged to other customers, if the benefit consists of things or services within the scope of the employer's business.
The cash value of benefits in kind is determined on the basis of market prices for things or rights of the same type and kind. Their condition, degree of wear and the time and place of their receipt by the employee are taken into account
Limits on payment in kind in labour law
It is worth noting that in an employment relationship the cash form of benefits provided to the employee is of fundamental importance. Under Article 86 § 2 of the Labour Code (Kodeks pracy), remuneration is paid in cash, and partial payment of remuneration in a form other than cash is permitted only where statutory labour law provisions or a collective labour agreement provide for it.
This provision transposes into Polish law International Labour Organization Convention No. 95 concerning the protection of wages, ratified by Poland. The Convention limits partial payment of wages in kind to industries and occupations where this form of payment is customary or desirable because of the nature of the industry or occupation.
It follows that under Article 86 § 2 of the Labour Code, as a rule, remuneration may not be paid by the employer in kind, unless statutory labour law provisions or a collective labour agreement allow it. Benefits in kind are called deputaty, which according to the dictionary definition means part of the salary, or an additional salary, paid in kind.
Deputaty are benefits in kind forming part of the employee's salary, most often in the form of fuel, food or other products. They may be introduced only under statutory labour law provisions or a collective labour agreement in specific occupations and industries
Practical conclusions for employers
Returning to the conclusion of the individual ruling issued by ZUS, an employer who wants itself and the employee to benefit from the exemption from social insurance contributions must ensure that the benefits provided to the employee are non-cash. We apply such exclusions from the contribution base when preparing payroll as part of our HR and payroll services.
In practice, this means that instead of refunding the cost of the sanatorium stay to the employee in cash, the employer should pay for the sanatorium services directly or conclude an agreement with the sanatorium, allowing the employee to receive treatment at a preferential price. Only this way of providing the benefit can be regarded as non-cash.
Alternatively, the employer may consider a system of vouchers or payment cards dedicated to health services, which the employee can use to cover the cost of sanatorium treatment. Here too, it will be crucial to document the nature of the benefit properly and to ensure that it is not a direct cash payment.
How to settle sanatorium benefits correctly
To settle benefits related to an employee's sanatorium stay correctly, the employer should follow this procedure:
- Set out the rules for granting sanatorium benefits in the collective labour agreement or remuneration regulations
- Require the employee to submit a request together with the referral for sanatorium treatment
- Decide how the benefit will be provided – direct payment to the sanatorium or a voucher system
- Document the partial payment made by the employee
- Keep records of benefits in kind in line with tax rules
- Value the benefit correctly on the basis of market prices
- Settle ZUS contributions in line with the applicable rules
Proper documentation of the form of the benefit is of key importance for how it is treated for ZUS contributions. Keep all documents confirming how the benefit was provided and the costs borne by the employee
Particular attention should be paid to properly documenting the partial payment made by the employee. It must be genuine and follow from the rules adopted in the company, rather than merely satisfying the requirements on paper.
Tax consequences of funding sanatorium treatment
Apart from ZUS contributions, funding sanatorium treatment also has consequences for PIT. Under the PIT Act, the value of free or partly paid benefits received by an employee is taxable income.
The exception is benefits that are exempt from income tax under separate provisions. For health benefits, check whether the tax exemptions for certain types of employee benefits apply.
As the PIT remitter, the employer must correctly account for the value of the benefit, withhold the income tax advance and report the income in the relevant settlement documents. Incorrect settlement may lead to tax sanctions.
The value of partly paid benefits is subject to PIT to the extent that it is a benefit to the employee. The employer must withhold the tax advance and document the income properly
Alternative ways of supporting employees' health
In the light of this ZUS ruling, employers may consider alternative ways of supporting employees' health that are more favourable in terms of contributions. One option is organising group prevention programmes or concluding agreements with medical facilities for preferential services for employees.
Available options for supporting employees' health:
- Setting up a company social benefits fund (ZFŚS)
- Introducing a cafeteria benefits system
- Concluding agreements with medical facilities for preferential services
- Organising group prevention programmes
- A system of health vouchers with a specific purpose
- Paying for medical services for employees directly
Another solution may be to set up a company social benefits fund (zakładowy fundusz świadczeń socjalnych), from which various health benefits for employees and their families can be financed. Such a fund operates under separate provisions and may offer more flexible ways of supporting the workforce's health. Benefits financed from the company social benefits fund are not included in the contribution base (§ 2(1)(19) of the regulation), and for income tax they are exempt up to PLN 1,000 in a tax year (Article 21(1)(67) of the PIT Act).
Employers may also consider introducing a cafeteria system, under which employees receive a set budget to spend on benefits of their choice, including health services. Such a system, however, needs to be properly designed from a legal and tax perspective.
An example of good practice could be a manufacturing company that concluded an agreement with a network of rehabilitation centres to provide services to its employees at preferential prices. Employees pay 20 percent of the normal price, and the employer pays the rest directly. As a result, the benefit is non-cash and, if it arises from a collective labour agreement or remuneration regulations, may benefit from the contribution exclusion.
The importance of ZUS individual rulings
The individual ruling presented is of considerable importance for business practice, because it clearly defines the conditions for applying contribution exclusions to employee benefits. It also shows how important it is to design the system of additional benefits in a company properly.
ZUS individual rulings are binding on the authority that issued them, with regard to the applicant and the facts described. This means that other entities cannot rely directly on someone else's ruling, but they can use it as a pointer when planning their own solutions.
Remember, however, that individual rulings may change if the law or case law changes. That is why employers should regularly monitor changes in the law and the current position of the authorities on settling employee benefits.
ZUS individual rulings are binding on the authority with regard to the specific applicant and the facts described. Other entities may use them as a pointer, but should take into account the specifics of their own legal and factual situation
| Form of benefit | Contribution obligation | Required conditions | Documents |
|---|---|---|---|
| Cash refund of costs | Yes, full contributions | No exclusions | Invoices, transfers |
| Direct payment to the sanatorium | Exclusion possible | Non-cash form, partial payment | Agreement, payment confirmations |
| Health voucher system | Exclusion possible | Properly designed system | Rules, voucher records |
| Group prevention programmes | Exclusion possible | Benefits for all eligible persons | Agreements, participant lists |
