A management board member can be paid on different legal bases, and this has a major effect on how the pay is settled. The Commercial Companies Code (Kodeks spółek handlowych, KSH) does not clearly specify what kind of legal relationship should link a board member with the company. In practice, three forms are most common: an employment contract, appointment by a resolution (akt powołania), and remuneration for recurring non-monetary services.
Each of these forms has different consequences for social security and health insurance contributions and a different way of calculating income tax. Knowing these differences is essential for settling board members' pay correctly and avoiding mistakes that can lead to sanctions from inspection authorities.
A management board member can be paid under the act of appointment alone or under a separate legal relationship based on the Labour Code (Kodeks pracy) or the Civil Code. The Commercial Companies Code does not clearly specify the type of legal relationship, which leaves companies free to choose
Social security contributions on a board member's pay
How a board member's pay is subject to contributions depends mainly on the legal basis of the engagement. These differences are fundamental to the employer's costs and to the board member's own burden.
Employment contract
When a board member works under an employment contract, the pay is subject to contributions on exactly the same terms as for other employees. This means the person must be registered with ZUS (Social Insurance Institution) for all mandatory social insurance schemes.
The pay of a board member employed under an employment contract is subject to pension, disability, sickness and accident insurance contributions. Health insurance also applies. Registration is made with insurance title code 01 10 on the ZUS ZUA form (registration for social and health insurance). If the board member also has another contract, you need to check for overlapping insurance titles.
An employment contract with a board member means the company must register the person with ZUS and calculate social and health insurance contributions on general terms. The Social Insurance System Act treats such persons as ordinary employees
Social security contributions are calculated at the standard rates for employment contracts. The employer bears the employer's share, while the employee's share is deducted from the board member's gross pay. We prepare board payroll, ZUS contributions and PIT-11 forms for clients who use our HR and payroll services.
Appointment by resolution
Different rules apply when a board member performs the function for pay solely on the basis of appointment by the shareholders' meeting. This form is not a title to mandatory social insurance.
Persons who serve as board members solely on the basis of an act of appointment are not covered by pension, disability, sickness or accident insurance. They are therefore not registered with ZUS for these schemes.
A significant change introduced from 2022 is the obligation to pay the health insurance contribution for persons appointed to a function by an act of appointment who receive pay for it. In that case, the board member must be registered for health insurance with insurance title code 22 50 on the ZUS ZZA form (registration for health insurance). Similar questions about overlapping titles come up with ZUS contributions when you have a job and a business.
Since 2022, persons appointed to a function by an act of appointment who receive pay for it have paid the health insurance contribution. The health insurance contribution is 9 percent of the assessment base
The health insurance contribution is charged at 9% of the assessment base. Importantly, the obligation to register for health insurance arises even if the board member does not receive pay on a regular basis – a provision in the act of appointment stating that the duties are performed for pay is enough.
Exemptions from health insurance
Certain groups of board members may be exempt from paying the health insurance contribution in Poland. This applies to persons who serve as board members of Polish companies but are at the same time covered by the social security system of another EU/EEA country or of another country with which Poland has concluded a social security agreement.
This exemption, however, must be confirmed by an A1 certificate, which documents coverage by the social security system of another country.
Recurring non-monetary services
After the rules on the health insurance contribution on an appointed board member's pay came into force, many people looked for alternative solutions. Article 176 of the Commercial Companies Code, which governs recurring non-monetary services, turned out to be helpful.
A shareholder's remuneration for recurring non-monetary services is not listed among the titles to health insurance (Article 66 section 1 of the Act on Healthcare Services Financed from Public Funds). The condition, however, is that these really are recurring services specified in the articles of association – where activities were performed on a permanent, day-to-day basis, the President of the NFZ (National Health Fund) held that Article 176 KSH did not apply (decision no. 6/2023/BP of 19 January 2023)
This form of remuneration is available only to a board member who is a shareholder, and the type and scope of the services must be specified in the articles of association. As a rule, it is not subject to social security or health insurance contributions, which makes it an attractive option for companies looking for savings in the cost of engaging board members. Another unusual contribution case is described in our article on a mandate contract with an extramural school student.
Taxation of a board member's pay
How the income tax advance on a board member's pay is calculated depends on the legal basis on which the payments are made. The differences arise because income from employment and income from serving on company bodies belong to separate sources of income.
Employment contract – tax rules
When a board member is employed under an employment contract, the pay is treated exactly like the pay of any other employee of the company. This has important consequences for how the income tax advance is calculated.
For a board member employed under an employment contract, the income must be reduced by tax-deductible costs and by the social security contributions paid. The PIT (personal income tax) advance calculated in this way is also reduced by the tax-reducing amount if the board member has submitted the relevant PIT-2 statement (employee's statement for the tax-reducing amount).
Tax-deductible costs follow the standard rules for employment contracts. This means the basic amount of PLN 250 per month or the increased amount of PLN 300 per month if the board member lives in a different place from where the work is performed.
The pay of a board member employed under an employment contract is reported on PIT-11 (annual information on income and tax advances) in part E, row 1. All standard rules for taxing employees' pay apply, including the tax-reducing amount
| Form of engagement | Tax base | Tax-deductible costs | Tax-reducing amount |
|---|---|---|---|
| Employment contract | Income minus social security contributions | PLN 250–300 per month | Yes, after submitting PIT-2 |
| Act of appointment | Gross income | PLN 250 per month | Yes, after submitting PIT-2 |
| Non-monetary services | Gross income | No deductions | No |
Appointment – specific tax rules
Serving as a board member on the basis of appointment leads to different tax rules. Although it is not a title to social insurance, since 2022 it has been a title to health insurance, which affects the net amount paid out (the payer deducts the health insurance contribution from the pay).
The tax advance on the pay of an appointed board member should be withheld at 12% – the lowest rate of the tax scale, even when income exceeds PLN 120,000; any difference at the 32% rate is settled in the annual tax return. The income is reduced only by tax-deductible costs of PLN 250 per month, and no more than PLN 3,000 for the tax year.
Importantly, for pay for serving as a board member solely on the basis of an act of appointment, the payer should apply the basic costs, even when the board member lives in a different town from the one where the payer has its registered office.
For appointment, only the standard tax-deductible costs of PLN 250 per month can be deducted from income. The increased costs of PLN 300 do not apply, regardless of where the board member lives
The payer can apply the tax-reducing amount when calculating the monthly advance if the board member has submitted a PIT-2 statement. The pay and the tax withheld from it are reported on PIT-11 in section E, row 5.
Recurring non-monetary services
On remuneration for recurring non-monetary services under Article 176 of the Commercial Companies Code, the company as tax payer does not withhold PIT advances. This is an important difference compared with the other forms of remuneration.
The shareholder must be given a PIT-11, where income from this title is reported in part F of the information. On the basis of this information, the board member settles income tax on their own in the annual tax return.
This income is taxed under the tax scale, which means rates of 12% and 32% depending on annual income. The law does not provide flat-rate tax-deductible costs for this income (such as PLN 250 for appointment), but in the annual settlement the board member can use any tax reliefs they are entitled to.
Flat-rate income tax
Special tax rules apply to low pay of board members. When the amount due specified in a contract concluded with a person who is not the payer's employee does not exceed PLN 200, the payer withholds flat-rate tax at 12% of the income, without deducting tax-deductible costs.
For board members who are not Polish tax residents, flat-rate tax rates also apply. Most often this is 20%, unless double tax treaties provide otherwise.
Flat-rate income tax of 12 percent is withheld from amounts due to board members not exceeding PLN 200, specified in a contract with a person who is not the payer's employee. For non-residents, a rate of 20 percent usually applies
Settling pay from several titles at once
In business practice, a board member often receives pay from several titles at the same time. This may be a combination of an employment contract and an act of appointment, or a mix of different forms of remuneration. Such arrangements require particular care when settling contributions and taxes.
Employment contract combined with an act of appointment
When an employment contract is combined with the relationship as a member of the management body, the way PIT advances are calculated is crucial. Advances are withheld separately for each title: from the employment contract – 12%, and 32% once income earned from that payer since the start of the year exceeds PLN 120,000; from the appointment – always 12%. Income from both titles is added together in the annual tax return. This means the higher 32% tax rate may be reached sooner than with a single source of income, and the difference is then paid in the annual settlement.
Social security and health insurance contributions, on the other hand, are calculated separately for each title. All social security contributions and the health insurance contribution are charged on the employment contract, while only the health insurance contribution of 9% is charged on the appointment.
- Calculate gross pay for each title separately
- Charge social security contributions only on pay under the employment contract
- Charge the health insurance contribution on both sources of income
- Calculate tax advances separately for each title, and add up income from both titles in the annual tax return
- Apply the appropriate tax-deductible costs to each source of income
Practical example – appointment combined with an employment contract
Consider Mr Marian, who receives a monthly payment of PLN 31,000 for serving as a board member on the basis of an act of appointment and pay of PLN 10,000 under an employment contract. He works in the same town and uses the full tax-reducing amount.
In January, his settlement is as follows:
- Pay from appointment: PLN 31,000 gross
- Pay from employment contract: PLN 10,000 gross
- Employee social security contributions (13.71%): PLN 1,371
- Health insurance contribution on appointment: PLN 2,790
- Health insurance contribution on employment contract: PLN 776.61
When a board member combines different forms of engagement, income tax advances are withheld separately for each title, and income from all titles is added together in the annual tax return. Social security and health insurance contributions are calculated separately for each title under the relevant rules
The tax base from the appointment is PLN 30,750 (after deducting costs of PLN 250), and from the employment contract PLN 8,379 (after deducting social security contributions and costs). Total income for January is PLN 39,129.
In April, total income since the start of the year will exceed the first tax threshold (PLN 120,000). The advances will not change – income from the employment contract for the whole year (PLN 100,548) will not exceed the threshold with that payer, and the payer always withholds 12% on the appointment – but in the annual tax return the excess over the threshold will be taxed at 32%, which means a significant additional tax payment.
Appointment combined with non-monetary services
Another example is Ms Aneta, who receives PLN 31,000 for her appointment and PLN 10,000 for recurring non-monetary services. In this case no tax advances are withheld on the non-monetary services, but this income counts towards the tax threshold in the annual tax return.
This means that although Ms Aneta does not pay tax on the non-monetary services on an ongoing basis, their amount affects when she crosses the first tax threshold. Together with the pay from her appointment (PLN 30,750 per month after costs), her income is PLN 40,750 per month, so the threshold will be exceeded as early as March, and in the annual tax return the excess will be taxed at the higher 32% rate (the company still withholds 12% advances on the appointment).
- Pay from appointment is taxed on an ongoing basis
- Non-monetary services are settled in the annual tax return
- Both sources count towards the tax thresholds
- The health insurance contribution is charged only on pay from appointment
Payer's obligations for income tax
Regardless of the form of a board member's engagement, the company as payer has specific income tax obligations. They concern both payment deadlines and how the withheld advances are documented.
The payer must transfer the withheld income tax advance to the tax office (urząd skarbowy) account by the 20th day of the month following the month in which it was withheld. This deadline is the same whether the board member is employed under an employment contract or appointed.
The tax advance is paid to the tax office competent for the company's registered office, or for its place of business if the company has no registered office. This matters for companies operating in several locations.
Whether the board member has an employment contract or is appointed to the function, the payer must transfer the withheld income tax advance by the 20th day of the month following the month in which it was withheld
Documenting pay
Documenting board members' pay correctly requires the right entries in the annual PIT-11 information:
- Income from an employment contract – part E, row 1
- Income from appointment – part E, row 5
- Non-monetary services – part F
Each form of remuneration has its own specific place in the tax documents, which matters for the board member's correct tax settlement in the annual tax return.
Practical aspects and cost optimisation
The choice of the form of a board member's remuneration has a significant effect on the total cost of engagement and on the tax burden. Companies often look for solutions that optimise these costs while staying compliant with the law.
Cost analysis of different forms of engagement
When comparing the costs of different forms of engaging a board member, you should take into account not only contributions and taxes, but also practical aspects of how the company operates:
- Employment contract – the highest contribution costs, but full social protection
- Appointment – medium costs (health insurance contribution only), limited protection
- Non-monetary services – the lowest ongoing costs, annual settlement
A technology company employed a board member under an employment contract with pay of PLN 25,000 per month. After a cost analysis, it decided to switch to appointment with pay of PLN 20,000 plus non-monetary services of PLN 5,000 (the board member was a shareholder, and the services were specified in the articles of association). The company stopped paying social security contributions on these amounts, but the 9% health insurance contribution is charged on the pay from appointment, and the board member no longer has social insurance protection from this title (for example sickness benefit).
Tax planning
Effective tax planning for board members requires a full-year perspective. It is important to monitor when the first tax threshold is exceeded and to plan payments in a way that minimises the tax burden.
This is particularly important when different forms of remuneration are combined, as income from different sources is added together when determining tax thresholds. Planning payments properly can make it possible to postpone the moment of moving to the higher tax rate.
