The decision to close a business can have many causes - from strategic changes to the company's difficult financial situation. However, when the business has employees, closing it becomes much more complicated and requires a number of legal and tax formalities.
A business owner cannot simply close the company overnight if they have obligations towards employees. They must follow the procedures under the Labour Code (Kodeks pracy), settle all amounts due on time and correctly prepare and submit the relevant tax returns. Failing to meet these obligations can have serious financial and legal consequences for the business owner who is closing down.
Closing a business with employees requires special legal and tax procedures. The employer must observe the notice periods for employment contracts and file all required tax returns with the relevant offices on time
Settling with employees covers not only terminating employment contracts and paying the benefits due, but also a number of tax obligations arising from the employer's role as a payer of income tax (płatnik). The employer must remember to prepare and submit the relevant tax information, observing the special deadlines that apply when a business is closed.
Terminating employment contracts when a business is liquidated
When a business owner decides to close the company, the first step must be to inform all employees properly about the planned liquidation. This process cannot be rushed, because it requires the proper legal procedures and the deadlines set by the Labour Code to be observed.
Every employee whose employment contract the employer terminates because the business is being liquidated is entitled to an appropriate notice period. Its length depends on the length of employment and the type of contract. The employer must give notice early enough for the notice period to end before the company actually closes.
When an employer is liquidated, the usual rules protecting certain groups of employees against dismissal do not apply. This means that the employer can terminate the employment contract even of employees on sick leave or pregnant employees
Specific rules on this are set out in Article 41¹ and Article 177 § 4 of the Labour Code. Under these provisions, when the workplace is liquidated, the protection against dismissal normally enjoyed by employees in special situations does not apply. This concerns, among others, employees on sick leave and pregnant women.
This follows directly from Article 41¹ § 1 of the Labour Code, which, when the employer is liquidated, disapplies among others Article 41 – the ban on giving notice during an employee's justified absence. So when a workplace is liquidated, an employee's employment contract can be effectively terminated during their justified absence due to illness, even if the period entitling the employer to terminate the contract without notice has not yet passed.
A manufacturing company employing 50 people decided to liquidate after losing its main contract. Among the employees were a pregnant woman and two employees on long-term sick leave. Despite the special protection of these people, the employer could lawfully terminate their employment contracts because of the liquidation of the workplace, observing the appropriate notice periods.
A similar situation applies to employees who are close to retirement. Even if an employee is no more than 4 years away from reaching retirement age, which would normally give additional protection against dismissal (Article 39 of the Labour Code), the employer can terminate their employment contract when the business is liquidated.
If the employer has at least 20 employees, people dismissed for reasons not related to them are entitled to severance pay: one month's pay if they were employed for less than 2 years, two months' pay if they were employed for 2 to 8 years, and three months' pay if they were employed for more than 8 years (Article 8(1) and Article 10(1) of the Act of 13 March 2003 on special rules for terminating employment for reasons not related to employees). Severance pay cannot exceed 15 times the minimum wage in force on the day the employment ends - in 2026, PLN 72,090 (15 × PLN 4,806), and from 1 January 2027 PLN 74,250 (15 × PLN 4,950). Regardless of the number of employees, the employer pays compensation in lieu of unused annual leave (Article 171 § 1 of the Labour Code) and issues an employment certificate (świadectwo pracy) on the day the employment ends (Article 97 § 1 of the Labour Code). Calculating severance pay and holiday compensation and preparing employment certificates when a business closes are covered by our payroll outsourcing.
Shortening the notice period in a liquidation
An employer liquidating a business has special powers that allow it to close the company more efficiently. One of the most important is the option to shorten the notice period for an employment contract, which is governed by Article 36¹ of the Labour Code. How exactly the employment ends also affects the employee's later right to unemployment benefit.
Under this provision, the employer can unilaterally shorten a three-month notice period to no less than one month, without the employee's consent. This is a significant simplification that allows the liquidation to be completed faster.
Shortening the notice period from three months to one month does not mean that the employee loses pay. For the remaining two months, the employee receives compensation equal to the pay they would have received during the standard notice period
The safest approach is to include the decision to shorten the notice period in the notice itself – Article 36¹ § 1 of the Labour Code links the shortening to notice given because of liquidation. Unilaterally shortening a notice given earlier for the standard period exposes the employer to a dispute with the employee.
The financial consequences of shortening the notice period are favourable for the employee. For the remaining part of the notice period, they receive compensation equal to their pay, and that period - if they remain out of work - counts towards their period of employment (Article 36¹ § 1 and 2 of the Labour Code). This means that when a three-month notice period is shortened to one month, the employee works for only one month but receives money for the full three months: pay for the first month and compensation for the remaining two.
This rule is intended to protect the interests of employees who lose their jobs for reasons beyond their control, while allowing the employer to carry out the liquidation efficiently. Shortening the notice period can be particularly useful when the employer needs to settle all obligations quickly and finalise the closure of the business.
The employer's tax obligations as a payer
Employing staff, regardless of the type of contract - whether an employment contract or a contract of mandate (umowa zlecenia) - automatically makes the employer a payer of social insurance contributions and income tax. This role involves a number of monthly obligations that do not end when the decision to liquidate the business is made.
Every month, the employer must calculate and pay contributions to ZUS (Social Insurance Institution) and income tax advances to the relevant tax office (urząd skarbowy). This requires precise record-keeping and meeting reporting obligations on time.
As a payer of income tax, the employer must prepare and submit four main types of tax returns. Each of these returns has its own filing deadlines and specific rules when a business is closed
The basic tax returns that an employer must prepare include:
- PIT-4R - the annual return on income tax advances withheld under PIT (personal income tax)
- PIT-8AR - the annual return on flat-rate income tax withheld
- PIT-11 - the information on income and on income tax advances withheld
- IFT-1R - the information on income earned by individuals who do not live in Poland
Each of these returns serves a different purpose and has different filing deadlines. When the business operates normally, these deadlines are the same for all payers, but the situation changes radically once a decision is made to close the business.
The employer must remember that the role of payer does not end automatically when the decision to liquidate is made. Tax obligations relating to wages paid and advances withheld must be settled in line with the rules, observing the special deadlines that apply when a business is closed.
PIT-4R and PIT-8AR returns when a business is closed
The standard deadlines for filing PIT-4R and PIT-8AR require them to be submitted to the tax office by the last day of January of the year following the tax year. However, when a business is closed, different and much shorter deadlines apply, which require particular attention from the employer.
The tax office with which these returns are filed is determined by the payer's place of residence if the payer is an individual, or by the registered office or place of business for other entities. This rule stays the same whether the business continues or is being closed.
When a business is closed, the PIT-4R and PIT-8AR returns must be submitted to the tax office by the day the business ends. You cannot wait for the standard January deadline of the following year
The legal basis for this special deadline is Article 38(1b) of the PIT Act (ustawa o podatku dochodowym od osób fizycznych). This provision clearly states that if the business ends before the end of January of the year following the tax year, the payer must submit the PIT-4R and PIT-8AR returns by the day the business ends.
These returns should contain complete information on all income tax advances withheld for each month of the tax year. No periods may be left out, and the returns cannot be limited to the last months before the business ended.
This rule is of great practical importance, especially for business owners who decide to close their business in the second half of the year. In that situation, they have much less time to prepare and file the required returns than under the standard annual procedure.
| Type of return | Standard deadline | Deadline when the business is closed | Legal basis |
|---|---|---|---|
| PIT-4R | By 31 January | By the day the business ends | Article 38(1b) PIT Act |
| PIT-8AR | By 31 January | By the day the business ends | Article 42(1a) in conjunction with Article 38(1b) PIT Act |
| PIT-11 | By 31 January/28 February | By the day the business ends* | Articles 39, 42g PIT Act |
| IFT-1R | By 28 February | By the day the business ends | Article 42(3) PIT Act |
*Applies to all payers, including individuals running a business, and to both employment contracts and contracts of mandate (Article 42g(2) PIT Act)
IFT-1R information and closing a business
A special category of tax returns is the IFT-1R information, which concerns employers who employ individuals who do not live in Poland. This return is required when the employer withholds flat-rate income tax from the pay of such persons.
The purpose of the IFT-1R information is to provide the tax authorities with data on the amount of revenue or income earned in Poland by persons who do not live here. It is part of a wider system of tax control over the income of foreigners working in Poland.
When the business operates normally, the IFT-1R information must be submitted both to the tax office and directly to the employee by the end of February for the previous year. This two-month period gives employers enough time to prepare and submit all the necessary information.
Employers who employ foreigners who do not live in Poland must submit the IFT-1R information within a shortened deadline when the business is closed. The information must be submitted no later than on the day the business ceases
The situation changes radically when the business is closed. Under Article 42(3) of the PIT Act, if the payer ceases business before the standard deadline for submitting the information, it must submit the IFT-1R information no later than on the day the business ceases.
This rule is of particular practical importance for business owners who employ foreign workers. They must plan the liquidation taking into account the time needed to prepare and send the IFT-1R information to all parties concerned.
Failure to meet this obligation may have serious legal and financial consequences, as with other tax returns filed when a business is closed.
Rules for preparing PIT-11 information when a company is liquidated
The PIT-11 information is one of the most important documents in the tax settlement between employer and employee. It contains detailed data on the income earned and the income tax advances withheld, which the employee needs to prepare their own annual tax return.
Under Article 39(1) in conjunction with Article 42g(1) of the PIT Act, the payer must submit the PIT-11 information for the previous year to the relevant tax office by the end of January of the following year. In addition, one copy of this document must be kept in the employer's records.
An employee has the right to ask the employer to prepare the PIT-11 information before the standard deadline if the obligation to withhold income tax advances ended during the tax year. The employer must then issue the PIT-11 within 14 days of receiving the request
Article 42g(1) point 2 of the same Act specifies that the payer must send taxpayers the information on income earned by the end of February of the year following the tax year. These two deadlines - January for the tax office and February for employees - apply when the business operates normally.
The situation changes when the business is closed. Under Article 42g(2) of the PIT Act, there is one rule, regardless of the employer's legal form.
Whether the payer is an individual running a business, a legal person or a partnership, the PIT-11 information must be issued by the day the business ends. It is then not possible to wait for the employee's request or for the standard annual deadlines.
The same rule applies to people working under a contract of mandate. If the business ends before the last day of January of the year following the tax year, the PIT-11 information must be prepared and submitted by the day the business ends.
A limited liability company (sp. z o.o.) ran a consulting business and employed five people under employment contracts and three contractors under contracts of mandate. After deciding in October to liquidate, the company had to prepare and submit all PIT-11 forms by the day it actually ceased business, without being able to wait for the standard January or February deadlines.
Legal consequences of failing to meet tax obligations
An employer who fails to meet its obligations to file tax returns on time when closing a business faces serious legal and financial consequences. The rules provide for severe penalties for failing to meet these obligations, which can place a significant burden on the budget of the business being liquidated.
A payer who fails to submit the required tax information (e.g. PIT-11, IFT-1R) on time faces a fine of up to 180 daily rates (Article 80 § 2 of the Fiscal Penal Code (Kodeks karny skarbowy)), and in less serious cases a fine for a fiscal petty offence (Article 80 § 4). The daily rate system is flexible and takes into account the individual financial situation of the person penalised, which means that the final amount of the fine can vary considerably from case to case.
The court sets the amount of the daily rate individually in each case, taking into account the income and assets of the person penalised. The minimum daily rate is one thirtieth of the minimum wage, while the maximum cannot exceed 400 times the lowest rate (Article 23 § 3 of the Fiscal Penal Code)
In 2026, the lowest possible daily rate is PLN 160.20, which is one thirtieth of the minimum wage (PLN 4,806). This means that even with the mildest penalty, a business owner can be fined at least PLN 160.20 for each daily rate.
The maximum daily rate cannot exceed 400 times the lowest daily rate, which in 2026 means an upper limit of PLN 64,080. With the maximum penalty of 180 daily rates, the total fine can reach an astronomical amount of more than PLN 11.5 million. From 1 January 2027, with a minimum wage of PLN 4,950, the lowest daily rate will be PLN 165 and the highest PLN 66,000.
In practice, these rules give courts very wide discretion in setting penalties. They consider not only the breach of tax obligations itself, but also the financial situation of the person penalised, the degree of fault and other circumstances of the case.
Below are sample ranges of fines in 2026 depending on the number of daily rates:
- 10 daily rates: from PLN 1,602 to PLN 640,800
- 50 daily rates: from PLN 8,010 to PLN 3,204,000
- 100 daily rates: from PLN 16,020 to PLN 6,408,000
- 180 daily rates: from PLN 28,836 to PLN 11,534,400
Suspending versus closing a business
An important distinction regarding tax obligations towards employees is the difference between suspending and closing a business. These two legal states have different consequences for the deadlines for filing tax returns and for obligations towards employees.
When a business is suspended, the business owner keeps the status of taxpayer and payer but temporarily stops business operations. This means that all tax obligations relating to employees remain subject to the standard statutory deadlines. As a rule, only a business owner with no employees can suspend their business (exception: employees who are all on maternity, parental, childcare or carer's leave) - Article 22 of the Entrepreneurs' Law (ustawa Prawo przedsiębiorców) - so employment contracts must be terminated before suspension.
An employer who suspends the business must file all required tax returns by the standard deadlines. The PIT-11 information must be sent to the tax office by 31 January and to the employee by the end of February, the PIT-4R and PIT-8AR returns by 31 January, and the IFT-1R information by the end of February of the year following the tax year.
Suspending a business does not change the standard deadlines for filing tax returns for employees. The business owner must file all required documents by the standard deadlines, such as 31 January or the end of February
The situation becomes more complicated when a suspension turns into a final closure in the same calendar year. The business owner must then meet the strict deadlines that apply to liquidation, which means filing all tax returns by the day the company actually closes.
This change is of fundamental practical importance, as it can drastically reduce the time available to prepare and file the required documents. A business owner who originally planned only to suspend the business may be surprised by the need to complete all tax formalities quickly.
When planning a liquidation, these differences in deadlines should be taken into account. If there is a chance that a suspension will turn into a final closure, it is worth preparing all the necessary tax returns well in advance.
A transport company terminated the contracts with its drivers and suspended its business in May because of problems winning new contracts. The owner originally planned to resume the business after a few months, but in October he decided to close the company for good. This meant having to prepare and file all tax returns for the previously employed drivers immediately, instead of waiting for the standard January deadlines.
Practical aspects of settling with employees
Settling with employees when closing a business requires careful planning and coordination of many activities. The business owner must manage legal, financial and administrative aspects at the same time, while meeting all required deadlines and procedures.
The first step should be to prepare a detailed schedule of activities covering all obligations under labour law and tax law. The schedule must be flexible and allow for possible delays or complications that may arise during the liquidation.
A key element is informing all employees properly about the planned closure of the business and about their rights and obligations in this process. Employees should receive clear information about notice periods, the benefits due and the procedures for handing over tax documents.
The employer should prepare a complete set of documents for each employee, including all required tax returns and confirmations of benefits paid. These documents should be handed over to employees no later than on the day the business ends
Preparing tax returns requires particular care and precision. Each return must contain complete and accurate data, because errors may require corrections, which can be much more complicated once the business has closed.
It is also worth preparing for possible questions and doubts from employees about their tax situation after their employment ends. Employees may need additional explanations about how to settle their income tax or how it affects their future tax obligations.
Closing the business does not end the obligation to store employee records - as a rule, for 10 years from the end of the calendar year in which the employment ended, unless other rules provide for a longer period (Article 94 point 9b of the Labour Code). When a company is liquidated or declared bankrupt, the liquidator or trustee indicates an entity that will take over the records for further storage, provides the funds for this and hands the records over before the employer is removed from the KRS (National Court Register) or CEIDG (Central Register and Information on Economic Activity) (Article 51u of the Act on the National Archival Resource and Archives (ustawa o narodowym zasobie archiwalnym i archiwach)).
Practical tips for settling with employees smoothly:
- Prepare a complete list of all employees and the types of their contracts
- Check periods of employment and the amounts of pay carefully
- Prepare all tax returns well in advance
- Consult an accountant or tax adviser if in doubt
- Keep copies of all documents you hand over for your own records
- Inform employees about their rights and obligations in the settlement process
