Employee employment costs – how much does the employer really spend?
The costs of hiring an employee in Poland are horrendously high. Many employers do not create additional jobs despite the demand, because in addition to the salary for the employee, they have to take into account huge expenses related to social security contributions. In the past, employment costs could be reduced by opting for civil law contracts, primarily a contract of mandate. Currently, even this is associated with high costs.
How much does the employer really spend due to hiring employees? In addition to typical labour costs, what should be included in the final calculation? How to reduce the costs associated with employment without giving up on qualified employees?
Costs of hiring an employee under an employment contract
The most desired and most popular form of employment in Poland is an employment contract. The legal regulations related to it result from the Labour Code. Employees are not always aware of the high costs incurred by the employer. They are interested in the net salary received in hand. But the costs of hiring an employee are much higher – the employer has to dig much deeper into his pocket.
In addition to the salary and income tax, which in practice is paid by the employer, the costs incurred by the employer also include the following contributions:
- pension contribution – 9.76%,
- disability pension contribution – 6.50%,
- accident premiums – 1.67%,
- Labour Fund – 2.45%,
- guaranteed employee benefits fund – 0.1%,
- In total, the additional burden on the employer reaches about 20% of the gross salary.
In 2021, the minimum wage was PLN 2800 gross. In 2022, its amount increased to PLN 3100 gross. However, this is not the end of the increases, and next year they will be even more radical. From 1 January 2023, the minimum wage will increase to PLN 3490, and then from 1 July it will reach PLN 3,600 gross.
With the current minimum wage, the employer incurs an additional cost of over PLN 616 in terms of contributions. In turn, from July 2023 with a minimum wage of PLN 3,600 gross. The total cost of the employer will reach PLN 4,337.28, which means PLN 737.28 allocated each month for mandatory contributions.
However, it is worth taking into account that minimum wages are rather rare. Specialists earn at least several times more. The other costs of employing an employee also increase proportionally. In a word, the employer’s situation is not comfortable.
Costs of hiring an employee under a contract of mandate
A contract of mandate is still a fairly popular form of employment, especially among temporary workers, seasonal workers and lower-level employees, where there is a relatively high turnover. The issue of a contract of mandate is regulated by the Civil Code. Some employers still choose this form of employment because it gives more flexibility, for example when it comes to dismissing an employee.
What are the costs of employment under a contract of mandate? They are variable. The costs of employing an employee under a contract of mandate who is under 26 years of age and has the status of a student are only the gross salary. The situation is similar in the case of employees who are employed in another company, where they receive remuneration equal to at least the minimum wage. Unfortunately, in other cases, which are the vast majority, the employer incurs exactly the same costs as in the case of employment under an employment contract.
Labour costs related to a contract for specific work
The situation is different in the case of contracts for specific work, which are not subject to contributions, so the only cost incurred by the employer is the employee’s gross salary. Why, then, is this type of civil law contract not more widely used in Polish companies?
Because the contract for specific work does not bind the employee with the employer in any way, but only obliges him to perform a specific work included in the contract. In practice, this means that an employee who would sign such a contract can perform the work anywhere, does not have to appear at the company’s headquarters and is not subject to the employer’s control.
It is worth mentioning that the modern labor market is largely an employee’s market and it is the employees or potential employees who have more to say when negotiating the terms of cooperation. A contract for specific work is not attractive for permanent or even temporary employees, because it does not guarantee them any employee rights and privileges. Currently, it is used for its intended purpose by professionals who accept specific orders from clients.
High employment costs and the characteristics of the labour market
An employer who is considering creating additional jobs must take into account other factors. Dry costs of hiring an employee are not everything. The modern labor market is employee-friendly, who can usually choose from many offers and expect additional benefits from the employer. These include, among others, Private Medical Care, additional health insurance, sports benefits and other non-wage benefits.
In addition, it is also worth taking into account all costs related to social facilities, as well as HR and payroll services and the recruitment of employees itself. Maintaining an HR department, even a small one, requires the creation of additional jobs. It is worth remembering that each recruitment process is also associated with the risk of not being able to find the right specialist. Fortunately, and at least this risk and the associated costs can be reduced.
Permanent recruitment with an agency – it pays off
More and more companies are recognising the benefits of recruitment support provided by an employment agency. Permanent recruitment has become a valued service. What do they consist of? The agency takes care of the entire recruitment process. Thanks to the fact that specialized external companies have extensive experience and a database of candidates, the probability of finding the right employee who will accept the conditions offered by the employer is much higher. What does the permanent recruitment process look like?
First of all, the agency together with its client, i.e. the employer, precisely define the needs and expectations related to a given position. This creates a profile of the ideal candidate. In the next stage, the agency deals with the search for suitable candidates. For this purpose, it uses its own contact database, but also professionally prepared advertisements posted on recruitment portals and industry websites. The initial selection of candidates takes place while still in the agency, which is a huge time saver. The same applies to initial interviews. As a result, the employer who is the agency’s client receives a list of indicated candidates. Subsequently, he can recruit some of them himself.
Costs of hiring an employee and the benefits of permanent recruitment carried out by an agency
Given the high cost of employment, the risk of ineffective recruitment becomes even higher. The employer wastes time and resources on training the recruited employee, and if after a few months of the trial period it turns out that the candidate does not meet expectations, the whole process starts again. Therefore, permanent recruitment carried out with the help of an employment agency is extremely profitable.
The most important benefits of permanent recruitment carried out by the agency:
- quick access to candidates presenting appropriate qualifications;
- the possibility of recruiting among passive candidates who, theoretically, are not currently looking for a job, so they would not make it to the advertisement;
- maximum reduction of the time allocated for recruitment;
- faster onboarding of a new employee who already has extensive experience;
- no need to maintain an HR department responsible for recruitment, which compensates for high employment costs;
- substantive support of the agency at every stage of recruitment;
- recommendations from experienced recruiters on how to choose the right candidate.
The high costs of hiring an employee in Poland make it not worth taking the unnecessary risk associated with unsuccessful recruitment. Permanent recruitment by specialized agencies reduces costs and risks, allows you to find the best specialists and speeds up the recruitment process itself.
Some entrepreneurs complaining about high labour costs may also consider more flexible forms of hiring employees if the demand for labour changes over time, or for various reasons the full-time employee will be absent from work for a long time. In such a case, temporary work turns out to be a reasonable solution, which reduces costs and formalities on the part of the employer to an absolute minimum.
Doświadczony analityk rynku pracy, specjalizuje się w badaniach nad trendami zatrudnienia i zmianami w strukturze zawodowej. Jego artykuły, publikowane w renomowanych czasopismach branżowych, pomagają czytelnikom zrozumieć dynamikę rynku pracy.
