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Provision for jubilee awards in Poland: basis, measurement and presentation

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In brief

Under KSR 6, jubilee awards are long-term employee benefits that depend on length of service, to which employees earn the right throughout their employment with the entity (point 3.14(c)). The basis for measuring the provision is labour law, pay regulations, collective agreements and other binding agreements between employers and employees (point 4.7). The provision is shown in the balance sheet as a provision for liabilities (art. 39(2)(2) and (2a) of the Accounting Act, KSR 16 point 12.11); capital companies cannot use the exemption for micro and small entities (art. 39(7)). Awards due no more often than every 5 years do not form the basis for social insurance contributions, and a provision made under the Accounting Act is not a tax-deductible cost.

Basis
labour law, pay regulations, collective agreements (KSR 6 point 4.7)
Obligation
art. 39(2)(2) and (7) of the Accounting Act
Contributions
none if the award is due no more often than every 5 years
CIT
the provision is not a tax-deductible cost

On this page

This is an English translation of the Polish guide Rezerwa na nagrody jubileuszowe. Quotations from Polish sources are our translation.

Basis of measurement: pay regulations and collective agreements

“The basis for measuring provisions for future employee benefits is labour law, pay regulations, collective agreements and other binding agreements between employers and employees” (KSR 6, point 4.7).

  • “An employer employing at least 50 employees who are not covered by a company collective agreement or by a multi-employer collective agreement meeting the requirements set out in § 3 sets the terms of remuneration for work in pay regulations” (art. 77² § 1 of the Labour Code).
  • “In the pay regulations the employer may also set other work-related benefits and the rules for granting them” (art. 77² § 2).

Who must make the provision

KSR 16 counts among accrued expenses (bierne rozliczenia międzyokresowe kosztów) “provisions for future employee benefits, including retirement severance pay and jubilee awards (art. 39(2)(2) of the Act)” (point 12.11). They are shown “in the balance sheet as provisions for liabilities” (art. 39(2a) of the Accounting Act).

  • Exemption. Micro and small entities may refrain from making these provisions (art. 39(6)); this does not apply to public finance sector units, unless separate provisions state otherwise, capital companies, limited joint-stock partnerships, or general and limited partnerships all of whose partners with unlimited liability are capital companies, limited joint-stock partnerships or companies from other countries with a similar legal form (para. 7). The entities listed in art. 3(1h), among them banks, insurers and issuers of securities admitted to trading on a regulated market, are also treated as large regardless of size. Which entity is small is explained in the guide Retirement severance provision.
  • Materiality. The provision may be omitted if this does not have a materially adverse effect on a true and fair presentation of the entity’s position; “This, however, requires a materiality threshold on initial recognition to be set in the accounting policies” (KSR 16, point 12.13).

Measurement under KSR 6

  • Status of KSR 6. “In matters not regulated by the act, when adopting accounting policies, entities may apply the national accounting standards issued by the Accounting Standards Committee” (art. 10(3) of the Accounting Act). More on the page KSR 6.
  • Recognition of the cost. “Retirement and disability-pension severance pay and jubilee awards are long-term employee benefits that depend on length of service. Employees earn the right to these benefits throughout their employment with the entity; this gives rise to an obligation of the entity towards employees in the future.” Accrued expenses for these obligations are set “at a reliably estimated value, as a charge to costs directly related to operating activities in the current period” (KSR 6, point 3.14(c)).
  • Employer’s charges. The estimate of the provision “should take into account the employer’s mandatory charges under the legislation in force at the date of the estimate (e.g. pension and disability contributions)” (point 4.7).
  • Discounting. The amount of the provision “should, by applying a discount rate, reflect their present value”; the rate is set on the basis of market yields on high-quality corporate bonds or on government bonds, according to the entity’s accounting policies, and the increase in the provision due to the passage of time “is recognised as a finance cost in the profit and loss account” (point 4.10). Discounting may be omitted “on the basis of the materiality principle” (KSR 16, point 12.14).
  • Legislation and tax. “Provisions are recognised and measured taking into account the legislation in force at the measurement date” (point 4.12). “Provisions are measured before income tax” (point 4.11).
  • IAS 19. KSR 6 refers to IAS 19 in the sentence: “In measuring retirement and similar benefits, the entity applies the provisions of IAS 19 ‘Employee Benefits’” (point 4.7).

Selected official data on interest rates, wages, inflation, mortality and the pension age are on the page Założenia aktuarialne (in Polish).

Presentation in the financial statements

  • Balance sheet: provisions for liabilities (liabilities B.I, Appendix 1 to the Accounting Act). KSR 6 separates within them B.I.2 “Provision for retirement and similar benefits” and B.I.3 “Other provisions”, which also cover provisions under art. 39(2)(2) of the act “other than retirement and similar benefits”; both are split into a long-term and a short-term part by the expected date of use: more than 12 months after the balance sheet date or within 12 months (KSR 6, chapter V).
  • Release of the provision. “Liabilities recognised as accrued expenses reduce the costs of the reporting period in which it was established that these liabilities did not arise” (art. 39(5) of the Accounting Act).
  • Notes (KSR 6, point 5.1): the purpose, the balance at the beginning of the period, provisions made during the period including increases due to the passage of time and changes in the discount rate, amounts used, unused amounts released and the balance at the end of the period.

Contributions and corporate income tax

  • Contributions. “The following income does not form the basis for assessing contributions: 1) jubilee awards (gratuities) which, under the rules setting the conditions for granting them, are due to an employee no more often than every 5 years” (§ 2(1) of the Regulation on the detailed rules for determining the basis for assessing pension and disability insurance contributions).
  • CIT. Under art. 16(1)(27) of the Corporate Income Tax Act, “provisions … made in accordance with the Accounting Act or IAS, other than those specified in this Act as such a cost, are, however, not tax-deductible costs”.

Sources

We calculate your employee benefit provision under IAS 19 and the Polish Accounting Act.

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