An entrepreneur is a human being too, but does he or she deserve a paid leave?

A break from paying social security contributions: a month’s holiday for micro-entrepreneurs due to start in 2024!

At first glance, the term “holiday for entrepreneurs” may evoke images of a long holiday when we unplug from daily business responsibilities or of chill-out on an exotic beach. But the fact is that this new initiative has hardly anything to do with the traditional understanding of holiday. What entrepreneurs will get is something much more pragmatic than suitcases and airline tickets: a break from paying contributions to the Social Security Institution (ZUS) and the Labour and Solidarity funds. It is a solution addressed to micro-entrepreneurs and the self-employed who, for whatever reason, may need a temporary respite in their current business, without having to suspend or close the company.

This is just the beginning

9 January 2024 marked a milestone in the introduction of the so-called “holiday for entrepreneurs”. On that day the government adopted a communication on the direction and timetable of legislative work to put in place this innovative form of support for micro-entrepreneurs and the self-employed. On 25 January 2024, the Ministry of Development and Technology submitted for consultation a draft law amending the law on the social security system and certain other laws introducing the so-called “holiday for entrepreneurs”. This draft law proposes that entrepreneurs should be able to take a 1-month break from paying social security contributions. The purpose of this measure is to offer substantial support in running a business, especially at times when entrepreneurs are encountering financial or personal hardships that may have an adverse impact on the continuation of their business. This initiative comes in response to the needs of small businesses, often most severely affected by the financial and administrative responsibilities of running their own business.

When discussing the proposed relief, it is necessary to mention one of its crucial features that makes it both innovative and attractive to entrepreneurs: no obligation to suspend your business. Quite the contrary, entrepreneurs are free to continue doing business, including invoicing and fulfilling ongoing obligations towards their customers. This aspect is particularly significant since it makes it possible to maintain the company’s operational continuity, without any interruptions that could exert an adverse effect on the company’s functioning and relationships with its contractors. Moreover, in the month when the entrepreneur decides to use the relief, their obligation to pay social security contributions will be assumed by the Social Insurance Institution (ZUS). This means that, even if the entrepreneur takes a break from paying contributions, they do not lose their social security, something that is of the utmost importance in terms of social protection and a sense of security for both the entrepreneur and their family. This form of support is designed not only to provide financial relief, but also to reduce the stress and uncertainty of running your own business, especially in difficult circumstances.

Main assumptions of the draft law

Let us discuss the most significant assumptions of the draft law providing for this type of relief for a specific group of entrepreneurs. The key idea is to offer the possibility of obtaining exemption from the obligation to pay social security contributions for one month per year. This approach has a significant impact on liquidity and can serve as a form of “financial buffer” in more challenging periods of business activity.

Significantly, as mentioned at the outset, entrepreneurs are not required to cease their business because of this relief. They are able to continue to do business, something that is vital for maintaining a steady flow of revenue and customer relationships. This solution demonstrates an understanding of the realities of running a small business, where even brief interruptions can lead to far-reaching consequences.

The assumption that the Social Security Institution will cover the social insurance contribution in the period when an entrepreneur uses the relief is another element inherent in the logic of supporting and protecting entrepreneurship. Not only does this guarantee ensure continuity of social protection for the entrepreneur, but it also relieves the entrepreneur of one of the key monthly financial burdens.

The planned pace of work on the draft law, which is due to be adopted by the Council of Ministers by the end of March and enter into force in the same year, demonstrates a decisive response to the needs of the SME sector. The rapid delivery of this project is likely to give an important message to entrepreneurs that their situation is understood and appreciated by economic policymakers.

Advantages and pitfalls

When discussing the “holiday for entrepreneurs” draft law, it is important to pay attention to the potential challenges and limitations that may be perceived as pitfalls of this initiative.

The first one is related to the eligibility criteria. We already know that the criteria will be based primarily on the definition of a micro-entrepreneur, a key element in the understanding of who can benefit from the relief. As defined in the Entrepreneurs’ Law, a micro-entrepreneur is a business entity that has fulfilled two key criteria in at least one of the last two financial years:

• employing fewer than 10 employees on average per year;
• achieving a net turnover from sales of goods, products, services and financial operations of not more than the equivalent of EUR 2 million. Alternatively, the total assets of the company’s balance sheet, as drawn up at the end of one of the last two financial years, must not exceed the same amount.

In reality, while providing significant support for the smallest business segment, the planned relief actually addressed to a relatively narrow social group. Micro-enterprises represent a significant proportion of all businesses in Poland, yet when considered in the context of the country’s population as a whole, the group of entrepreneurs eligible for this relief is relatively small.

Another aspect concerns the limit of one month annually. For some entrepreneurs, in particular those in more challenging financial situations or experiencing extended crises, this period may not be long enough. Moreover, taking a holiday may entail the need to carefully plan and adjust the business cycle, putting an additional organisational and financial burden on some entrepreneurs.

It is also necessary to take into account the long-term financial impact on the social security system. The payment of contributions by the Social Security Institution in the month of using the relief puts a strain on the budget of this body. If the relief is widely used by entrepreneurs, this could affect its financial stability. This could result in further reforms or changes to the social security system, with long-term consequences for all contributors.

Finally, there is a risk that the administrative complexity of applying for holiday, providing documentation and verifying eligibility may frighten some entrepreneurs away from seeking this opportunity. If found too burdensome, red tape and paperwork can undermine the benefits of the relief.

Summary

The draft law concerning holiday for entrepreneurs can be assessed positively, considering its potential for supporting micro-enterprises and the self-employed. It is important to bear in mind, however, that the legislative journey has only just begun and the final form of the law may differ from the current assumptions. The explanatory memorandum to the draft law states that the amendment to the law on the social insurance system and certain other laws is due to take effect as of 1 October 2024. Uncertainty about the final regulations, considering the distant effective date of the amendment, uncertainty about the details of the eligibility criteria, the application process and the impact on the social insurance system represent factors that are likely to cause risk and doubt.

One should be thus optimistic about this initiative, recognising its potential benefits and support for the SME sector, while remaining aware of and ready for any challenges that may arise during the finalisation and implementation of the draft law. It will be crucial to keep an open dialogue between entrepreneurs, legislators and institutions such as the Social Insurance Institution with a view to ensuring that the final solutions respond to the needs and capabilities of all parties in the best possible way.

Authors:
Katarzyna Hiller, Attorney at Law
Zuzanna Włoczko, Legal assistant