Warsaw, 9th February 2021
Memorandum of the Union of Entrepreneurs and Employers:
Let us abolish the minimum wage in micro-enterprises
- Smallest of enterprises are hit hardest by the pandemic. The livelihood of many is at risk. Let us help them by eliminating the minimum wage in micro-enterprises.
- For the same purpose, a simple method of taxing companies generating revenues not higher than PLN 120 thousand annually should be introduced: a uniform 20% revenue tax, covering PIT and social contributions.
The Union of Entrepreneurs and Employers has repeatedly described the destructive impact on the economy of both the pandemic and the restrictions on business activity. Although the statistics are not extremely bad on the macro scale (despite the fact that the first recession in thirty years is a fact), some industries are feeling the effects of the pandemic particularly severely. As it usually happens in most cases, micro-enterprises are exposed to the highest risk of bankruptcies and layoffs. They do not have the financial reserves necessary to survive such a difficult time.
We emphasise the fact that some of the sectors subject to restrictions are to a large extent made up of the smallest of entities. Moreover, some of these companies may be excluded from the possibility of applying for key support instruments due to failure to meet certain criteria on their part (including – above all – the criterion of employment based on a contract). This is to a high degree due to the specific nature of business operations, and mainly a result of seasonality or the team being students or young people just entering the labour market. This is relatively commonplace in the services sector, and this is the exact sector that is most affected by the enforced restrictions.
We fear that the prolonged restrictions (that we have been consistently against) may lead to a collapse of the Polish microbusiness. With this in mind, we believe it to be a reasonable solution to introduce a programme aimed precisely at supporting the smallest entrepreneurs. We propose that this programme consist of at least two elements, which are presented below.
1) A return to the original concept of „small business”
Already a few years ago, the Union of Entrepreneurs and Employers designed a solution to help the smallest economic entities. For them, the obligation to pay flat-rate social security contributions, regardless of their revenue, is associated with a decrease in profitability to a point where it becomes a real challenge. Needless to say, for most entrepreneurs, the flat-rate social contribution is a favourable solution, but in case of the above-mentioned group, the necessity to pay the yearly increasing amounts is a source of real problems in staying in business.
We have proposed that entrepreneurs running a sole proprietorship on the smallest scale (revenues not exceeding several dozen thousand zlotys per year) should be able to settle accounts with the Tax Office and the Social Insurance Institution by means of a uniform, simple levy paid on revenue, including both the income tax and all due contributions.
Our postulates were somewhat reflected in the “small ZUS plus” formula (ZUS – Social Insurance Institution) introduced by the government. This relief has evolved, but even in its current, extended form, it does not take into account all the elements contained in our concept. First of all, as its name suggests, it only applies to social security contributions, while the original “small business” proposal also included income tax. The structure of the solution itself is also different – instead of a simple product of the rate and the income achieved in a given month, “small ZUS plus” requires the determination of the average monthly income from business activity, multiplying it by a factor of 0.5 and – ultimately – comparing the result with the amount of 30% minimum wage and 60% of the forecast average monthly wage.
The more complicated structure aside, the main difference between the implemented concept of “small ZUS plus” and the idea of “small business activity” presented by the Union of Entrepreneurs and Employers is the fact that the discussed relief in social insurance contributions is limited in terms of time: it can only be benefited from for three years over a five-year period.
As a result, the problem of the smallest companies generating low revenue (from which a small amount remains in the owner’s pocket having paid all due public levies) remains valid. The key advantage of the concept promoted by the Union is it being a systemic solution. Henceforth, we believe that the minimum plan is to resign from the time restriction on the “small ZUS plus”. Ultimately, one should strive to implement the original idea to regulate “small business”, so that the smallest entities can settle accounts in a simple way, and their burden is directly dependent on the revenue generated. The rate of such a tax should come up to approximately 20%. For a considerable part of the smallest enterprises, this will be a lower total burden than the cumulative amounts of social security and personal income tax contributions.
2) Minimum wage abolition in micro-enterprises
Despite the fact that the labour market has coped relatively well with the problems caused by the coronavirus epidemic, the first obvious signs of its weakening condition are already visible. Unemployment registered in January reached the level of 6.5%, the highest in several years. The number of new job offers is also gradually decreasing. In the autumn of 2020, their number was on average over 25% lower than the year before.
It might be worth to emphasise the fact of partial regionalisation of the problem of unemployment, resulting from, among others, a relatively stronger impact of the pandemic on, for example, resorts. For instance, in the Kołobrzeg poviat, the registered unemployment rate increased due to the pandemic threefold (sic!).
One also has to note that industries subject to restrictions (food services, hotels, pubs, cultural institutions etc.) are sectors in which a significant part of youth, including students, traditionally gain their first working experience. Layoffs resulting from, for example, an administrative ban on conducting business activity are a lot harsher for these employees as it is much more difficult than in normal circumstances to find an alternative job. In the world before the COVID-19 pandemic, a young person starting a career e.g. in a restaurant could easily find other employment in a bar, a cinema or a hotel, if necessary. In the new reality marked by a lockdown, their possibilities are not endless.
The conclusions stated above are increasingly often confirmed by experts who claim the coronavirus epidemic affects young people active in terms of work the most. This is an observation not limited to Poland, but valid globally, especially since most countries decided to introduce similar bans or restrictions.
Bearing in mind the arguments listed above, we believe that it is worth putting safety measures in place in order to mitigate the risks for the labour market resulting from the difficult situation caused by the pandemic. Presently, many entrepreneurs still keep jobs, contrary to the economic calculation. It will not be long, however, before ruthless calculation will force them to cut jobs, and this may rapidly affect industries whose activities are limited. As a consequence, a return to double-digit unemployment rates unseen in Poland for years is possible. In circumstance like those, it would be difficult for young (inexperienced) and low-skilled people to find employment.
To prevent this scenario from happening, we propose a bold move to be considered: the introduction of a threshold based on enterprise size, from which the minimum wage provisions would apply. To a certain degree, a similar solution exists in the United States, where the federal minimum wage regulations apply to companies with annual revenues exceeding USD 500,000. In Poland, the starting point of reference could be micro-entrepreneurs. The discussion on the threshold beyond which an entrepreneur would be bound by the provisions regulating the minimum wage, however, should remain open.
To sum up, the Union of Entrepreneurs and Employers would like to emphasise that the pandemic may lead to the collapse of micro-entrepreneurship in Poland. It is difficult to evaluate the scale of this phenomenon or its duration at this very moment, but there is no doubt that a proposal to introduce a regulatory support programme for micro-enterprises is a justified course of action in order for them to survive this difficult time and to recover after the epidemic. We believe that both concepts presented above: the return to the idea of “small business” and the exemption of the smallest of companies from the scope of the provisions regulating the minimum wage, have the potential to serve this purpose.