A family business - what you need to know when employing family members

Many entrepreneurs use the help of their family when running a business. It is a very convenient solution, especially in the case of seasonal activities, when at certain times of the year the number of duties and hands required for work increases. It should be remembered that such a situation gives rise to certain obligations in terms of tax and insurance. What is worth remembering when running a business with the help of your loved ones?

Family member employee - on what basis?

The rules for hiring family members are not very different from those for other (foreign) employees. This means that the basis for such employment may be an employment relationship (i.e. an employment contract), as well as any other relationship on the basis of which work may be performed - e.g. a mandate contract. It is also possible for a family member to provide work without a contract, or to establish a business activity by such a person and cooperation on the basis of a contract between two economic entities.

It should be remembered that depending on the basis on which the family member performs work in the entrepreneur's business, the settlement of income tax and insurance will look different.

A cooperating person - who is that?

First of all, it should be noted that in accordance with the Act of October 13, 1998 on the social insurance system, a family member employed in the company is the so-called a cooperating person. The group of such people includes:

• spouse,

• own or adopted (adopted) child,

• spouse's child,

• the spouse's adopted child,

• parent,

• stepmother,

• stepfather,

• the adopting person.

It is important that these people stay in the same household with the entrepreneur and at the same time cooperate with him in running the company. Even if the above-mentioned persons perform work on the basis of a formal obligation, they will not be treated as "ordinary" employees, but each time - as cooperating persons.

 

Attention! The cooperating person will not be e.g. a roommate or cohabitant - these persons do not belong to the group of family members mentioned in the above-mentioned act.

A person cooperating in the company - what are the obligations at ZUS?

At the beginning, it should be emphasized that regardless of the time that a given family member spends on helping an entrepreneur, the owner of the company is obliged to pay ZUS contributions for such a person. Therefore, employing such a person, like employing an employee, requires reporting this fact to the Social Insurance Institution within 7 days from the date of the insurance obligation. The appropriate form in this case is ZUS ZUA. Due to the fact that in such a situation the entrepreneur becomes at the same time a contribution payer, he should also submit a declaration of the contribution payer (if he has not previously done so) - ZUS ZFA.

At this point, it is worth emphasizing that in the event of termination of work by a cooperating person, the owner of the company is obliged to deregister a family member (ZUS ZWUA) and - if he has no other employees or cooperating persons - he should also deregister himself as a contribution payer (ZUS ZWPA).

What contributions and in what amount the entrepreneur will have to pay depends on the basis of the work performed by the cooperating person. The basic rules in this respect are described in the table below.

 

Terms of cooperation	Paid contributions
A cooperating person employed on the basis of an employment contract, for a specific task or working unpaid	The contribution is analogous to that for an entrepreneur (but for cooperating persons there is no relief in the form of preferential ZUS contributions - here the so-called large ZUS always applies).
A cooperating person employed on the basis of a paid mandate contract	Premium as for any other mandate contract.
A cooperating person who also works for another employer	Only the health insurance contribution (provided that with another employer such a person receives remuneration in the amount corresponding to at least the minimum wage).

Another obligation is to submit the appropriate declarations on a monthly basis. The forms that the entrepreneur must submit to ZUS are ZUS RCA, i.e. a monthly report on contributions due and benefits paid, or ZUS RZA, i.e. a personal report on due contributions for health insurance (if only this type of contribution is paid for a given person) and each time the ZUS DRA settlement declaration.

 

Attention! Social security contributions paid by the entrepreneur for a cooperating person may be included in tax deductible costs. It should be remembered that the health insurance premium for such a person (in the amount of 7.75% of the calculation basis) is deducted by the owner of the company from income tax.

A person cooperating in the company - what are the obligations in PIT?

If the cooperating person receives remuneration for the work performed, it is subject to income tax. In this case, the entrepreneur is obliged to calculate and pay to the account of the tax office competent for the entrepreneur PIT advance payments for such a person. However, after the end of the tax year, he should prepare PIT-11 (information on income and collected advance payments for PIT is prepared by the end of February for the previous year) in two copies. One should be delivered to the cooperating person, the other one should be delivered to the tax office competent for the cooperating person's place of residence.

Moreover, by the end of January, the entrepreneur should also submit a PIT-4R declaration to the office (competent for his address of residence or business). This is information about the cooperating person's income tax advances taken.

 

Attention! The remuneration that the entrepreneur pays to the cooperating person, if it is a spouse or minor child, cannot be included in the company's tax costs. Moreover, this rule also applies when there is a separation of property between the entrepreneur and the assisting spouse.

At this point, it should be emphasized that the remuneration received by a cooperating person from the owner of the company constitutes income for it, which should be included in the annual PIT declaration.

The case of income tax is different if the partner helps in running the business free of charge. Then the entrepreneur is not obliged to submit any declarations to the office. In such a case, however, the question arises - does unpaid work performed by family members for the company constitute income for the entrepreneur, on which the entrepreneur should pay income tax? As a general rule, yes, but with specific exceptions. One of them is the situation when people with whom he is closely related (included in tax groups I and II within the meaning of the provisions on inheritance and donation tax) work for the employer, that is:

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• spouse,

• descendants, i.e. own and adopted children, grandchildren, great-grandchildren,

• ascendants, i.e. parents, grandparents and great-grandparents,

• stepson, son-in-law, daughter-in-law, siblings, stepfather, stepmother, in-laws, siblings 'descendants, parents' siblings.

What will the entrepreneur include in the costs?

Hiring a family involves various types of expenses. As already mentioned, the remuneration paid to the cooperating person (if that person is a spouse or a minor child) cannot be recognized by the entrepreneur as a tax deductible cost. Does this rule also apply to other expenses related to hiring a family? Not. The owner of the company may include in the tax costs, for example, expenses for courses, business trips, daily allowances, etc., provided that they are related to the income generated from the activity.