Government increases contributions to Guaranteed Employee Benefits Fund

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In late 2002, the Polish government decided to increase employers' contributions to the Guaranteed Employee Benefits Fund, which is used to cover the wage arrears due to the employees of bankrupt businesses. The most recent control performed by the Social Insurance Institution found that the Fund is not properly managed and is almost empty.

Employers that engage in business activity (though not those funded out of state budget and their auxiliary units) are obliged to make contributions to the Guaranteed Employee Benefits Fund (Fundusz Gwarantowanych Swiadczen Pracowniczych). The Fund is used to cover the wage arrears due to the employees of bankrupt business entities. In order for its employees to become eligible for payments from the Fund, a business entity must become bankrupt, be liquidated, or have its insolvency affirmed in an official ruling. All employees with outstanding wage claims can be eligible for payments from the Fund, from workers at small family operations to those at large (most typically state-owned) factories. Employees may have their unpaid wages met from the Fund, regardless of whether or not their employer had kept up the payment of contributions.

Since July 1999, the rate of employers' contributions to the Guaranteed Employee Benefits Fund has stood at 0.08% of the employee's basic remuneration. According to information from the Social Insurance Institution (Zakład Ubezpieczeń Społecznych, ZUS), even this modest contribution has often gone unpaid by employers.

The estimated balance of the Guaranteed Employee Benefits Fund accounts for 1999 was around EUR 150 million. In that year, regulations were enacted which authorised the Fund to lend money to commercial entities struggling with temporary financial difficulties. Some experts have suggested that the Fund’s council, dominated by trade union representatives, has since extended many loans in an inappropriate way. Many of the Fund’s loans have gone towards paying wages at steel processing plants and mines and have never been repaid. Most of the remainder has been earmarked for severance payments for redundant miners by the Ministry of the Economy (Ministerstwo Gospodarki). When the laws authorising lending by the Fund recently became the object of scrutiny, it turned out that its coffers are almost empty.

The dire financial situation with which the Guaranteed Employee Benefits Fund is presently faced results not only from misguided lending, but also from difficulties with enforcing contributions from unscrupulous employers. According to some estimates, the Fund has been collecting only 25% of the money theoretically due to it. The largest debtors of the Fund include the mines, the steel plants, and an assortment of other state-owned industrial operations. The director of the Fund believes that if these entities are forced to pay up their arrears, it is quite likely that they will collapse and, in consequence, join the Fund’s 'customers'. In the meantime, the ranks of employees with claims which ought to be met from the Fund’s assets has been steadily growing. It is expected that their number will soon be increased further by workers newly made redundant under restructuring programmes for the steel and mining industries.

In late 2002, the government addressed these concerns by deciding to increase the employers' contribution to the Guaranteed Employee Benefits Fund to 0.5% of basic remuneration. This move has encountered understandable objections on the part of the employers, which accuse the authorities of increasing the cost of labour in contradiction of their avowed goal of fostering entrepreneurship.