ECJ rules on social security contributions

Businesses are reacting to a European Court of Justice ruling which affects how social security contributions are paid by workers who are employed by Polish companies, but work in another Member State. Until now many Polish companies, particularly in the construction sector, have capitalised on relatively low labour costs, helped, in part, by being able to pay lower Polish social security contributions for workers based in other Member States. The ECJ ruling will end this.


Following the last two EU enlargements in 2004 and 2007, the labour markets of the original 15 EU countries (EU15) were opened to workers from the new Member States (NMS). Fears of an influx of cheaper labour from the Central and Eastern Europe (CEE) region spread in the EU15 countries. Those fears were reinforced by some dubious practices in the labour market such as spurious or ‘bogus’ self-employment and the abuse of the status of posted workers.

In Poland, what is known as the ‘exported workforce’ has continued to grow since 2004, although the scale of the phenomenon cannot be precisely determined.

The case

Case C-115/11 Format Urządzenia i Montaże Przemysłowe which eventually arrived before the European Court of Justice (ECJ) began in 2008. The local branch office of Poland’s Social Security Institution (ZUS) in Warsaw refused to certify that a worker, Wiesław Kita, was insured by ZUS. This meant he was not recognised as being covered by the Polish social security system.

Between 2006 and 2012, Mr Kita had been employed by the Format Urządzenia i Montaże Przemysłowe, a Warsaw-based construction company based but active on sites throughout the EU. He worked for Format in Finland, France, Germany, Ireland and the UK. He did not move constantly between these member states; instead, during a given period and usually for several months a year, he worked in just one country.

While on the payroll of Format, Mr Kita did not work in Poland. ZUS argued that his social security contributions ought to be paid in the country where he was actually working.

Mr Kita and Format disagreed, and argued that he fell into the category of ‘a person normally employed in the territory of two or more Member States’, as defined by EEC Regulation 1408/71. As a result, Format appealed against the ZUS decision, but the Polish court ruled against them.

As the case continued on its judicial path, the Court of Appeals in Warsaw asked the European Court of Justice (ECJ) for its interpretation of the concept of ‘a person normally employed in the territory of two or more Member States’.

Had the court supported the claimants’ point of view, then it would be possible for social security payments for Mr Kita and workers in a similar position to be paid in Poland.

Regulations covering posted workers did not apply in this case, as Format did not conduct ‘a major part’ of its activities in the country of their registration. This meant, in effect, Mr Kita could not be classed as a posted worker.

The ruling

After reviewing the case, on 4 October 2012 the ECJ issued a judgement, in which it stated:

...a person who, under successive employment contracts stating the place of employment to be the territory of several Member States, in fact works during the term of each of those contracts only on the territory of one of those States at a time, cannot fall within the concept of ‘a person normally employed in the territory of two or more Member States’, within the meaning of that provision...

This means that employees who work for a defined period in the territory of one specific Member State should pay social security contributions calculated and paid in line with the appropriate regulations of that country. In the interim period between contracts, they should be covered by the social security system of the country where they are actually living.

As a consequence, the room for ‘optimising’ social security contributions to be paid by the employers for this type of worker has been scaled down. In legal terms, following the ECJ’s explicit clarification of Regulation 1408/71, it is not possible to choose where social security contributions will be paid, and to choose the system with the lower level of contributions.


In Poland, the ruling was keenly awaited. A substantial number of businesses use the same system as Format, especially in such fields as construction. The ruling should, of course, also apply to companies in the other NMS. The number of workers in Poland affected by the ruling is unclear, but the estimated figure may be as high as 40,000.

Reaction to the ruling have been mixed. There has been disappointment from some of the businesses affected who, in a report in online newspaper Gazeta Prawna (in Polish), commented that they would lose some of their competitive advantage in terms of cheaper labour. Others have been more understanding, according to an article in online financial publication (in Polish), as the practice was seen by some as a form of social dumping. There seems to be a consensus, though, that the ruling may have the effect of curbing some of the doubtful practices of employment agencies.

Social partners in Poland have not yet taken any official position on the case.


The recent ECJ ruling sets clear boundaries for the category of workers ‘normally employed in the territory of two or more Member States’.

From now on it would not be feasible for companies to pay social security contributions in the country where their headquarters are based for workers who, in reality, do not work in that country but in another Member State, unless they can legitimately be described as posted workers.

The main implication of the ruling is to take away one specific competitive edge enjoyed by companies based in the less affluent NMS that joined the EU since 2004, especially from the CEE countries.

It is quite likely, however, that some other way of exporting labour while still complying with the letter of the law will be found, as there is evidently a stable demand for cheaper labour in western Europe.

Jan Czarzasty, Warsaw School of Economics (SGH) and the Institute of Public Affairs (ISP)

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