In Poland, businesses must follow Polish Accounting Standards (PAS) – which are broadly aligned with International Financial Reporting Standards (IFRS) – but include distinct local provisions.

Self-insurance occurs when an employer chooses to pay the family of a deceased employee from the resources of the business – instead of buying appropriate insurance protection.

Key characteristics of self-insurance include:

• No formal insurance contract with an external insurer.
• The employer assumes full financial responsibility for any claims.
• Often involves setting aside a dedicated reserve fund to cover expected losses.
• May be used as a method of providing death benefits for employees.

Key compliance risks when an employer self-insures – deliberately or inadvertently – death benefits.

• Failure to Recognise Liabilities Properly.
  Under PAS and IFRS, employee benefit liabilities – including death benefits – must be recorded in financial statements. Self-insuring may result in unreported liabilities, impacting the company’s financial wellbeing.
• Inadequate Disclosure.
  PAS 7 requires clear reporting of employee benefit obligations. Self-insuring – without proper accounting – may breach these standards and raise issues during audits.
• Unfunded Liabilities and Risk Exposure.
  Without formal insurance, employers may underestimate the financial impact of multiple deaths, increasing the potential risks of underfunded liabilities and liquidity issues.
• Tax Implications and Limited Deductibility.
  In Poland, insured death benefits are usually tax-deductible. Direct payments to the family of a deceased employee may not qualify, and failure to maintain proper documentation could lead to non-compliance.
• Pension and Social Insurance Contributions.
  Polish employers are required to make social insurance contributions – which include contributions for employee death benefits where insured. Self-insurance could lead to complications regarding ZUS compliance
• Social Insurance Compliance Risks.
  In Poland, employers must contribute to social insurance – including death benefits when insured. Self-insurance may complicate compliance with ZUS requirements.

Self-insuring employee death benefits can potentially expose a Polish employer to financial and compliance risks – including unreported liabilities, audit challenges, tax inefficiencies, and ZUS non-compliance.

These risks become even more complex when a Polish business employs people across multiple jurisdictions, and where differing legislation and reporting standards can add further uncertainty. To ensure compliance, protect financial stability, and simplify cross-border obligations, buying insured death benefits – in the most cost effective way – is the most prudent and reliable approach.