10.12 Employee benefit obligations

Accounting policies

Retirement severance payments, length-of-service awards and other employee benefits

In accordance with the Collective Bargaining Agreement, the Group’s employees are entitled to length-of-service awards and severance payments upon retirement due to old age or disability, as well as death benefits.

Also, the employees, retired employees, and pensioners covered by the Group’s social benefits are entitled to benefits from a separate social fund, which is established pursuant to applicable national regulations (Company Social Benefits Fund).

In accordance with IAS 19 Employee Benefits, retirement severance payments and contributions to the Company Social Benefits Fund are classified as defined post-employment benefit plans, while length-of-service awards, death benefits, and contributions to the Fund for current retired employees are recognised under other employee benefits.

Present value of future post-employment benefit obligations as at the end of the reporting period is calculated by an independent actuary using the projected unit credit method, and represents the discounted value of future payments the employer will have to make to fulfil its obligations related the employees’ services in previous periods (until the end of the reporting period), defined individually for each employee, taking into account employee turnover (probability of employees leaving), without including future employees.

The value of future employee benefit obligations includes length-of-service awards, old-age and disability retirement severance payments, as well as benefits paid to currently retired employees and the amount of estimated death benefits.

Length-of-service awards are paid after a specific period of employment. Old-age and disability retirement severance payments are one-off and paid upon retirement. Amounts of severance payments and length-of-service awards depend on the length of employment and the average remuneration of an employee. The amount of death benefit depends on the length of employment of the deceased employee, and the benefit is payable to the family, in accordance with the rules set forth in the Polish Labour Code.

Actuarial gains and losses on post-employment benefits are recognised in other comprehensive income, and actuarial gains and losses on other employee benefits are taken to profit or loss.

Employees of the Group companies are also entitled to holidays in accordance with the applicable provisions of the Polish Labour Code. The Group calculates the cost of employee holidays on an accrual basis using the liability method. The amount of compensation for holiday entitlements is recognised based on the difference between the balance of holidays actually used and the balance of holidays established proportionately to the passage of time, and disclosed in the financial statements as current employee benefits.

Obligations under other employee benefits also include bonuses and awards granted as part of the Group’s incentive pay systems.

The Group recognises the cost of discount on its employee benefit obligations in finance costs.

Given the different nature of retirement plans at the AB LOTOS Geonafta Group companies, and their immaterial effect on the Group’s obligations under length-of-service awards and post-employment benefits, those companies’ obligations are presented separately under Obligations under length- of-service awards and post-employment benefits at foreign companies.

Profit allocated for employee benefits and special accounts 

In accordance with the business practice in Poland, shareholders have the right to allocate a part of profit to employee benefits by making contributions to the social benefits fund and to other special accounts. However, in the financial statements such distributions are charged to operating expenses of the period to which the profit distribution relates.