7.11. Employee benefit liabilities

In accordance with the provisions of labor law, the Group pays employee benefits on account of the following:

• post-employment benefits: retirement or disability severance pays, equalization disability benefits, write-offs for the Company Social Benefit Fund for old-age and disability pensioners, death benefits,
• other long-term employee benefits: jubilee awards,
• other employee benefits: unused holiday leaves.

Since 2015, the JSW Management Board has not taken an allowance for the Company Social Benefits Fund for old-age and disability pensioners and it terminated the payment of free coal allowance for old-age and disability pensioners.

In its statement of financial position, JSW recognizes the commitment to pay the above benefits in the amount equal to the present value of the liability as at the end of the reporting period, taking into account actuarial gains and losses.

The amount of the post-employment benefit liability in the form of defined benefit plans and other long-term employee benefits is calculated by an independent actuarial advisory company using the projected unit benefit method, until the expiration of this liability.

The provision for death benefits is calculated on the basis of historical data, amounts of death benefits paid over the 5 years preceding the balance sheet date, using the discount rate recommended by the actuary and the expected inflation rate and statistical number of years remaining to be worked by Group employees, constituting the difference between the average retirement age of the Group’s employees and the average age of the employees as at the final day of the reporting period.

Employee benefit liabilities are calculated using an individual method, for each employee separately. The liability for an employee is calculated based on the anticipated amount of the respective benefit that the Group undertakes to pay out on the basis of internal regulations and pertinent provisions of law. The amount calculated is subject to actuarial discounting as at the final day of the reporting period and then decreased by actuarially discounted amounts of annual provision charges, as at the same day, which the Group makes to increase the provision of the respective employee. The actuarial discount means the product of the financial discount and probability of survival of the respective employee as a Group employee until the time of receipt of the benefit.

Defined benefit plans expose the Group to actuarial risk, which includes:

• interest rate risk – a decrease of interest on bonds will increase liabilities of the plan,
• longevity risk – the present value of liabilities of the defined benefit plan is calculated by reference to the best mortality estimates for plan members, both during and after the employment period. An increase in the expected life span of plan members will result in an increase of the value of liabilities,
• payroll risk – the present value of liabilities of the defined benefit plan is calculated by reference to the future remuneration of plan members. Accordingly, an increase in salaries of plan members will also increase the amount of liabilities.

The cost components of the post-employment defined benefits are classified as follows:

• costs of current employment – as operating expenses,
• net interest on the net liability derived from a changing value of provisions due to the passage of time – as financial costs,
• actuarial gains/losses resulting from changes in actuarial assumptions – as other comprehensive income.

On the other hand, with respect to other long-term employee benefits, current employment costs and actuarial gains/losses are recognized as operating expenses, while net interest as financial costs.

Provisions for unused holiday leaves are calculated at the end of each quarter of the financial year. The provision is calculated as follows: number of days of unused holiday leave at the end of the previous financial year and previous years plus the number of holiday leave days to which employees are entitled on the end date of the reporting period, less the number of days of holiday leave used from 1 January to the end of the reporting period, multiplied by the daily holiday rate with obligatory charges. The calculated amount of the provision for unused holiday leave is recognized after analysis, in the amount approved by the Management Board.

The balance sheet liability on account of future employee benefits is equal to the present value of the defined benefits liability. The present value of employee benefit liabilities depends on a number of factors that are determined using actuarial methods, with several assumptions. Any changes in these assumptions affect the carrying amount of employee benefit liabilities.

One of the primary assumptions for determining the amount of the liability is the interest rate. As at the end date of the reporting period, based on the opinion issued by an independent actuary, the proper discount rate is applied, which reflects the interest rate of T-bonds denominated in the currency of the future disbursement of benefits, with maturities close to the dates of payment of the pertinent liabilities. Assumptions regarding future mortality rates and probability of the employee becoming a disability benefit recipient were estimated based on the statistical data from Polish survival tables for men and women published by the Central Statistical Office, as at the measurement date. The main assumptions adopted for the valuation as at 31 December 2018 and the sensitivity of liabilities on account of future employee benefits to changes in such assumptions are disclosed in the following Note.

The amounts of employee benefit liabilities on account of retirement and disability severance pays, jubilee awards, equalization disability benefits and write-offs for the Company Social Benefit Fund for old-age and disability pensioners are recognized in the consolidated financial statements based on the actuarial valuation calculated by an independent actuarial consulting firm.

Change in employee benefit liabilities

Total amount of employee benefit costs captured in the consolidated statement of profit or loss and other comprehensive income:

Główne założenia aktuarialne przyjęte na dni kończące okresy sprawozdawcze*:

A sensitivity analysis was carried out as at 31 December 2018 and 31 December 2017 to determine how the results of actuarial valuation are affected by changes in the discount rate assumed for measurement and how the levels of employee benefit liabilities are affected by the planned changes in the benefit measurement base within the range of -/+0.5 p.p.

In these analyses, the present value of the defined benefit liability was calculated using the forecast unit benefits method, which is the same method that was used to calculate the employee benefit liability in the consolidated statement of financial position.

Results of actuarial valuation of employee benefit liabilities as at 31 December 2018, by maturities:

Results of actuarial valuation of employee benefit liabilities as at 31 December 2017, by maturities: