Taxes and contributions on salaries in Serbia
The salaries of employees is a challenge which all employers face, because on one hand it represents a relationship between the employer and his or her employees, but on the other, a relationship between the employer and the state. The Labour Law regulates the relationship between the employer and the employee, and the Personal Income Tax Law, as well as the Law on Mandatory Social Security Insurance govern the relationship between the employer and the state, as the system of calculating the taxes and contributions on salaries by deduction is in use in Serbia. This means that the employer is legally bound to calculate the gross salary in the name and on behalf of the employee, based on the contracted basic salary, and to withhold tax and contributions from that gross salary and pay it to the state on the same day when the net salary is paid to the employee.
The relationship employer-employee – the Labour Law
According to the Labour Law, the salary is the employee’s right based on the employment relationship. The employment relationship is based on the conclusion of the Contract of employment between the employee and the employer, and in this way the status of employee is acquired. Salary and other incomes are earned by the employee during the time spent at work.
The employer is obliged to keep records of salaries and compensations for each employee in accordance with the Labour Law. The record is signed by the person authorized for representation or another person authorized by him or her.
The salary statement must contain:
– data on the employee (name and surname, address, personal identification number, name of the bank and the current account no. to which the salary is paid);
– data on the period to which the statement refers (month, i.e. the period to which the salary statement refers);
– the date determined for the payment of salary, i.e. salary compensation (maturity date);
– data required for the calculation of salary, i.e. salary compensation, as well as the contributions for the mandatory social insurance and taxes in accordance with the law, along with the amount of salary, i.e. compensation
According to the Labour Law, the salary for an employee who has established an employment relationship with an employer is defined as:
– the appropriate salary in accordance with the law, General Act and Contract of employment, and
– the minimum wage
The appropriate salary means:
- salary for performed work and time spent at work;
- salary based on the employee’s contribution to the employer’s business success / rewards, bonuses;
- other incomes that have the character of salary
Salary for performed work and time spent at work
This portion of the salary is regulated by the Labour Law and consists of:
– Basic salary – which represents the value of specific jobs and tasks at the employee’s workplace and the time spent on those jobs. Elements for calculation and payment of basic salary and salary based on work performance are determined by the employer’s General Act – Collective Agreement or Labour Regulations. The element for salary calculation can be the coefficient of work and the price of work according to the coefficient, the basic salary per working hour or the basic salary in a fixed monthly amount.
The monetary amount of the basic salary is determined by the Contract of Employment with the employee. It cannot be lower than the basic salary established by the Collective Agreement or the Labour Regulations, nor less than the minimum salary. The minimum wage means the minimum net wage per random hour, it is recalculated on the database of the minimum labour price per hour-net. It is determined by the decision of the Social and Economic Council for the territory of the Republic of Serbia (Social and Economic Council).
– The portion of salary based on work performance is determined on the basis of:
- the quality and scope of the performed tasks
- the employee’s attitude towards work duties
The elements for calculation and payment of salaries based on work performance are determined by a General Act (Collective Agreement or Labour Regulations-Contract of employment). If the aforementioned Act does not exist, the employer is obliged to sign a Contract of employment with the employee. Even in the case when the elements are determined by the General Act, they must also be determined by the Contract of employment.
The Contract of employment must also provide for other elements according to the Labour Law, concerning the increase of the basic salary for work
– during national and religious holidays
– accumulated years of service
– other incomes that have the character of salary (meal allowance, annual leave allowance) and other categories according to the Labour Law.
These are only the basic mandatory elements of the Contract of employment, it is clear that the issue is complex and therefore requires a professional legal entity to draw up the Contract of employment between the employer and the employee.
Here it is important to mention that employers who employ more than 10 employees have the obligation to adopt the Labour Regulations and, in accordance with them, systematize workplaces.
The relationship employer-state – the Personal Income Tax Law and the Law on Mandatory Social Security Insurance
According to the provisions of the Personal Income Tax Law and the Law on Mandatory Social Security Insurance, the employer is obliged to calculate and withhold personal income tax, contributions for pension and disability insurance (PIO), contributions for compulsory health insurance and contributions for the unemployed at the expense of employees, as well as contributions for pension and disability insurance, and compulsory health insurance, at the expense of the employer, and to pay these amounts to the state at the same time when the net salary is paid to the employee.
Therefore, the employer is obliged to calculate and pay to the state two categories:
– the portion relating to the employee
– the portion relating to the employer
The portion relating to the employee is:
– 10% salary tax reduced by the tax relief
– 14% contribution for PIO
– 5.15% contribution for health insurance
– 0.75% contribution for unemployment insurance
The portion relating to the employer is:
– 11% contributions for PIO
– 5.15% contributions for health insurance
Tax and contribution rates apply to gross salary. Gross salary is not defined by the Contract of employment. Gross salary is the basic salary increased for increases based on the employee’s contribution to the employer’s business success, accumulated years of service and other compensations that have the character of salary.
The basis for calculating taxes and contributions is the gross salary. Employers are obliged to register and deregister employees at the Central Register of Mandatory Social Insurance.
From the aforementioned, it is evident that employers must contend with administrative challenges throughout the hiring process, as well as periodic changes to the legislation and tax requirements. Laws and regulations must be followed and applied when calculating salaries. In addition to the calculation itself, it is necessary to take into account the suspensions and benefits of employees (in the sense that everything is calculated and suspended from the employee’s salary on time), payments that are not directly related to the salaries themselves (execution of the monthly obligation for the disabled for employers who have more than 19 employed).
One example of the complexity of items that must be taken into account when calculating salaries is the example of working from home. Recently, in order to facilitate the organization of the work process, many employers have introduced the possibility of working from home. But even such work requires the obligation to regulate the treatment of this work, i.e. the adoption of appropriate regulations, issues of recognition of costs that must be covered by the Contract of employment, etc.
The Creative Finance team and colleagues from the Association “Welcome to Serbia” are here to provide a proper and transparent process for concluding contracts and determining salaries so that you, as the employer, may fulfil your legal obligations towards the state and towards the employee.