Payroll in Romania: Comprehensive Guide for Businesses

Romania is one of the wealthiest countries in the world; hence, companies can use abundant resources to run a successful business. The country is also famous for its skillful and highly employable youth. Therefore, it is one of the ideal countries to set up a new business. Due to its thriving economy, the nation is placed 12th among the members of the European Union. 

Regarding the nominal GDP, Romania is 46th with a GDP of $299.885 billion. The nation’s GDP comprises two sectors: industry and services, which together account for 27.78% and 58.2% of GDP. Romania has a variety of subsidiary firms, as foreign direct investment is frequently directed to the nation.

Many sectors, including hardware, information security, and mobile technology, are centered in Romania. Romania is the best country to do so if you wish to launch a subsidiary firm in these fields. When you set up a business, you must adhere to the payroll policies and procedures in Romania. Payroll in Romania should be compliant and take care of all the needs of the employees.

To know more about the payroll policies and procedures in Romania, read on.  

How is Payroll Calculated in Romania?

The payroll in Romania comprises several components, including gross pay, net pay, allowances, etc. Apart from the additions, the employer deducts several deductions, like taxes, social security contributions, etc., from the payroll. 

Most firms use payroll systems to handle payroll and calculate all necessary deductions accurately. Larger companies can hire a specialized team to perform manual payroll processing. As a result, the organization’s salary calculation will be based on its needs and available budget.

Every company in Romania has developed a standardized process to help with computing payroll for each employee. Additionally, they ensure payroll calculations adhere to the payroll policies and procedures in Romania.

Important Elements of Salary Structure in Romania

Let’s look at these crucial elements that make the salary structure in Romania:

Cost to Company (CTC) 

The cost to company is the cost that the employer bears while onboarding an employee. It is an overarching figure that includes all the components of the compensation structure. 

Gross salary

The gross salary denotes the maximum earning potential of the employees. It includes all the essential elements of the compensation structure and shows the employee’s earnings before any deductions are made. 

Net salary

The final amount that gets credited to the employee’s bank account is referred to as the net salary. It includes fixed and variable pay and is credited to employees’ bank accounts after all the necessary deductions are made from the gross pay. 

Basic salary

The basic salary is a primary element of the compensation structure which helps calculate the value of other salary elements. It constitutes around 40 to 50% of the total compensation. The base pay is decided based on the industry standards and the company’s compensation policy. 

Allowances

The primary objective of allowances is to help employees meet the additional expenses they incur while delivering their work responsibilities. Some standard allowances given in Romania are food, telephone, and petrol.

How to Set Up a Payroll in Romania

There are different steps involved in setting up a payroll in Romania, which are as follows. 

• Step 1: Decide on the type of company that you want to incorporate in Romania. You must decide based on your budget and the kind of company you want to incorporate. 
• Step 2: Collect all the essential documents and create an incorporation file required for the company registration. This file must be submitted physically to the Trade Registry or online at https://portal.onrc.ro.
• Step 3: Once you receive the financial number and the certificate of incorporation, you must register all your employees with the taxation authority. You must also onboard them to the social security system in Romania. 
• Step 4: Next, you must open a bank account in any legally incorporated local bank operating in Romania. A bank account is mandatory for setting up a payroll in Romania for all payroll-related transactions. 
• Step 5: Examine each employee’s time sheets to determine the overtime compensation and employees’ gross pay.
• Step 6: You must compute all the other elements of the salary structure, like taxes, allowances, bonuses, etc. 
• Step 7: Select a payroll system that meets all employees’ needs. It should stick to the payroll procedure in Romania and aid you in making necessary calculations. 
• Step 8: Based on the payroll rules and regulations in Romania, you must decide on a payroll cycle. It will decide the frequency of salary payments to the employees. 

A Step-by-step Process of Payroll Processing in Romania

To adhere to the payroll procedure in Romania, you must follow the steps listed below:

Choose a payroll system

• Romania supports different payroll systems. You must define your objectives and budget and consider company size before you choose a payroll system in Romania. 
• Some of the standard payroll systems in Romania include manual, outsourced, and software systems.

Draft a payroll policy

• All companies must have a guideline that states the payroll policies in Romania. 
• When you draft a payroll policy, you must factor in the needs of the employees and the labor laws applicable in Romania. 

Onboard the employees to the payroll system

• Once you choose a payroll system, you must onboard all your employees to that system. 
• The payroll system must be updated with their information, which may include name, birthdate, phone number, and aspects of compensation, among other things. These details are mandatory as they will create a distinct identity for the employee in the payroll system.
• The payroll system should outline the payroll cycle to ensure employees are paid on time.

Timesheet verification

• You must check their timesheets to calculate the employees’ working hours and compensation components.
• Calculate the gross pay and make all the necessary deductions to arrive at the net pay.

Reconciliation

• For executing real-time modifications and avoiding errors, payroll reconciliation is crucial.
• You must check the personal details of the employees along with the values of all the elements of the compensation structure before you record them with the company ledger.

Disburse the pay slips

• Once all the calculations are done, you must generate a pay slip for all the employees.
• You can mail this pay slip to the employees or use payroll management software to distribute it.

Payroll Contributions

The payroll rules and regulations in Romania define payroll contributions. They are listed below for your reference:

Employer contribution

Social security funds

Employers make several contributions towards different social security funds on behalf of their employees. The companies make these payments directly to the organizations that manage these funds. Let’s look at some of these contributions:

Overtime

• Employees who work beyond 48 hours a week must be compensated with an off day. 
• Sometimes, compensation in the form of paid time off is unavailable. In that case, the employee will be compensated for any overtime work by adding a benefit that is at least 75% of the basic salary.

Employee contribution

Social security funds

Employees also make different contributions across social security funds. The contributions are deducted from the employees’ compensation and are directly paid to these funds. Let’s look at the contributions employees make:

Taxes

All employees in Romania must pay taxes on their income. The tax payments are deducted from the employee’s gross pay and paid directly to the tax authorities by the employer. However, all employees must file their annual tax returns by the end of the financial year. 

In Romania, all employees pay a flat tax of 10% on their income. 

Payroll Cycle

All companies in Romania follow a monthly payroll cycle, disbursing salaries on the last date of every month. Once the salary payments are made, the employees’ pay slips should be shared.

Romania Payroll Options for Companies

Romania offers different payroll options for businesses operating in the country. To select a suitable payroll system, you must define the budget and list all your requirements. Some commonly available payroll options in Romania are:

• Internal payroll: This option is ideal for companies with a vast workforce. You can have a dedicated team to manage the company’s payroll manually. 
• Remote payroll: A subsidiary company may onboard all its employees to the payroll system of the parent company. However, the employees of the Romanian subsidiary will be subjected to the payroll rules and regulations in Romania.
• Payroll processing companies: Several companies provide payroll processing services. You can get in touch with them to manage your payroll. However, you will have to take care of all the compliance-related issues.
• Global PEO: If you want to delegate payroll processing functions and focus on your business expansion in Romania, you must go with a global PEO like Multiplier. 

Entitlement and Termination Terms

While the employment contract contains details regarding pay, working conditions, leaves, and the benefits offered to employees, it should also include the clauses that govern the employment contract’s termination.

The employer must justify an employee’s termination. Employers should have a compelling legal justification before terminating workers. Some of these reasons could be:

• The employment contract can be terminated if both employer and the employee mutually agree.
• The person committed fraud while they were working there.
• Whenever there is a structural change in the company

The letter of termination that the employer provides to the employee must include the reason for termination. Businesses are required to offer severance pay to terminated employees.

Romania Payroll Processing Company

Although starting a business in Romania is straightforward, you must still be familiar with the local laws and regulations. Subject matter experts are available to help you through the procedure, and you can reach out to them via text, phone, or meeting them in person. 

For more information on the local laws and ordinances governing the payroll systems in Romania, get in touch with a PEO company like Multiplier. Keep your options open if you’re looking for the most incredible payroll help.

How Multiplier Can Help with Global Payroll

Setting up payroll in Romania requires adhering to the country’s labor laws and regulations. But you can rapidly set up a legal payroll system with the right advice and professional assistance. Contact a worldwide EOR like Multiplier to learn more about your payroll needs. Multiplier has been used by numerous businesses worldwide to create efficient and effective payroll systems. Our team of professionals will assist you in setting up a payroll system that satisfies the requirements of both the employer and employees.