Payroll in Croatia: Comprehensive Guide for Employers

Croatia is one of the suitable destinations to set up a company considering its developing GDP, which is expected to grow by 0.8% in 2023, according to the World Bank. Croatia remains a favorable country for foreign investment due to its good quality infrastructure and strategic location in Southeastern Europe. 

Companies aiming to expand their business in Croatia must know local rules and regulations specified by the Croatian government. To attract, recruit, and retain the best talent in Croatia, you must know how to efficiently manage the onboarding process, including the Croatia payroll process. Moreover, to set up a business in the country, one must understand social security, income tax, and corporate tax laws for smooth company operations.

You need an exhaustive understanding of payroll tax in Croatia and labor requirements to guarantee accurate and accommodating payroll. The following guide describes all facets you must know about payroll in Croatia.

How Is Payroll Calculated in Croatia?

Payroll refers to the compensation the employer pays employees for their services for a fixed period. It is administered by the accounting or HR department. 

Croatia’s payroll policies and procedures include pay, releasing payments, and keeping track of the employees’ working hours. To ensure accurate payroll calculation, you must maintain record-keeping. Furthermore, you must withdraw social security contributions and other deductions per payroll rules and regulations in Croatia. You must calculate employer and employee contributions if you need clarification about how to do payroll in Croatia.

Important Elements of Salary Structure in Croatia

The following section discusses the elements contributing to the salary structure in Croatia:

Cost to Company (CTC)

The CTC refers to an annual amount that a company incurs while hiring an employee. It incorporates the employee’s net remuneration, gross remuneration, additional benefits, payroll deductions in Croatia, etc.

Gross salary

Gross salary involves all components contributing to Croatia’s employee compensation package. It considers the total income before calculating payroll deductions in Croatia. Health insurance, social security contributions, etc., are some of the components it covers.

Net salary

Net salary denotes the amount remaining after the employer has calculated all deductions from the gross salary. This amount is credited to the employee’s bank accounts.

Basic salary

It denotes the amount employees receive after calculating all deductions and additions from the annual package. The basic salary relies on two factors, i.e., the employer’s job title in the company and the sector’s activities.

Allowances

It incorporates the job-related expenses that employers pay to their employees. This amount guarantees a decent work-life balance for employees. All employees are entitled to multiple allowances, regardless of the company and the industry.

How to Set Up a Payroll in Croatia

A foreign business aiming to set up payroll in Croatia can follow the below steps:

• Step 1: Register a business in Croatia with the Commercial Court. This step also authorizes your business name’s validity.
• Step 2: Obtain a statistical registration number through the Croatian Bureau of Statistics.
• Step 3: Register the company name, national tax number, and labor and tax registration.
• Step 4: Register for VAT. Also, through the Tax Authority, you must register for health insurance and pension (referred to as HZZO and HZMO, respectively).
• Step 5: Open a Croatian bank account with a local bank to release payments related to payroll. You will require the court and registration information (including proof of health insurance registry, statistical number, etc.) before the business bank account can be approved.
• Step 6: Calculate the employee payroll amount.
• Step 7: Confirm the payroll structure and payroll cycle for your company.

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

The processing of payroll in Croatia involves three stages, which are discussed below. 

1. Pre-payroll stage

• You should set up a business profile, file payroll tax in Croatia, an office, and a corporate account.
• To ensure that the company operates flawlessly, you should design company policies that incorporate all aspects, from employee attendance to the guidelines. With the help of comprehensive company policies, employees can easily understand the company culture.
• This stage also involves setting up a flawless payment structure to ensure that employees receive their salaries timely.

2. Payroll stage

• This stage of the Croatia payroll compliance checklist focuses on salary calculation and payment release.
• The employer should calculate each employee’s gross earnings, working hours, and the required deductions. Moreover, the employer must pay the net sum to the employee through their chosen payment methods.

3. Post-payroll stage

• In this stage of the Croatia payroll compliance checklist, the employer balances the record books by paying net salaries to the employees and sending deductions to the government after paying salaries.
• Every employee must submit a written work assignment contract highlighting the salary, working hours, and the nature of the work.
• The employer must maintain the records of their employees because they need to present them to a Labour Inspector (if requested).
• The employer must maintain the payment history record and transactions to track payment transfers and prevent legal liabilities accurately.
• The employer should authenticate the correctness of the monthly payroll calculation based on the number of hours or days the employees worked during a particular month.
• Usually, the payroll process concludes after the employers pay their corporate taxes and salary deductions.

Payroll Contributions

Depending on the salary, the employers and employees must contribute to social security in Croatia as part of the Croatia payroll requirements.

Employer contribution

Personal income tax

When calculating Croatian employer payroll taxes, you must consider personal income tax. Taxable income is the gross salary debited for 20% of pension contributions. 

Croatia’s minimum personal allowance (nontaxable income) amounts to HRK 3,800. The amount varies depending on dependent family members.

The following table specifies the tax scale by which the employer’s income is taxed in Croatia.

Note: The calculated income tax is the basis for the additional city surtax that varies from 0 to 18% depending upon the employee’s residence city.

Social Security contributions:

The calculation of Croatia’s employer payroll taxes also involves the following social security contributions.

Employer payroll contribution also includes a social security contribution in the form of 16.5% health insurance of the salary (calculated and compensated in addition to the gross salary).

Employee contribution

Employee payroll contributions include the following elements.

Payroll Cycle

In Croatia, employees are paid monthly before the 15th of the following month.

Croatia Payroll Options for Companies

Employers can choose different options to process payroll in Croatia based on their budget and requirements. The following section discusses the HR payroll Croatia options.

• Internal payroll: Larger companies that have made a long-term commitment to Croatia can run their internal payroll. However, this option is expensive because the company should devote time and recruit a skilled workforce who can set up payroll in place.
• Remote payroll: This HR payroll Croatia option in the Croatia payroll guide implies that using remote payroll with your payroll company can simplify the payroll process in the country. The remote payroll will pay the employees at your subsidiary. Though it is economical, the company should know various labor laws in Croatia.
• A Croatia payroll processing company: Make sure to thoroughly research the market if you want to use this option. It involves using an experienced and reliable payroll processing company accustomed to setting up payroll and payroll rules and regulations in Croatia.
• Croatia payroll outsourcing: This option in the Croatia payroll guide offers a simple, economical, and flexible method of administering payroll in Croatia. Companies can collaborate with a global PEO service provider like Multiplier, which manages all the elements of the Croatia payroll process and ensures that the relevant processes comply with Croatia payroll requirements. Moreover, it eradicates all the challenges related to payroll processing in Croatia and improves your focus on the company’s growth.

Entitlement and Termination Terms

Entitlement terms in Croatia

The following section discusses the benefits to which Croatian employees are entitled. 

Paid time off

• Croatia’s standard paid leave entitlement ranges from 15 to 20 days. The paid annual leave entitlement depends on the years of employment.

Sick leave

• Croatia’s sick leave allowance is up to 42 days per year. 
• The employer pays it to the employer at 70% of the standard salary. 
• If the sick leave exceeds 42 days, it is paid by the employer and compensated by Croatia’s health insurance fund.
• Employers will pay the sick leave allowance for the first 42 days of sick leave. They will pay for seven days if an employee has a disability.
• The sick leave allowance is at least 70% of an employee’s average wage (six months before sick leave).

Maternity leave

• Pregnant employees in Croatia are entitled to 28 days of paid maternity leave before delivery. It is 45 days in particular conditions, depending on a medical assessment.
• After the child’s birth, the employee receives 70 days of paid maternity leave. After completing the leave of 70 days, the employee can continue her unpaid maternity leave until the child is six months old.

Paternity Leave

• There is no legal paternity leave in Croatia. But, in exceptional cases, the father can use the mother’s maternity leave (70 days) if the mother can’t take care of the child. 
• After completing the 70th day after the child’s birth, the mother can transfer the rest of the leave to the father.

Parental Leave

• Each parent employee in Croatia is entitled to 120 days of paid parental leave for each child.
• The employees can benefit from paid parental leave until the child is eight years old. They can take the leave fully or in two portions (annually) or part-time.

Public holidays

All employees are entitled to public holidays in Croatia, irrespective of their industry and sector. The employees in Croatia have 14 public holidays per year. These holidays are listed below:

Termination terms in Croatia

Employees can terminate their employers’ employment contracts in the following cases:

• Upon the employee’s death
• Upon the employer’s death or liquidation
• Termination of a fixed-duration contract
• If the employee attained the age of 65 years or finished 15 years of social insurance contributions
• Upon a legally effective decision due to incompetence to work
• Upon mutual agreement
• By court decision, when approved
• By cancellation

The employee termination process in Croatia involves a notice period ranging from 2 weeks to 3 months. The exact notice period’s duration depends on the time for which the employee has continuously served the same employer.

The employer can terminate an employee without notice in cases like disobedience, misconduct, disregard of duties, lack of skill, or absence without permission.

The notice should be presented in writing if the termination reason is misconduct. Moreover, in this case, discussions and documented meetings are arranged before approving the termination.

Croatia Payroll Processing Company

Croatia’s payroll rules differ because each of its cantons typically works by following its own rules. It may be time-consuming for foreign investors to set up payroll in Croatia. Before setting up payroll, businesses should consider compliance with Croatia Labor and local employment laws. You can partner with an international PEO company like Multiplier to gain the optimum benefits of payroll rules and regulations in Croatia.

How Can Multiplier Help with Global Payroll?

Croatia’s payroll management handles various facets like payroll processing, calculation, payroll cycle, entitlement and termination terms, employers’ & employees’ contributions, and more. The complete payroll process can be laborious and complex for businesses to manage independently. You can use the service from a global EOR platform like Multiplier to exclude these hassles and employ the Croatia payroll process.

Multiplier is popular in Croatia for offering EOR solutions to worldwide corporations in 150+ nations. Our skilled experts professionally deal with payroll processing, payroll contributions, payroll management, payroll calculation, employee onboarding, and other related tasks. Besides, our SaaS-based PEO services ensure payroll processing happens efficiently in the country.