Montenegro is transitioning to a market economy, and most of its state-owned companies have been privatized, including its banking, telecommunications, and oil distribution systems. The country’s stable political and monetary system allows companies to plan their savings, spending and investments better.
The country has signed several taxation treaties with countries on income and property, regulating double taxation. In addition, Montenegro also offers skilled and talented employees with a 98.98% literacy rate (2021). Companies can benefit from the high literacy rate and hire employees nationwide.
If one is planning to hire employees, it is essential to understand the payroll policies and procedures in Montenegro before starting any business. Read this guide to understand payroll in Montenegro.
How Is Payroll Calculated in Montenegro
Payroll is payable monthly, and employers issue the payment by the last day of the month. The payroll in Montenegro can be calculated using the following formula:
Payroll in Montenegro (Net Pay) = Gross Pay – Gross Deduction
Here,
- Gross pay comprises basic salary, allowances, HRA, DA and incentives.
- Gross deduction comprises income tax, insurance, loan and unpaid leave deduction.
Important Elements of Salary Structure in Montenegro
The salary structure in Montenegro typically includes several essential elements that determine an employee’s compensation. These elements are as follows:
CTC
Cost to Company, often abbreviated as CTC, is the total expense company has to bear while hiring an employee. It comprises all the elements including gross pay, net pay, basic salary, allowances, additional benefits and others.
Gross salary
It is the amount a candidate gets without any tax deductions. It includes basic salary, allowances, house rent allowance and others.
Net pay
It is the employee’s salary after all the necessary deductions are made to the gross salary.
Basic salary
It is the salary paid to an employee before any addition or reduction to the total compensation. It is a fixed amount of money paid to employees in exchange for services.
As per payroll rules and regulations in Montenegro, employees are entitled to the following elements as well:
Minimum wage
As of January 2023, the minimum wage in Montenegro is 450 EUR per month.
Overtime compensation
Employees working overtime are eligible for overtime compensation. It is generally capped at 140% of the regular pay.
How to Set Up a Payroll in Montenegro
A Montenegro payroll process requires thorough knowledge of the country’s tax codes, labor laws, and compensation laws. Here are the steps to set up payroll in Montenegro:
- Determine the company’s EIN and tax codes: The first step is determining the company’s employer identification number (EIN) and tax codes. The government uses these identification numbers to track the business’ payroll tax in Montenegro and ensure it meets the requirements.
- Establish a registered entity in Montenegro: One can only start to run the payroll once they have a registered entity in the country, which could take up to a few months.
- Choose a payroll option: Every company that expands to Montenegro has four different payroll options, including internal payroll and outsourcing to a global payroll provider. Companies can opt for outsourcing options and collaborate with global payroll companies like Multiplier for a seamless payroll process.
- Set up payroll schedule: Companies need to decide on the payroll schedule to maintain transparent payroll processing in the country.
- Maintain accounting: One of the most important aspects of establishing a Montenegro payroll process is maintaining a record book wherein all the details regarding the process are discussed.
A Step-by-step Process of Payroll Processing in Montenegro
Learn how to do payroll in Montenegro here:
Step 1: Calculating gross pay:
The first step is determining how many hours each employee worked during a pay period and multiplying those hours by the worker’s hourly rate to determine their gross compensation.
Step 2: Subtracting taxes and other deductions:
Calculating taxes involves determining the total taxes owed for a year by subtracting applicable exemptions and deductions from the yearly income and then subtracting any already paid taxes. After this, the remaining amount is divided by the remaining pay periods.
Step 3: Calculate net pay:
After subtracting all the deductions from the gross salary, prepare the net pay for the employee.
Step 4: Verifying payroll:
It is essential to verify the information entered into the payroll system is accurate. While manually handling payroll, it is necessary to double-check (and maybe triple-check) calculations.
Step 5: Paying employees:
The final step is to pay employees. In Montenegro, the payroll frequency is monthly, and employees receive their salaries by the last working day.
Step 6: Issue payslips:
Employers should issue payslips after processing and deducting payroll tax in Montenegro. It includes gross pay, net pay, and payroll contributions.
Payroll Contributions
In Montenegro, payroll processing happens every month, to which both employer and employee must contribute. The contributions are as follows:
Employer payroll contribution
Pension and Disability Insurance | 5.50% |
Health Insurance | 2.30% |
Unemployment Insurance | 0.5% |
Employee payroll contribution
Pension and Disability Insurance | 15.00% |
Health Insurance | 8.50% |
Unemployment Insurance | 0.5% |
Payroll Cycle
In Montenegro, the payroll cycle is monthly. Employers usually process the payroll in Montenegro by the last working day of the month. Moreover, the country does not follow the 13th-month salary provision.
Montenegro Payroll Options for Companies
Companies that wish to expand their operations have four different options to conduct payroll in Montenegro:
- Internal payroll: This option applies to already established companies in Montenegro. It includes devoting an entire human resources staff to running the company’s payroll procedures.
- Outsource payroll: Outsourcing payroll in Montenegro involves hiring a third-party provider to handle payroll management for a company. It can help businesses manage the risk of payroll processing and ensure compliance with local laws and regulations.
- Local payroll: A local payroll policy in Montenegro requires compliance with personal income tax regulations. Both parties must sign the employment contracts in the local language.
- Remote payroll: A remote payroll helps businesses to merge the country-specific payroll to the parent company’s payroll. However, in this payroll procedure in Montenegro, companies must abide by the country-specific employment acts.
Entitlement and Termination Terms
In Montenegro, termination of employment must be in written form and given to the employee in person. It must contain the reasons for termination, an elaboration of the reasons, and set out the employee’s right of appeal and the time limit for submitting the employee’s response before terminating the employment.
Employers can terminate a fixed-term contract for business, personal, or worker misconduct, and it requires notice and a written explanation for the termination. Some termination terms that employers need to take care of include:
- An employee who believes that the employer has violated their rights in the field of Labour Law may submit a request to the employer to provide them with this right.
- The employer is obliged to decide within 15 days from the day of submission of the request.
- An employee has the right and duty to remain working for at least 30 days as of the day of receipt of the termination of the employment contract.
- Companies can terminate their employees for just cause, but one must give them at least 30 days of written notice.
- Employees usually get severance pay of at least a third of their monthly payments over the last six months for each year they have worked.
Montenegro Payroll Processing Company
A payroll processing company like Multiplier helps companies with easy and hassle-free payroll management. It helps in
- Data collection and payroll calculation
- Gross-to-net calculation of all employee payroll deductions in Montenegro
- Taxes and net salaries in compliance with local statutory requirements
- Calculation of off-cycle payments
- Hotline support for employees for their payroll inquiry handling
- Regular payroll-related statutory reporting and filing to state authorities
How Multiplier Can Help With Global Payroll?
Multiplier is an online platform that can help simplify global payroll and compliance for businesses with employees in multiple countries. We help companies onboard, pay, and provide benefits to their global employees without setting up an entity in the country. We also assist businesses in managing global payroll without hassle, automate international payroll processing on a single platform, and manage multi-country payroll with 100% accuracy.