Comprehensive Guide to Payroll in Sweden: Key Requirements and Compliance

Sweden is among the premium European countries known for its prosperity. It is one of the most lucrative business destinations in the world with a stable economy. The nation is ranked 10th out of 190 in the ease of doing business as per the World Bank 2020 report. With its ease of doing business, Sweden attracts a lot of foreign investments.

Sweden has given world global brands like Spotify, King, and Klarna. After Silicon Valley, Stockholm has produced the world’s second-highest number of billion-dollar tech companies per capita. Sweden is among the countries where the start-up survival rate is higher. The country of 10.4 million has produced a strong human, social and educational infrastructure that supports businesses.  

Several multinational organizations have set up their subsidiaries in Sweden. If you plan to set up your company, you should understand the payroll system in Sweden. Also, the country’s post-incorporation compliances are pretty easy to understand. The open economy of Sweden promotes healthy competition and innovation. The Government also encourages investments in different industries. 

You can take help from a Global PEO organization like Multiplier as they can help you understand Sweden’s payroll system.

How is Payroll Calculated in Sweden?

When conducting business in Sweden, setting up payroll becomes essential. Therefore, when you incorporate or register a company in Sweden, you must establish a standard payroll in Sweden. Once you set up a suitable payroll, you can onboard skilled staff to your company. The payroll should adhere to all the rules and regulations governing the country.

Payroll is the sum of compensation an employer is liable to pay to employees in exchange for their services. It consists of gross pay, net pay, and other aspects depending upon the company. The employee is entitled to the gross income before deductions like taxes, allowances, etc. It also includes some deductions that an employee has to make. Some deductions in Sweden include:

• Income tax: 

Like most countries, Sweden also follows a progressive taxation system where the tax rate is dependent on the income level. If the employee’s income is  540,700 SEK or less, no tax is levied on the income. However, if the employee earns more than 540,700 SEK, a 20% tax is applicable on the income. However, if the total annual income exceeds 618,700 SEK, a state income tax will also be levied on the earnings. Moreover, irrespective of income, employees must pay a municipality tax of 32%. 

• Social Security Contributions:

There are six elements of the social security system in Sweden. These include:

• Health insurance
• Family benefits
• Benefits associated with work-related accidents
• Unemployment insurance
• Pension
• Disability benefits

Employers contribute about 31.42% of their employees’ base salary towards these social security system elements. The employees must have a Swedish personal identity number to make these contributions and then avail the benefits of these contributions. Additionally, the employees contribute equivalent to 7% of their annual salary towards the public social security system.

• Payroll tax: Unlike other countries, a payroll tax is also levied on the companies operating in Sweden. The employers have to pay a payroll tax of 31.42%. Also, in the case of a sole proprietorship, the person managing the business pays a payroll tax of 28.97%. However, these rates may be different for people of varying age groups.

When you establish a Swedish payroll system, you need to adhere to all the Sweden Federal laws and make sure that the payroll system factors in minimum wages, overtime compensation, etc.

Important Elements of Salary Structure in Sweden

Several elements make up the salary structure in Sweden. Some of these essential elements include:

• CTC

The CTC or the Cost to Company is the annual amount a company incurs when it onboards an employee. It is a collective term that considers the employee’s gross pay, net pay, deductions, additional benefits, etc. The CTC includes both the cash and the non-cash components that the employee receives from the company.

• Gross salary

The sum of all the elements that make up an employee’s compensation package is their gross salary. It shows the total income before any required and optional deductions, like income tax, social security contributions, health insurance, etc.

• Net salary

Once deductions are made from the gross salary, the amount left makes up the net salary. The net salary is also the take-home salary to be credited to the employees’ bank accounts. The deductions mainly depend on the company policy.  

• Basic salary

The base salary is 35 to 50% of the total compensation. The basic pay is decided before any bonuses or deductions are considered. It depends on the employee’s designation within the organization and the sector’s activities.

• Allowances

Different companies in Sweden provide various kinds of allowances to their employees. All the employees are entitled to multiple allowances throughout their duration of employment. However, standard allowances apply to all employees irrespective of the company and the industry. These include:

• Food allowance
• Transport allowance
• Accommodation allowance
• Medical allowance 

• Bonuses

Payment of bonuses is not mandatory in Sweden. However, companies can choose to pay their employees an annual bonus equivalent to their month’s salary.

How to Set Up a Payroll in Sweden?

Setting up payroll in Sweden for the first time can be challenging. A few standard steps are involved in the Sweden payroll process. Once you incorporate your company, you can start setting up the payroll for the organization. Some crucial steps involved in the process are:

Step 1: Register your company with Bolagsvert to become a legal entity and obtain permission to conduct business in Sweden.

Step 2: Now that you have registered your company, you need to open a Sweden-based bank account to make the salary payments to your employees or engage in other transactions.

Step 3: Gather financial and tax data from the workforce and create profiles for various state and federal tax portfolios. Register your business with the Skatteverket by submitting SKV 4632B.

Step 4: Check your employees’ work schedules to calculate their salaries. You may take into account the overtime compensation, unpaid leaves, etc. Additionally, you must check the overtime schedule to calculate the payments you need to make beyond the regular salary.

Step 5: Once you check the schedules, calculate your employees’ gross and net pay. You must also consider the deductions to come to a final amount.

Step 6: Establish a payroll structure in Sweden for your company based on the information gathered above.

Step 7: Decide the payment schedule for different categories of the employees working in the organization.

Step 8: Set a monthly deadline for when you will pay the Swedish Government your payroll taxes. Employers must make payroll tax returns and payments to the local tax office.

A Step-by-step Guide to Payroll Processing in Sweden

 Let’s have a look at all the steps involved in processing the payroll in Sweden:

• Register all the employees to the payroll system

Employers should register employees in the local administrative system to access the payroll system. Employees must have a Swedish Tax Identification Number (TIN).  Employers have to enroll into the Government system with the following information:

• Details of the employees working in the organization
• The payroll application that is being used in the company
• Payment schedules

• Plan payroll policy

Before processing, companies should plan the payroll policies depending on the Swedish employment acts.

• Calculation of the gross salaries

The gross pay is the total amount an employee earns before any deductions are made. The gross compensation is finalized after it is discussed between the employer and the employee. 

Employers must take taxable fringe benefits into account when calculating gross pay. You must include these perks in their base compensation if you pay for your employees’ parking or mobile phone costs or other related expenses. Make sure that overtime compensation is not missed. 

• Subtract the deductions from the gross pay

Once you have calculated the gross salaries for all your employees, you need to consider all the deductions. Taxes, social security contributions, etc., are deducted from the employee’s gross pay to arrive at the employee’s net salary. Other deductions, like health insurance, travel insurance, etc., are excluded from the gross income.

• Double-check everything

To prevent mistakes, double-check all necessary elements before completing the payroll procedure. Examining your tax records, general ledger, and payroll register will allow you to finish the payroll reconciliation process. Employers can view the pay stubs created by the payroll software system for the employees.

• Share the payslips with your employees.

Once the calculations are done, you must share the digital payslips with your employees. A payslip usually includes the total compensation, basic pay, taxes, other deductions, etc. If you are making any contributions on your employees’ behalf, you must mention it on the payslip. Companies in Sweden make use of an integrated system to manage their payroll. Employers must furnish payslips on every pay date. 

• Payroll records

As soon as the payslips are disbursed to the employees, you must record every transaction in the payroll records of the company and the Government. These transactions are recorded as proof of on-time payments. 

Payroll Contributions

The payroll of any company comprises several components. These components include:

Minimum wage

Unlike other affluent European nations, Sweden does not have a set minimum wage. The minimum wage is negotiable between businesses and employees. Collective bargaining or other forms of negotiation ensure a reasonable income to help pay for all living expenses to decide these terms.

National collective agreements in Sweden control several industries, each with its own minimum wage regulations. In some professions, the minimum wage is set based on the worker’s age and experience level. For instance, the required minimum payment for employees in the hotel and restaurant sector is 23,854 SEK.

Overtime

Overtime refers to the duration of work an employee performs beyond the regular working hours. In Sweden, there is a 48-hour cap on the maximum working hours. However, if the company wants the employee to put in additional work hours, employers must pay the employees at 50% or 100% above the regular wage rate.

An employee cannot work more than 50 hours of overtime in a month or 200 hours in a year as overtime, and the company should maintain overtime records to ensure that employees are not overworked. 

Taxes

Sweden has tax rates ranging from zero to 20%. The local rates, including payments to the municipal corporation and the county council, can reach 52%. The highest tax rate can reach 56%, depending on the municipal rate. The income level determines the applicable tax rate in Sweden’s progressive tax system. Three tiers of Government receive credit for the tax withheld from the employee’s pay: the municipality, the county council, and the central Government.

Social security contributions

In Sweden, the employees, as well as the employers, have to make several contributions to different social security accounts. The employer makes the following contributions to all their employees:

• 3.55% towards health insurance
• 11.62% as payroll tax
• 2.6% for parental insurance
• 0.2% towards occupational accidents and injuries
• 10.21% towards the pension scheme
• 2.65% as labor market fee
• 0.6% as survivor’s pension

Even the employees make some contributions to social security accounts. These contributions include: 

• 7% towards pension insurance
• 1.03% as church tax
• Burial fees might differ from person to person

Payroll Cycle

In Sweden, paychecks are typically issued once every month. Employers must make salary payments on the 25th of every month.

Sweden Payroll Options for Companies

In Sweden, companies have access to different payroll options. Employers can choose one based on budget and requirements. Some options are listed below:

• Internal payroll: Larger subsidiaries with long-term plans for operations in Sweden may want to invest in establishing their payroll there. The cost of hiring the required personnel and investing in gathering all the knowledge that one needs to set up the payroll makes this option a bit expensive. 

• Remote payroll: If your parent company already has a payroll system, you can add all the employees of your company to that payroll system. However, they must adhere to employment compliance rules while dealing with these two employees.

• Payroll processing company: Some smaller businesses outsource their Swedish payroll to a local business. Any errors made by the company will still be your responsibility.

• Outsource: An additional choice is to outsource your payroll procedures if you want to connect with experts who can help you with payroll processing and work with a worldwide PEO service like Multiplier. Our team of specialists will handle the payroll process and ensure that all procedures adhere to compliance standards. As a result, you are free to focus on growing the company instead of worrying about handling payroll.

Entitlement and Termination Terms

You must have an employment contract before onboarding any employee to your organization. The agreement must include all the clauses, benefits, and compensation structure. 

Employers should draft employment contracts mentioning all entitlements as per Sweden employment act. It should include sick leaves, social security contributions, holidays, and annual leave. Employers who offer additional benefits should specify that also.  

Before terminating the employment contract, employers must give employees two weeks’ notice. Notice durations are frequently influenced by tenure or any possible employee-covering trade union agreements. The employer must convey the reasons for termination to the employee. Some reasons include:

• Resignation or a mutual agreement between the two parties
• Death of the employee
• Mental or physical disability 
• Any other justified reason

The employees will be paid their share of the money, including the salary earned during the notice period, leave encashments, etc.

Sweden Payroll Processing Company

Setting up a new nation’s payroll structure according to local laws may pose a challenge. It will be ideal if you seek advice from industry leaders or groups who know local laws and are experienced in setting up payroll in Sweden.

Several companies out there can help you with the process. You can work together with a global PEO company like Multiplier. Consider all of your alternatives, select the one that best suits your company’s requirements, and streamline the Swedish payroll setup process.

How Can Multiplier Help with Global Payroll?

Sweden’s payroll creation and management involve several variables, including payroll, the payroll cycle, and others. The process can be time-consuming and drain resources from a business. Herein lies the role of Multiplier.

Our experts will take care of employment contract preparation, payroll, and other services on your behalf. Multiplier is well-known in Sweden for offering PEO services to international corporations in more than 150 different countries along with Sweden. Our professionals can handle payroll processing, employee onboarding, and other responsibilities.

Our PEO services, which are SaaS-based, make sure that your payroll process in Sweden goes off without a hitch.