Austria Payroll and Benefits Guide

What global businesses need to know about payroll in Austria

In the middle of Europe, to the eastern side of the Alps, you’ll find a country of only around nine million people that can be considered a little economic powerhouse. 

Austria has a huge number of things going for it: an excellent geographical position, membership in the EU, and a very powerful main export partner in the shape of Germany. Meanwhile, successful businesses such as Red Bull and the motorcycle giant KTM are making Austria’s presence even more keenly felt on the world stage.

Austria is a very stable country where wages and the overall standard of living are both excellent. However, with that quality of life comes a particularly large tax burden on both employee and employer, as well as unions driving even better standards for workforces through collective bargaining. 

If you’re thinking about setting up a business in Austria, start by reading this guide on the key facts around employment law and payroll.

Getting Started 

There are many different types of businesses operating in Austria, but incoming foreign organizations will most commonly form as a limited liability company (GmbH). These come with a minimum capital requirement of €10,000 (approximately £8500; $10,800).

The first step is to establish Articles of Association and have them notarized, followed by entry into the commercial register (called the Firmenbuch). Once this is complete, new businesses can then apply for the relevant business license, then register with the tax and social security authorities.

The whole process takes around seven weeks from start to finish, but the admin fees should come to no more than a few hundred euros in total. Setting up an Austrian bank account takes around four weeks.

Employment Considerations

Collective bargaining is strong in Austria, with unions and employee bodies regularly negotiating fair pay and conditions. All employment contracts must be in writing. 

Maximum working time is eight hours per day or 40 hours per week, although it isn’t uncommon for this to be reduced to 38.5 hours per week through collective bargaining. Inclusive of overtime, employees must not work more than 12 hours per day, or more than 48 hours per week on average over a 17-week period. Overtime pay is 150% of the normal salary.

Notice periods for termination start at six weeks, rising to two months after two years of service, three months after five years, four months after 15 years and five months after 25 years. Notice periods can be extended up to a maximum of six months through mutual agreement. Probation periods are a maximum of one month (three months for apprentices).

Compensation, Bonuses and Severance

Technically speaking, Austria is one of only five countries in the European Union that does not, at the time of writing, have a statutory minimum wage (if you’re wondering, Denmark, Finland, Italy, and Sweden are the others). However, in recent years, a combination of industry bodies were brought together by the Austrian government to determine a fair minimum wage level that they would adhere to. This means that Austria has a de facto minimum wage of €1500 a month (approx. £1280; $1620).

Discretionary bonuses can be paid by employers, and employers retain the right to remove these bonus entitlements at any time. Long-service bonuses, and 13th/14th-month bonuses, are also commonly negotiated through collective bargaining.

Employers must pay into a severance fund for each employee at the rate of 1.53% of their gross monthly salary. If an employee leaves at least three years after the first payment into the fund, and they have not been dismissed or made redundant, they are entitled to all of the payments made.

Tax and Social Security

Income tax in Austria is levied at progressive rates. The first €12,465 earned per year (approx. £10,700; $13,500) is exempt, beyond which six bandings apply, starting at 20%, then rising through 35%, 42%, 48% and 50%. The highest rate of 55% applies to all earnings in excess of €1 million (approx. £850,000; $1.08 million). However, as the 48% rate kicks in at just €66,178 a year (approx. £56,500; $71,600), most higher earners and senior staff face very high tax rates.

Corporate Income Tax has been slightly reduced in recent years, and came down to 23% at the start of 2024. It should also be noted that the Austrian government frequently offers tax relief for investment in certain industries or in certain parts of the country. The VAT rate is 20%, with certain limited goods and services reduced to 10% or 13%.

Austria also has a large number of different social security and tax contributions:

  • Health insurance: 3.78% employer, 3.87% employee
  • Unemployment: 3% employer, 3% employee
  • Pension: 12.55% employer, 10.25% employee
  • Accident insurance: 1.1% employer
  • Insolvency guarantee fund: 0.55% employer
  • Family burden equalization: 3.9% employer
  • Municipal tax: 3% employer
  • Employee severance fund: 1.53% employer
  • Chamber of Commerce payment: 0.34-0.42% employer (varying in different provinces)

Holidays and Leave

Paid leave entitlement is 25 days per year, as long as an employee has at least six months’ service; for the first six months, employees accrue two days per month. Employees who reach 25 years of service with one employer get an extra five days per year, giving them 30 in all. Employees are also entitled to paid time off on the 13 days of public holidays observed each year.

Fully paid maternity leave entitlement is 16 weeks, eight weeks either side of the birth – mothers get weekly payments from social security during this time. Paternity leave is one month, unpaid, and can be taken at any time within the first two years after birth. New fathers must give written notice to their employers at least three months before they wish to take this leave.

Both parents are entitled to paid parental leave until the child turns two, paid for by social security, although the two parents of a particular child cannot take this leave at the same time.

Sick leave entitlement (fully paid by the employer) starts at six weeks, increasing to eight weeks after a year of service, ten weeks after 15 years and 12 weeks after 25 years. After the end of each of these provisions, employees who are still medically certified sick can get another four weeks at half pay, again covered by the employer. Social security picks up the tab after this point.

In Summary

From payroll and employment points of view, Austria stands out from its European neighbors in a number of ways. Taxes are very high, social security payments are numerous, and the role of collective bargaining agreements is very strong. All this and more can make payroll compliance especially complicated, so if you’re looking at expanding into Austria, we recommend partnering with a global payroll expert who can guide you along the way.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.

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