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What global businesses need to know about payroll in Croatia
If you’re looking for a small country in Europe that makes a big impact, look no further than Croatia. Its soccer team embodies the ambition of this country of less than four million people, reaching the final of the 2018 FIFA World Cup, finishing third in the 2022 edition, and also finishing runner-up in the 2023 UEFA Nations League.
Just three decades ago, Croatia was a country ravaged by war as it sought to gain independence from the former Yugoslavia. But in a symbol of its transformation, the country adopted the euro as its official currency at the start of 2023, further strengthening the continental ties forged when it joined the European Union a decade earlier.
Tourism is a major economic driver in Croatia, whether it’s the beautiful beaches along the Adriatic coast, or city breaks in the capital, Zagreb. There are plenty of other opportunities for foreign businesses there too and Croatia retains a strong core of heavy industry across iron, steel, aluminium, plastics, chemicals and energy.
This guide tells you all you need to know about employment law and running payroll in Croatia, including some of the local characteristics you should be aware of.
Getting Started
Registering a business in Croatia is not too difficult, as long as you have done your prep work. Most transactions tend to be completed and approved within a day.
Start by registering your business name with FINA, the financial agency. Then you can draft your Articles of Association and have them verified by a qualified Croatian notary. These documents can be submitted to FINA as part of the application to have the company approved by the Court Register. Approval at this stage normally comes within 24 hours and will generate the official company registration within three working days.
When you register for VAT through the Tax Authority, you should also register for pension and health insurance. Having an account with a local bank is necessary to establish your company. You will need the court and registration information before a business bank account can be approved.
Employment Considerations
Written contracts are required. Collective bargaining generally determines overtime stipulations, and additional restrictions on how employees are treated. For example, if an employee is exposed to specific harmful elements in their job, their hours may be limited. Every worker given more than 20 hours a week is allowed to take part in decisions regarding their well-being in the business.
In line with much of the rest of Europe, the standard working week in Croatia is 40 hours, generally consisting of eight-hour shifts from Monday to Friday. Anything beyond this is overtime, which is limited to ten hours a day or 180 hours per year. Collective bargaining and contractual agreement decides overtime pay rates; it’s not uncommon for overtime hours to be extended to a maximum of 250 hours per year.
Notice periods start at seven days, and rise to two weeks after a year’s service. This continues to rise with length of service, reaching six weeks after two years, eight weeks after five years, ten weeks after ten years, and 12 weeks after 20 years. A further two weeks should be added on if the employee is over 50, or a further four weeks if the employee is over 55. Probation periods are a maximum of six months.
Compensation, Bonuses & Severance
The minimum wage in Croatia was bumped up 20% at the start of 2024, and now stands at €840 per month (approx. £720; $910). Now that Croatia is in the eurozone, it’s entirely possible that the rate will continue to increase and bring the country closer to its fellow members in the west of the continent.
It’s common for employees to receive bonuses at Christmas, meal allowances, voluntary pension contributions, and health and travel insurance as employee benefits. Those working from home on a regular basis often receive a ‘homeworking allowance’ of up to €70 per month (approx. £60; $75). Yearly raises and performance bonuses are also common, and are often enshrined in contracts through collective bargaining.
Employees should have at least two years of service to qualify for severance pay. This runs at one-third of a month’s pay per year of service, capped at six months’ salary for those with at least 18 years service.
Tax and Social Security
The income tax system in Croatia is unusual. There are two tax brackets, and the current threshold between the two is €50,400 per year (approx. £43,200; $54,600). However, the rates that are applied to those two brackets vary across different parts of the country, and are determined year-to-year by local municipalities. The lower rate can range between 15% and 23.6%, and the higher rate can range between 25% and 35.4%.
Corporation tax is 18%, with a reduced rate of 10% applying to organizations turning over less than €1 million per year (approx. £855,000; $1.08 million). VAT is 25%, with reduced rates of 5% and 13% applying to a range of goods and services.
Employers contribute 16.5% towards health insurance. Employees make two separate pension contributions, which collectively come to 20%.
Holidays and Leave
The minimum paid leave entitlement in Croatia is 20 working days per year, increasing to 25 for those who work in hazardous environments. There are 14 public holidays per year, although those that fall on weekends are not usually replaced by days off in lieu.
Maternity leave is covered by social security at full pay, and starts four weeks before the due date. A law change in 2023 means social security will now cover maternity pay until six months post-birth, as opposed to ten weeks as it was previously. Paternity leave is ten days, which can be taken at any time during the first six months post-birth, and is paid by social security at full salary.
After the child reaches six months, either parent can take parental leave up until the child turns eight: four months per parent for each of the first two children, and 15 months per parent per subsequent child. Payment for the first six months per parent – or eight across both parents – is paid by social security at a maximum of €750 per month (approx. £640; $810). Any subsequent months are capped at €309 per month (approx. £265; $335).
Sick leave is a maximum of 42 days per year, paid by employers at 70% of salary. After this, employers should continue to make sick payments, but can then claim these back from the health insurance fund.
In Summary
Croatia has been a good choice for an Eastern European expansion for a while now, and its attractiveness has only increased now that it’s part of the eurozone. However, that membership may well bring further reforms and changes to payroll and employment regulations, as suggested by the substantial rise in the minimum wage for 2024. To ensure you’re prepared for whatever the future holds in Croatian business, make sure you have ready access to up-to-date local expertise, including from a global payroll partner.
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.