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What global businesses need to know about payroll in Norway
Norway often stands out from the crowd among European countries for doing business, as it has never been a member of the European Union. But don’t let that put you off the country as a place for expansion: as a member of the European Free Trade Association and the European Economic Area, its trading links across the continent are strong.
Much of the prosperity that Norway has established is built on its extensive oil and natural gas extraction in the North Sea. However, there’s much more to the Norwegian economy, and services make up well over 60% of its GDP production. Having the best of both worlds has helped this country of less than 5.5 million people rank among the highest in the world for wages, and for GDP per capita.
High wages and a strong cultural focus on quality of life means that taxes are relatively high in Norway, while collective bargaining plays a major role in ensuring that work/life balance is maintained for Norwegian workers. This guide sets out the key facts about employment law and running payroll in Norway.
Getting Started
There are three main types of corporate entities in Norway: sole proprietorships, Norwegian-registered foreign enterprises (known as NUF) and private limited liability companies (known as AS). For the latter two, a minimum capital deposit of 30,000 Norwegian krone (approx. £2300; $2850; €2650) should be deposited into a corporate bank account.
Most business registration requirements can be carried out on the Norwegian government’s online platform Altinn. This includes registering with the Register of Business Enterprises and for VAT, and businesses then receive their own individual registration number. This process costs NOK 5570 (approx. £420; $530; €490) if conducted online. The company must have a Norwegian business address, and any person running the business who is not from an EU or EEA country must have a Norwegian residence permit.
The business ID number is required for companies to set up separate bank accounts for the business and as individuals. These accounts can be set up at most Norwegian banks quickly, especially if the global company is already part of the EEA (European Economic Area). Previous bank statements, company paperwork, and identification from authorized managers with access to the account will help in setting up your bank account efficiently.
Employment Considerations
Contracts of employment are required to state the length of employment, job description, working hours and conditions, salary and how it’s paid, probation period, notice terms, holiday, leave, and pension considerations.
Working considerations and limits on hours are set out in law by the Working Environment Act, although further regulations may be defined in employment contracts or through collective bargaining agreements. Employees should not work more than nine hours in any 24-hour period, or more than 40 hours in any seven-day period: most full-time workers in Norway work between 35 and 40 hours a week.
Overtime is limited to a maximum of ten hours in a week, 25 hours in a four-week period and 200 hours over a year (extendable to 400 hours with the consent of the Labour Inspector). Overtime should be paid at a minimum of 140% of the usual rate.
Probation periods are typically between three and six months. The statutory minimum notice period in Norway starts at two weeks for employees still in their probation period, after which a minimum of one month applies. This rises to two months after five years of service and three months after ten years of service. Even longer notice periods apply to older, long-serving employees: at its maximum, an employee over 60 with at least ten years of service has a six-month notice period.
Compensation, Bonuses and Severance
Norway doesn’t have a statutory minimum wage at present, but collective bargaining has established accepted minimums in a range of different industries. If employing skilled workers, employers will normally be expected to pay minimums of at least NOK 220 per hour (approx. £16.60; $21.00; €19.40). It is also common to pay allowances and benefits in a range of different areas, including meals, transport, private pension and medical cover, and even cellphones and gym memberships.
Norwegian employers are subject to strict guidelines about reporting income for employees. Companies must report the income, taxes and national health insurance contributions on a monthly basis. Payroll regulations also stipulate that employers also show sick pay or parental leave pay, holiday pay and the annual holiday payment.
Bonuses can be awarded to senior employees in Norway; the awarding of bonuses to lower-ranking workers is unusual. There are no set rules regarding bonuses, although they will be subject to taxation.
There is no provision for severance payments within Norwegian law, beyond payment of usual salary for the length of the notice period. However, many businesses in Norway will offer severance pay as part of a wider termination package.
Tax and Social Security
Norway may have a high standard of living and a high-wage economy, but this is counterbalanced by high tax rates. There are two types of income tax, both of which can be withheld by employers and remitted on a ‘pay-as-you-earn’ basis.
The first ‘general’ tax is levied on all income at a flat rate of 22%. The second ‘bracket’ tax is levied on a progressive basis, where the first NOK 208,051 earned per year (approx £15,700; $19,800; €18,300) is exempt. Beyond this, rates of 1.7%, 4%, 13.6% and 16.6% kick in. The highest rate of 17.6% applies on all earnings above NOK 1.5 million per year (approx £113,000; $143,000; €132,000).
Corporate income tax is levied at 22%, which rises to 25% for certain financial services companies. Furthermore, an additional 56% ‘special tax’ is applied to companies conducting upstream petroleum activity on the Norwegian Continental Shelf, bringing the tax total for these companies to 78%. The standard VAT rate is 25%.
Social security payments by employers run at 14.1%, with an extra 5% levied on employee income exceeding NOK 850,000 per year (approx £64,000; $81,000; €74,000). Employees contribute 8.2%, with a reduced rate of 5.1% applying to employees under 17, or who are 70 or over.
Holidays and Leave
The statutory minimum for paid leave in Norway is 21 days, although it’s more common for employees to receive 25, either thanks to collective bargaining or businesses providing extra leave voluntarily. Employees over 60 get a minimum of 31 days per year.
Three weeks of this leave must be taken as one continuous block between June and September as the employee’s summer holiday: for this, they receive an annual leave payment of at least 10.2% of their yearly salary before that holiday starts (12.5% for the over 60s).
Employees are paid for the 12 days of public holidays in Norway each year, but only if they would normally have worked that day anyway; in other words, if they work a normal Monday-to-Friday routine, they aren’t paid for holidays that fall at weekends.
Norwegian maternity leave is generous, and can run for up to 59 weeks, during which the mother receives 80% of their usual salary through social security. Alternatively, they can reduce the leave to 49 weeks and receive the full salary instead. However, apart from the three weeks pre-birth and the six weeks post-birth, the rest of this paid maternity leave entitlement can be split between the mother and the father. Specific paternity leave is two weeks, and is unpaid, as is the additional year of parental leave that parents can take if they so wish.
Sick pay at full salary is covered by the employer for the first 16 days, after which the Norwegian social security system picks up the tab (as long as employees have been paying into the system sufficiently).
In Summary
While there’s lots to savor about doing business in Norway, it does have its fair share of payroll complexities, especially given the high tax burden and the active role of collective bargaining in deciding wage rates. In order to make sure that your Norwegian expansion starts on the front foot, we would always recommend seeking out the experience and country-specific expertise of 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.