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What global businesses need to know about payroll in Romania
Romania has been part of the European Union since 2007, and that has helped the size of its economy more than double since its accession. This country of around 20 million people has been a real economic success story in Eastern Europe since the end of the 1980s, and actually ranks 12th in the EU by GDP.
One of the reasons Romania has had such success with foreign investment in particular is through a low tax regime that is simple to understand. Income tax and corporation tax are both very low by European standards, supporting an economy that’s 58% services, but also still underpinned by heavy industries such as electronics, automotive, textiles, and construction materials.
There is a little more than meets the eye, however, when it comes to payroll and employment requirements in Romania. The low taxes are partly counterbalanced by high social security contributions, while the national minimum wage is continuing to increase at a very fast rate. Read on to discover all you need to know about running payroll in Romania.
Getting Started
Limited-liability companies are probably the best way to go in terms of setting up a business entity in Romania, especially as the minimum share capital is a nominal €200.
The first step is to reserve the company name at the National Trade Register, then open a Romanian bank account (which you will need to process payroll). Then you can go back to the National Trade Register to officially register the company, and then go on to register with the Ministry of Public Finance for tax and VAT. You’ll also need to set up an electronic staff register to be transferred to the Labor Inspectorate.
Employment Considerations
Employment contracts are mandatory and must outline the role and responsibilities, compensation and leave entitlements, probationary period, place of work, and other details. All new employees must register with the Labor Chamber at least one day prior to commencing work.
Collective bargaining at the national level was abolished in 2011. Collective agreements may still be negotiated at the industry and company levels; however, the Social Dialogue Act stipulates that any lower-level agreements must achieve the minimum conditions agreed at higher levels.
The standard working week in Romania is 40 hours, most commonly comprising of eight-hour shifts from Monday to Friday. A maximum of eight hours of overtime can be worked per week, and should normally be compensated with time off in lieu, within two months of the time worked. If that time off cannot practically be given, then overtime pay of at least 175% of normal salary is due.
Notice periods are a minimum of 20 working days, although managerial employees resigning must give at least 45 working days’ notice. Probation periods are normally three months, increasing to four months for managers and supervisors.
Compensation & Severance
The minimum wage in Romania has been subject to several substantial hikes in recent years. As of January 1 2024, the rate is RON 3300 per month (approx. £515, $655, €605), but at the time of writing, there are proposals from the Romanian government to increase this to as much as RON 3700 per month by 2025. In any case, expect further increases in the years to come, as the rate has almost quadrupled in the space of ten years. Wages are generally paid once a month, by electronic bank transfer or in cash.
There is no legal requirement around severance pay in Romania, but arrangements can be agreed through collective bargaining or employment contracts.
Tax and Social Security
Romania stands out as one of the most straightforward countries around from the perspective of tax and social security.
Income tax in Romania is levied at a flat rate of 10% and there is no personal allowance or exempt amount. Corporation tax runs at 16%, while VAT is 19% (with some reductions applicable at 9% and 5%).
Employees pay 25% into their pension, while employers contribute an additional 4%. Employees also pay 10% for health insurance, while employers pay 2.25% for unemployment insurance.
Holidays and Leave
Paid leave entitlement in Romania is 20 days per year: at least half of that must be taken in one unbroken period (typically for a summer holiday). Holiday can be carried over into the first half of the following year if unused. There are 16 days of public holidays in Romania each year, although those that fall on weekends are ‘lost’ as far as time off is concerned.
Maternity leave is a total of 18 weeks, split equally before and after the birth. Social security covers maternity pay during this time at 85% of the mother’s usual salary. Mothers can also take ‘maternal risk leave’ to help care for their child if unwell, paid at 75% of salary by social security. Employers, however, are required to cover the ten days of paid paternity leave, which increases to 15 if the father takes part in a course on infant care.
Parental leave entitlement is two months, which can be taken any time before the child turns two, and is paid at 85% of salary by social security. Only one parent of any child can take this leave, and they must sign a written declaration to confirm that the other parent will not be taking the same entitlement.
Sick pay is covered by employers for the first five days, after which social security kicks in, covering between 75% and 100% of normal salary depending on the ailment involved. The maximum sick leave entitlement is 180 days a year, but can be extended by another 90 in certain circumstances.
Employees are also entitled to five days paid leave if getting married, two days if one of their children is getting married, and three days for the death of an immediate family member.
In Summary
The simple, low-tax regime in Romania means it’s largely free of the bureaucracy and red tape that can hold back foreign businesses in other Eastern European countries. However, that doesn’t mean you’ll definitely be free of any complications or unexpected difficulties along the way. Working with a global payroll partner that has Romania-specific expertise can help smooth things out for you, and ensure your compliance in the long-term.
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.