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Romania is the 12th largest country in the European Union (EU) and is home to nearly 20 million people. It is located at the crossroads of Central, Eastern, and Southeastern Europe. Romania's economic recovery has continued in the twenty-first century, with an estimated GDP of $244 billion in 2019 and a growth rate of 4.1%, one of the fastest in the EU. The national currency of Romania is Romanian Leu (RON). Companies in other European countries find Romania to be an attractive hiring location. Foreign employers should be familiar with Romanian payroll laws and payroll processing in Romania before proceeding with recruitment.
Payroll Cycle and Working Hours in Romania
The payroll cycle is monthly in Romania and the salary is typically paid on the last working day of the month under the payroll in Romania. The workweek in Romania is a maximum of 5 to 8 hours per day and capped at 48 hours per week, according to payroll laws in Romania. The working hours for part-time employees in Romania is a minimum of 2 hours per day, i.e 10 hours weekly. For those below 18 years of age, the minimum working hours are 6 hours daily, i.e, up to 30 hours per week.
Social Security Contribution For Payroll Tax in Romania
Payroll tax in Romania is typically based on a percentage of the employee's pay and may include taxes for social security, unemployment insurance, and other purposes. All employed and self-employed people are required by payroll laws in Romania to pay social security contributions (pension and health insurance), to calculate the contribution to employment cost and employee costs.
For payroll in Romania, employee contribution is the major part of total social insurance contribution, which is calculated according to the EU social security coordination rules and the provisions of social security treaties Romania has signed.
In Romania, all employees and employers are subject to contribute to the pension fund, healthcare insurance, and unemployment insurance. Employees must make mandatory contributions to each of these systems. The employer makes a single payment. The systems provide employees with predetermined benefits. The social security contributions for payroll in Romania are:
- Pension Insurance - Old-age pensions are paid to Romanians who have completed the required length of service in the public pension system and have reached retirement age. Men can retire at 65, while women can retire at 63. For the payroll process in Romania, only employees contribute towards Pension Insurance. The employee contribution rate to Pension Insurance is 25% of their monthly gross income according to the payroll laws in Romania. Individuals who have worked for at least 15 years and contributed a certain amount are eligible for pension benefits. For employees with special working conditions, the employer may be required to make an additional pension contribution ranging from 4% to 8% of employee earnings.
- Health Insurance – Under payroll laws in Romania, payments to employee health insurance are not compulsory for employers. This means that only employees contribute to health insurance for social security in Romania. The Health Insurance contribution rate is 10% of the monthly gross income of employees which is the full liability of the employee only for the payroll process in Romania.
- Unemployment Insurance – Employers typically contribute only 2.25% of an employee's gross salary to unemployment insurance. Companies with more than 50 employees who do not meet the mandatory hiring quota for disabled individuals may face additional penalties of around 4% for payroll in Romania.
Employer Contribution (Employment Cost) to Payroll Tax in Romania (2023)
Employee Contribution (Employee Cost) to Payroll Tax in Romania (2023)
Every month, the employer should calculate and withhold the employee's social security contributions as payroll tax in Romania and pay them to the competent authority along with their own contributions. The payments should be submitted by the 25th of the month following the pay period for which the payments are made.
Employee Income Tax in Romania
The tax year in Romania is the calendar year, i.e. from 1st January to 31st December. Employers are required to deduct tax payments from their employees' paychecks. Romanian nationals and Romanian corporations must pay tax on all income earned within Romania as well as income earned outside of Romania. Non-residents who are declared Romanian fiscal residents must pay tax on their total income, including income earned in Romania and income earned abroad.
Employment income in Romania is taxed at a flat rate of 10%. Salary including bonuses, rewards, and benefits constitutes taxable income. Non-resident workers sent to Romania by foreign employers pay the same tax rate as Romanian citizens.
For payroll in Romania, employers must withhold income tax from their employee's wages and salaries and submit it to the local tax authorities every month. The monthly tax return must be filed by the 25th of the next month same as social security contributions.
