We are living this period in Romania not only the count down for the Christmas and New Year but also for the new salary payment system which will be introduced starting January 2018.
The gross salaries of the Romanians will rise spectacularly but net salaries will be hardly maintained at the level from December 2017. Till now only employees working in the public sector are guaranteed the same net salary.
In brief, according to the new fiscal legislation, the employer and the employee will negotiate the gross salary which would comprise all related taxes paid currently shared by the employee and the employer namely pension and health contributions. Those taxes would continue to be paid in the name of the employee by the employer in the future as well. But the failure to do so will constitute for the employer a criminal penalty and not just a contravention sanctioned with an administrative fine.
Until now, the gross salary of the employee included only a part of health and state pension contributions, the other part was paid by the employer without being accounted for in the gross salary, though it was calculated for each employee based on the employee’s gross salary negotiated with the employer.
First, we have to understand that this transfer of contributions from the account of employer to the account of each employee stipulated by the law which will enter into force on January 1st, 2018, is not done automatically. Thus, each employer be it public institution, state owned company or private firm, has to negotiate and establish the new salary for each employee. A related Government’s ordinance set the obligation to do so from the end of November 2017 up until this Christmas.
Second, it is nonetheless important to observe that the employers may choose to keep constant the expense with the salaries or to transfer the currently paid contributions to their profits and not to the net of the employees in order to maintain their existing net salary.
In order to encourage employers to keep current net salary of the employees, the Government decided to lower tax on salary from current 16% to 10%. This move would compensate the fact that the contributions to health and pension funds paid currently by the employers are related to the existing gross salary of the employees which are lower than the future salaries which would include all contributions.
There are at least 2 categories of employees who will be disadvantaged by this transfer of contributions, namely the IT staff and the researchers who are currently benefitting of no tax on salary. Consequently, for them the lowering of tax on salary from 16% to 10% does not help. In case their employers choose to maintain their overall expense with salaries, then the net salaries of IT and R&D employees will decrease if no other specific legislation will be adopted during next 10 days. In addition, a new tax is introduced for the employers called solidarity tax with a level of 2,25% applied to the overall salary expense.
In brief the new fiscal legislation is including health and pension contributions paid by the employer and employee in the gross salary of the employee as follows:
- Unified social contribution for state pension fund included in the gross salary of the employee – 25%
- Unified social contribution for health included in the gross salary of the employee – 10%
- Tax on salary after deduction of the health and pension contributions – 10%
- Social contribution for the employer – 2,25% on the overall expense with salaries. In addition, the employer will have to pay some extra contributions for hard labor conditions.
The new labor contracts, by exception, can be registered with the national register up until March 31st in order to be considered valid although applied from January 1st.
Following the above described changes, the minimum salary established by law will become from next January, 1.900 ROL.
As of December 2017, this legislation although adopted by the Government and in force from January 2018, is under debate in Parliament and important amendments could be voted.
If all those changes apply and the employers will maintain the net salaries of the employees at their current level than Romania will register a significant increase of the average gross salary. In October 2017, this indicator was 3.327 ROL (around 725 Euro). Starting with January 2018, we will assist to a significant increase of this parameter, which could go up to around 950 Euro throughout 2018 but the net gain of the employees will stagnate.