Only 1.4 percent salary increase slightly raised contributions

As of January 1, 2013, new bases for the calculation and payment of contributions for mandatory social insurance are in effect.

The Contributions Act includes an automation mechanism whereby the bases for the payment of contributions are determined for each calendar year based on the average salary achieved in the period from January to August of the previous year. According to published statistical data, the average monthly salary in that period of 2012 was 7867 HRK gross, which represents an increase of only 111 HRK or 1.4 percent compared to the average salary achieved in the same period a year earlier. This amount is multiplied by prescribed factors to determine monthly bases, and data on monthly bases for 2013 were published in Nar. nov. no. 132/12.

Base for sick leave For employees, mandatory contributions are calculated on the amount of salary to which the worker is entitled according to the collective agreement, work regulations, or employment contract, but at least on a base amount of 2753.45 HRK per month. Since the minimum wage to which a worker is entitled for work performed is higher than the lowest monthly base for the calculation of contributions, contributions must be paid for the period of work at least on the amount of the minimum wage, which is 2814 HRK per month. In practice, contributions for employees will rarely be calculated on the lowest base. This occurs, for example, when a worker is on sick leave at the employer’s expense, and the sick leave compensation is less than 2753.45 HRK, so the employer must calculate and pay all mandatory contributions on the amount of the lowest monthly base.

If the period spent in insurance is shorter than one month, the lowest base for the calculation of contributions is determined proportionally to the duration of the employment relationship. Likewise, if a worker is employed part-time, the lowest base for the calculation of contributions is determined proportionally to the agreed part-time working hours in relation to full-time weekly working hours.

Excluded bonuses and rewards The highest monthly base for the calculation of contributions for pension insurance has also been increased. For 2013, the highest monthly base amounts to 47,202 HRK and is used as the upper limit from which contributions for the first and second pillars of mandatory pension insurance are calculated for individuals whose salary is equal to or greater than this amount. For example, for a person earning a salary of 60,000 HRK per month, pension contributions are calculated from a base of 47,202 HRK, while contributions for mandatory health insurance, occupational accident insurance, and employment are calculated on the full amount of the agreed gross salary.

In cases where the period spent in insurance is shorter than one month, pension contributions are still calculated on the full amount of the highest monthly base. The rule that applies to the lowest monthly base does not apply to the highest monthly base. The highest monthly base can only be used when calculating contributions on the monthly salary and cannot be used when paying bonuses and receipts based on rewards, grants, and severance pay.

Craftsmen and freelancers New bases for the calculation of contributions for craftsmen and individuals engaged in freelance professions have also been introduced. Craftsmen who are income tax payers for the year 2013 will pay contributions on a monthly base of 5113.55 HRK, resulting in a monthly obligation of 1713.04 HRK. Craftsmen who are profit tax payers and individuals engaged in freelance professions, regardless of whether they are income tax or profit tax payers, will pay contributions on a base of 8653.70 HRK, resulting in a monthly obligation of 2898.99 HRK.

For craftsmen and individuals engaged in freelance professions who are income tax payers, the Tax Administration will issue new decisions on the obligation of contributions during 2013. Until they receive a new decision, they will pay contributions according to the last decision. When they receive a new decision, they will pay the difference for certain months of 2013. Craftsmen and freelancers who are profit tax payers calculate contributions on the amount of entrepreneurial salary, but at least on a monthly base of 8653.70 HRK. They must take care of increasing the base themselves and already in February, when paying contributions for January 2013, apply the new monthly base.

When the state pays health contributions The monthly amount of pension that is used as a threshold for determining the obligation to pay health contributions has also been adjusted. Retirees whose monthly pension is less than or equal to 5464 HRK do not pay health contributions; for them, the contribution for health insurance is paid from the state budget at a rate of one percent. Retirees whose pension exceeds 5464 HRK per month are themselves obligated to pay health contributions at a rate of three percent. The contribution is withheld by the Pension Insurance Institute when paying the pension, and the paid contribution reduces the base for the calculation and payment of income tax.

dr. sc. Marija Zuber, advisor-editor, Accounting and Finance, [email protected]