How to hire and pay remote workers in Croatia

To scale your business successfully, you need to have access to the best global talent. To do that, you'll need to hire independent contractors and remote employees from around the world.

Hiring remote workers in Croatia is an attractive option because of its strong social security system, free education, and universal healthcare.

Given the complexities around labor, tax, and compliance laws, it can be challenging to pay Croatian workers and stay compliant. Managing global payroll isn't easy, even for experienced business owners. Then there are the risks of misclassifying remote employees and contractors, which can lead to serious fines and penalties or even open you up to costly legal battles and loss of intellectual property.

However, you can minimize such risks and operate more efficiently if you work with a company that understands the local laws. In Croatia, strong laws protect against misclassification, misrepresentation, and other common employment challenges. That's why we created this comprehensive guide to take the guesswork out of hiring and managing remote employees.

We will give you the solutions and expert advice necessary to expand your global workforce with ease. Let's start by exploring how foreign businesses pay remote workers in Croatia.

How do foreign businesses pay remote workers in Croatia?

Open a legal entity in Croatia

To hire a remote employee in Croatia, companies must own a local legal entity or work with an employer of record, like Remote. Managing payroll, benefits, and taxes, and making sure you're compliant can get complicated — especially without established local relationships.

Work with an employer of record

Working with an employer of record (EOR) makes it easy for your company to hire remote employees in Croatia quickly, efficiently, and in full compliance with all applicable labor laws. Your EOR takes on the responsibility and legal risks of international employment so you can focus on hiring top talent and growing your business.

Pay Croatia workers as contractors

One way to hire a remote employee in Croatia is through independent contracting. These contracts are generally inexpensive, easy to set up, and require little legal overhead. However, if you are not careful, you could expose your company to penalties and fines if you misclassify employees as contractors.

In what currency do companies pay remote workers in Croatia?

Companies pay remote workers in the Croatian Kuna (HRK), the local currency. While you may be able to pay contractors in other currencies in certain cases, you must pay your local employees in the local currency.

What are the tax rates for tax brackets in Croatia?

Every country in the world operates under its own tax code. For remote workers, that means complying with local tax laws.

Croatia has progressive tax rates and uses the following tax brackets on an annual basis:

• Income less than HRK 360,000 per year = 20% tax rate

• Income over HRK 360,000 per year = 30% tax rate

Learn more about Croatian payroll taxes on Remote’s Country Explorer page.

Which parts of salary in Croatia are taxable?

Components of Croatia salary that incur full taxes

In Croatia, employers make social contributions for health insurance at 16.5%. The basis for payment is the gross salary, which is not capped.

Employees pay between 20% and 30% in taxes, depending on their income bracket.

Components of Croatia salary that incur partial taxes

Employees pay social security contributions of 20%. These are pension contributions, with 15% going to Pillar I and 5% going to Pillar II. The basis for payment is the gross salary, which is capped at the following for 2021:

• HRK 55,086 monthly cap (applicable for both Pillar I and II payments in the case of salary)

• HRK 661,032 annual cap (applicable for Pillar I payments, whether the payment is salary or not)

Is per diem taxable in Croatia?

What are per diem payments?

Instead of paying actual travel expenses, per diem payments are an allowance paid to employees for meals, lodging, and incidental expenses incurred.

How are per diem payments considered in Croatia?

In Croatia, a daily allowance of up to HRK 200 per diem for business trips within Croatia, plus travel and lodging expenses, qualifies as non-taxable.

Is there a difference between allowance and reimbursement in Croatia?

A fixed per diem reduces the need for the employee to save receipts. As long as the amount is under the per diem amount, you can approve it without the need for documentation.

In contrast, reimbursement requires that the employee provide receipts to report the actual cost. Some common non-taxable scenarios in Croatia include reimbursement for:

• Travel expenses to get to work (like public transportation)

• An employee using their personal car for business purposes

• Meals (if receipts are provided as proof)

• Accommodation expenses (if receipts are provided as proof)

What payroll deductions are employers required to make in Croatia?

There are payroll deduction differences depending on whether the employer is based in the European Union (EU) or another country.

If the employer is based in the EU, the employee has access to Croatian pension and health insurance. You are required to calculate and pay contributions according to Croatian legislation and apply for a personal identification number (PIN). The basis for contribution payments is the salary defined in the employment contract. However, in some instances, you may be exempt from paying health insurance contributions and only be required to pay pension contributions.

If the employer is based outside the EU, the worker is responsible for paying contributions. In that case, employees submit the application for pension and health insurance using the designated government forms. The basis for the calculation of contributions is determined by the tax administration annually. Employees pay contributions for the first and second pillars of the pension scheme as well as health insurance.

What is the minimum wage in Croatia?

The minimum wage is regulated by the Minimum Wage Act and is equal to the payment an employee receives for working 40 hours a week over a month. The minimum gross monthly wage is currently set at HRK 4,250.

How much is overtime pay in Croatia?

All work over 40 hours a week is to be paid as overtime. The maximum number of overtime hours is 10 weekly, with a total of 180 hours annually. All overtime hours are paid at the compensation rate outlined in the employment contract.

What are the local labor laws in Croatia?

The Croatian Labor Act is the authority on issues regarding employee protection and workers' rights. When you hire a remote employee in Croatia, they are protected against discrimination based on age, religion, sexual orientation, gender expression, and race. Also, in response to the pandemic, remote working legislation was passed obligating employers to offer the option of working from home whenever possible.

Non-compete agreements in Croatia

An employment agreement can include non-compete clauses if the employee agrees and is earning above the average wage. A non-compete can only last a maximum of two years. It is only valid if its goal is to protect legitimate business interests and does not limit the former employee's work opportunities elsewhere.

Working hours and overtime

There are specific guidelines in Croatia around working hours:

• Employees can only work a maximum of 40 hours a week.

• If a worker incurs overtime, it must not be more than 180 hours per year.

• An employee must be allowed to take a 30-minute break for every six hours of work.

Paid time off in Croatia

Paid time off in Croatia includes sick, vacation, maternity, and parental leave.

Sick leave

Employees must register for health insurance with the Croatian Health Insurance Fund (HZZO). This entitles them to collect sick pay (or the income replacement benefit) and sick leave. Employers pay sick pay for the first 42 days of sick leave or seven days for an employee with a disability. Sick payment cannot be less than 70% of what an employee earned in the six months before the sick leave.

Vacation time

Croatian employees are entitled to at least four weeks of annual vacation. Paid leave is also available for important life events like marriage, childbirth, serious illness, or a death in the family.

Maternity leave

Mandatory maternity leave consists of 28 days before the expected due date (but can be taken up to 45 days before if there are complications). After birth, the mother is entitled to 70 days of paid maternity leave. After 70 days, the mother can continue the maternity leave for six months or transfer all or part of it to the father if she decides to return to work.

Parental leave

Each parent has the right to 120 days of paid leave for each child. The employee must take this leave before the child is eight years old.

Termination of employment in Croatia

The employee must be notified of termination in writing.

Severance pay in Croatia

Employees have the right to obtain severance pay, except where a project ends for contractual reasons, as on a fixed-term contract. Workers who are employed for two years or more are entitled to severance pay equaling 33% of their regular monthly pay for each year of service. The maximum severance pay is six months of the employees' salary. The minimum notice period depends on the duration of the employment relationship:

• Two weeks for one year of employment

• Six weeks for two years of employment

• Eight weeks for five years of employment

• 10 weeks for 10 years of employment

• 12 weeks for over 20 years of employment

For employees over the age of 50, an additional two weeks' notice is required. For employees over the age of 55, an additional four weeks' notice is required.

How to pay contractors in Croatia?

Employment relationships in Croatia are made by creating a contract in writing. For independent contractors, you are not required to pay taxes or insurance, and your employment contract can be much more flexible in favor of the company. It's also easier to terminate contractors, and payroll is more straightforward without the need to calculate benefits or social contributions.

While many employers assume that hiring contractors is easier than hiring remote employees, there are still some inherent risks. For example, employee misclassification can result in heavy penalties. Misclassification occurs when a business gives a worker the wrong designation, whether by mistake or on purpose. Even if you try to classify workers properly, it can be tricky. Over time, the nature of your relationship may shift to an employee relationship, and you may not even realize it.

That is when you may want to convert a contractor to an employee. It may be time to convert your contractor to an employee if you:

• Are out of compliance in the contractor's country

• Want your contractor to play a greater role in your company

• Want to offer benefits to your contractor

• Want to provide a better employee experience

• Want more protections for your company's intellectual property

• Want to save money in the long run

• Have an outdated contract with the worker

• Don't want your competition to hire the contractor

• Have a contractor who wants to become an employee

How to pay remote employees in Croatia?

The Labor Act of Croatia defines an employee according to specific criteria. A person will generally be considered to be an employee if they:

• Work for the employer under a work or service agreement

• Perform the job on the employer's premises

• Receive compensation for their work

Permanent establishment is one risk that can come up when you hire a remote employee in Croatia. Permanent establishment is a tax term for businesses that have an ongoing presence in a country. If you meet certain criteria, your company is considered established enough in the country to be subject to corporate taxes.

Using an employer of record (EOR) in Croatia

An EOR is the safest, simplest, and most scalable way to hire remote workers in Croatia. Basically, an EOR takes on the burden of local legal requirements to ensure that the company can employ workers in the area. Without an EOR, you can't directly employ workers outside the country where you are headquartered unless you spend the time and money to open a new local legal entity within the country where the employee lives.

There are many instances when you should use an EOR. For one, an EOR makes it easier to convert misclassified workers to employees and avoid serious penalties. An EOR also provides expertise to make sure you're complying with local labor laws so you can focus on running your business.

Companies that may experience an IPO or acquisition must be especially vigilant about their intellectual property, or IP. An EOR will either work with local legal experts or hire their own to handle IP transfers. That way, you can ensure that ownership of your IP will not be in question. One example is Remote IP Guard, which offers the strongest protections in the industry for your IP and invention rights.

Pay remote workers in Croatia with Remote

Hiring remote workers in Croatia can be one of the best decisions you make for your company. Given the complexities around local labor laws, it can be challenging to pay workers and stay compliant. With Remote, you can employ the best global talent, manage payments and benefits easily, and ensure international labor law compliance. We eliminate the need for you to create a local legal entity by acting as your EOR. Remote handles Croatia’s complex labor and tax laws so you have more time to focus on scaling your business.

Ready to hire a remote employee in Croatia? We can help you onboard your workers in just a few days. Reach out to us today! We would love to discuss your plans to grow your global workforce.