How to hire and pay remote workers in Romania

Expanding your talent search across borders is a smart way to grow your business in today's fast-changing landscape. With a growing economy, a burgeoning tech sector, and one of the lowest living costs in Europe, Romania is an appealing option for HR managers and startup founders to find skilled workers.

But to hire and pay remote employees in Romania, you need to own a legal entity in the country, or work with a global partner to ensure that you are compliant with local laws. Managing compliance, along with HR and payroll, can get complicated quickly. Making even a simple mistake can lead to legal problems or penalties down the line.

Don't let these risks stop you from hiring in Romania, though. This guide will show you how to safely and compliantly onboard, manage, and pay remote workers in Romania. 

How do foreign businesses pay remote workers in Romania?

Open a legal entity in Romania

Typically, to hire a remote employee in Romania, you must open a legal entity in the country. This includes having a registered office, fixed address, bank account, and a reliable team to make sure you’re compliant with local labor laws. The process is costly and can take months. 

Work with a global employment partner

An alternative to owning a legal entity in Romania is working with an employer of record (EOR) service. This is the easier and more affordable option. An EOR will usually have a legal entity in the target country, allowing you to employ workers through them legally.  

An EOR, such as Remote, helps companies onboard, hire, and pay workers according to local regulations and laws. You can even use Remote to calculate taxes and automate payments.

Pay Romania workers as contractors

Another way to hire in Romania without a legal entity is to hire your workers as independent contractors. A worker classified as a contractor typically files their own taxes and is not entitled to tax contributions and other worker benefits. A contractor also has the freedom and flexibility to choose their working hours and location.

While paying a contractor (rather than an employee) can seem more straightforward for a foreign company, businesses must be careful about misclassification. Misclassifying workers can lead to serious legal ramifications and massive fines, which we'll discuss later in this article. 

In what currency do companies pay remote workers Romania?

It's best to pay remote workers in their local currency. Paying a flat local currency rate protects workers from being at the mercy of fluctuating exchange rates. The currency in Romania is the Romanian leu (RON).

You can use a global payroll service like Remote to pay your remote workers in their local currency, regardless of where in the world they are based.

What are the tax rates for tax brackets in Romania?

Where a remote worker pays tax depends on the requirements of their home country and whether they are classified as an employee or contractor. The employer needs to withhold tax and pay social contributions for their employees, but not for their contractors. Self-employed contractors should file their own tax returns. 

A Romanian citizen living in the country is considered a Romanian tax resident. They are subject to a flat personal income tax rate of 10%. There are some exceptions to this rule, such as certain kinds of income derived by individuals with disabilities or those who work in specific sectors. 

Which parts of salary in Romania are taxable?

Romanian tax residents are required to pay taxes on their total worldwide income, regardless of the country in which it was earned. However, no taxes need to be paid on wages for work done abroad.

Components of Romania salary that incur full taxes

Almost all salary and benefits received by an employee for performing work duties are fully taxable. These include:

• Salary 

• In-kind benefits or cash benefits 

• Living allowances 

• Premiums and hardship allowances 

Income tax for non-Romanian tax residents tends to include only income earned in Romanian territory. 

Components of Romania salary that incur partial taxes

These salary components are partially taxable:

• Voluntary employer contributions to pension funds up to 400 EUR per year.

• Private health insurance and medical subscriptions up to 400 EUR per year.

• In-kind benefits for personal vehicle use are 50% deductible for corporate tax purposes.

There are also some specific areas of income that are exempt from tax under Romanian tax legislation: 

• Income generated from non-Romanian employers for work done outside Romania.

• Expenses paid by employers for employees on business trips, travel, housing, etc. 

• Reimbursable loans to employees.

Is per diem taxable in Romania?

Per diem payments can get tricky, depending on the country.

Per diem payments refer to an allowance paid by an employer to an employee to cover the costs of traveling for business. These may cover costs like lodging, meals, travel, and other incidental expenses. 

How are per diem payments considered in Romania?

Per diem payments are not taxable in Romania. Tax law considers them business-related costs taken on by the employer for employees while on a business trip. 

There are some limitations on per diem payments in Romania, though. If the value exceeds 2.5 times the legally established rate, it is subject to tax. It must be possible to demonstrate that a per diem payment is business-related. 

Is there a difference between an allowance and a reimbursement in Romania?

An allowance refers to a predetermined amount of money paid by an employer to cover an employee's expenses. The amount given does not vary, regardless of the actual total cost. In Romania, these include cost-of-living allowances and hardship allowances, both of which are taxable. 

However, reimbursements require the employer to pay the actual costs incurred by expenses. When reimbursements are business-related in Romania, they should not be treated as taxable income. 

What payroll deductions are employers required to make in Romania?

Employers hiring remote workers in Romania are also required to make social security contributions of 2.25% of the employee’s gross salary towards labor insurance. They may be required to pay an additional 4% or 8% depending on particular working conditions.

Employees contribute 25% of their gross salary towards their pension and 10% to their health insurance.

What is the minimum wage in Romania?

As of 2023, the minimum wage in Romania is 3,000 RON per month or 18.50 RON per hour.

How much is overtime pay in Romania?

Workers who work over 8 hours a day or 40 hours a week are entitled to overtime pay. Overtime in Romania is typically compensated with paid time off for the hours worked within 90 days of the overtime work. If this is not possible, employers can also compensate for the overtime by adding a bonus to the employee's salary. It should be at least 75% of base earnings. You should record any overtime, along with working hours, on the paycheck.

Part-time employees and people under 18 are not entitled to overtime pay.

What are the local labor laws in Romania?

Romanian employment law is defined in the Romanian Labor Code, and it sets out regulations that protect workers in Romania. According to the Labor Code, employees are entitled to the following rights and benefits:  

• Two types of contracts — for a definite or indefinite period 

• Minimum work age of 16 (sometimes 15)

• Minimum wage 

• A probationary period 

• Termination protections

• Monthly contributions and income tax

• 20 vacation days 

• Limit of up to 48 hours of work per week

• Medical and other leave

• Other worker benefits

• Additional requirements to hire non-EU residents 

How to pay contractors in Romania?

You can pay contractors in Romania via a bank, online transfer, or using a contractor management service. With contractors, you will not need to withhold taxes and contributions. Although this may seem like an attractive option as an employer, you must be careful not to misclassify your contractor. Misclassification can have severe legal consequences.

You should also consider the complications and costs of exchange rates and transfer fees, paying in local currency, and tracking and managing payments. 

Bank and online transfers 

You can pay remote employees in Romania via an international bank transfer like the Society for Worldwide Interbank Financial Telecommunications (SWIFT). You can also make transfers with an online money transfer company like Wise or Remitly. 

However, these methods often have unfavorable exchange rates or fees. You’ll also be responsible for calculating and managing any taxes and contributions yourself. This can be stressful, and even minor mistakes can quickly lead to legal complications.

Contractor management service

An easier and safer option for employers is to use Remote’s contractor management and payroll service for global teams. A service like this can help you onboard contractors, make payments in local currency, manage invoices, and automate payments — all while staying 100% compliant. 

The risks of worker misclassification in Romania 

The first step in paying a remote worker in Romania is to classify your worker as either an employee or an independent contractor. Here are the key differences between an employee and an independent contractor.

An independent contractor can:

• Choose where, when, and how they work

• Work for multiple clients

• Receive payment after submitting an invoice

• File a personal income tax return 

An employee will:

• Work where and how the employer specifies 

• Dedicate set hours to tasks

• Not work for multiple clients 

• Be paid via regular payroll

• Have their taxes withheld by the employer 

Unlike an employee, an independent contractor doesn’t receive benefits and is not protected by Romanian labor laws. 

If you misclassify a worker, the stakes are high. You may need to repay any benefits or taxes you failed to pay. You may also receive fines and penalties, and any groups or individuals affected could take legal action against you. Misclassifying a worker can even leave ownership rights of intellectual property unclear. Your company's reputation is also on the line. 

Converting a contractor to an employee

Many contractors may become more involved in a company and take on more responsibilities over time. You should regularly review employment contracts to make sure they accurately reflect the work being done, and that your worker is not being treated like an employee.

You may find that you need to convert a contractor to an employee if:

• The contractor's responsibilities have increased.

• You would like to offer benefits to your worker.

• You are confused about local employment law.

• You want more protections over IP. 

• You want to avoid having your contractor leave you to work for competitors. 

How to pay remote employees in Romania?

To pay remote employees in Romania, you will need to comply with local labor laws, withhold taxes, and make appropriate social contributions.

One option is to manage payroll yourself and make payments via bank or online transfer companies. However, this can get complicated, especially if you need to pay multiple employees across the world. It can be tricky to manage workers, make accurate payments, and stay fully compliant with laws. 

If you have a significant presence in a country, you may also be at risk of permanent establishment. This means that you have a sufficient legal presence to pay corporate taxes. If your company is found to be under permanent establishment, you could wind up paying taxes in both Romania and your home country. Naturally, this is something most companies want to avoid. 

Pay employees via an EOR 

To avoid legal risks and lengthy processes when hiring remote employees in Romania, you may want to work with an EOR. 

An EOR helps you legally employ full-time remote employees. An EOR like Remote can handle the employee onboarding process, manage payroll, and take on the legal responsibility of staying compliant. Using an EOR means you don't need your own legal entity in the country, and you can employ and pay as many workers as you like. It's the easiest, safest, and most scalable solution to hiring and paying remote employees worldwide.

You should use an EOR when you: 

• Don't have the expertise or resources to hire globally

• Don't have the time or money to set up a legal entity in Romania

• Want to reduce legal risks

• Want to minimize costs

Pay remote workers in Romania with Remote

If you're trying to grow your business globally, finding skilled talent in Romania could be the first-step in your expansion journey. But you have to know how to classify your workers, understand local legislation, and pay your remote workers quickly.

You don’t have to be put off by the potential risks, costs, and complications of hiring abroad, though. Global hiring can be a seamless process if you partner with a reliable global payroll service like Remote. Using Remote for your hiring needs is the easiest way to stay compliant and manage global payroll without spending a lot of money and resources. 

Remote can take care of onboarding processes, local taxes, payroll approvals, benefits, IP protection, and compliance. You can be assured that your new hires in Romania are onboarded, managed, and paid accurately and on time, every time. 

Interested to learn more about how you can hire and onboard remote employees with Remote? Download our useful guide packed with tips and tricks to get you started. If you’re ready to onboard remote workers in Romania, sign up with Remote and start growing your global team today!