Running payroll in Austria

Located in the heart of Europe with good international business connections to both Eastern and Western Europe, Austria is a sought-after business location for international companies looking to increase their presence in the European market. However, companies hiring in Austria should be aware of the many rules and regulations that govern local payroll processing. 

Filing deadlines for tax and social security statements have to be met and contributions need to be made on time in order to avoid fines. And there are several registration steps to complete before companies can even launch their payroll in Austria.

Before they can start processing payroll in Austria, employers need to register with different authorities. Here are the necessary registration processes:

• Registration with local tax authority (usually the one closest to the business’s main location): needs to be done within 1 month after start of business activities; local tax authority issues an employer tax ID which is needed to withhold income tax from employee wages

• Registration with social security authority (online): the authority issues a social security ID for the employer which needs to be used for all payments, declarations and more 

Employees need to be registered with the respective bodies before they start working for the employer. It is also necessary to set up a payroll account for each employee which is used for income tax payments. 

It is not legally required to set up a local legal entity in order to hire an employee in Austria. Employers can also hire Austrian residents under their foreign entity. However, there may be different rules and regulations with regard to social security payments, registration requirements and more. It is possible to outsource payroll to a local payroll provider. 

The Austrian social security system is financed jointly by employees and employers. It consists of several schemes and funds. There are different payroll-related taxes which need to be withheld. Tax rates start at 20% and go up to 55%. 

Tax considerations

Austrian residents are taxed on their worldwide income while non-residents only pay tax on income sourced in Austria. For 2022, the tax-free allowance is set at EUR 11,000. The next EUR 7,000 are subject to a 20% tax rate. Thereafter, income tax increases progressively. The top rate is 55% and applies to annual income exceeding EUR 1 million. 

Lower tax rates apply to additional payments such as Christmas or holiday bonuses (known as 13th and 14th salary in Austria) if the amount paid is less than one sixth of the employee’s usual salary. Additional payments of up to EUR 620 are tax exempt. 

All employers are required to contribute to the Family Burden Fund (FLAF) at a rate of 3.9% - including foreign employers. Those who are members of the Austrian Chamber of Commerce further have to pay an additional contribution to the fund at rates varying between 0.34% and 0.42% - depending on the federal state. Foreign employers are generally excluded from the surcharge. 

There also is a municipal payroll tax which is levied at a rate of 3% on the total monthly amount of wages and salaries paid. However, this tax only applies to employers with a permanent establishment in Austria.

* From July 2022, these tax rates will be reduced to 30% and 40% respectively.

Tax withholding and reporting 

Employers are responsible for withholding income tax from employee wages and submit them to the Austrian tax authority. Payments (including FLAF contributions) have to be made by the 15th of the following month. 

The municipal payroll tax (if applicable) needs to be paid by the same day, but payments go directly to the respective municipality. An electronic municipality tax report has to be submitted no later than March of the following year. An annual income tax statement has to be filed for each employee by the end of February - end of January for non-electronic filings. 

Employees who want to file a tax return have to do so by 30 April - 30 June for electronic filing. There is no obligation to hand in a tax return if the employee only receives income from employment. The tax year in Austria runs from 1 January to 31 December.

Social security contributions

Employees and employers are legally required to make social security contributions. Social security in Austria includes (rates valid for 2022):

• Health insurance (7.65%)

• Pension insurance (22.8%)

• Accident insurance (1.2%)

• Unemployment insurance (6%)

Except for the accident insurance which is borne solely by the employer, the contributions are split (almost) evenly between employee and employer. There are additional social security funds which cover insolvency, housing and severance pay. The latter requires a contribution of 1.53% of the employee’s monthly salary - only applicable if the employment contract is governed by Austrian law. Companies may set up an additional pension fund for their employees. Employees may be required to make an additional 0.5% contribution to the respective chamber of labor if they are members. 

Social security statements have to be filed on a monthly basis. The filing is done electronically. Deadline is the 15th of the following month. The respective payments have to be made within 15 days after the contributions have been withheld. 

In 2022, the maximum income threshold for social security contributions is EUR 5,670 per month. Current contribution rates are as follows. 

* Please note: Employees with lower income pay less unemployment insurance. The monthly income thresholds are as follows:

• Up to EUR 1,828: 0%

• EUR 1,828 - EUR 1,994: 1%

• EUR 1,994 - EUR 2,161: 2%

• Above EUR 2,161: 3%

** Only for members.

Employees in Austria are entitled to various benefits. These include:

• Annual leave and public holidays: minimum 25 days for a 5-day working week (30 days for a 6-day working week), plus 13 public holidays

• Maternity leave: 16 weeks paid by social security

• Paternity leave: 1 month

• Parental leave: up to the child’s second birthday

• Sick leave: full wages are paid for 6-12 weeks (depending on seniority) and another 4 weeks are partly paid
  

For more information on employee benefits and other employment requirements in Austria (including severance pay and termination procedures), check out our Global Hiring Guide.

There is no national minimum wage in Austria, but minimum remuneration might be determined by collective agreements. Overtime hours must be remunerated at a rate of 150% - regardless of whether the employee receives pay or additional time off as a recompense. 

Many companies offer their employees a 13th and 14th salary (commonly known as Christmas and holiday bonus) which are paid in June and November/December. There is no legal requirement to do so, but employers may be obligated to provide additional pay under a collective agreement. 

Payroll in Austria is usually processed once a month, with the pay date falling on one of the last days of the month. The pay date which has been agreed in the individual employment contract needs to be respected. 

Each employee must receive a payslip at the end of the pay period. Payslips can be provided electronically. The following information is mandatory: 

• Gross salary

• Calculation basis for social security contributions

• Withheld social security contributions

• Taxable income

• Withheld income tax

• Contributions to Severance Pay Fund 

• Deducted family allowance

The law mandates that employers must keep payroll records for at least 7 years.