Running payroll in Romania

Low wages and a very small employer share in social security contributions make Romania an attractive hiring destination for companies based in other European countries. However, foreign employers interested in hiring staff in Romania should be familiar with local payroll regulations and processes before signing an employment agreement. 

There are several registration processes which need to be completed before employers can launch their local payroll and although employees are invariably taxed at a standard tax rate of 10%, there are many rules to know regarding tax deductions and exemptions.

Before they can start processing payroll, employers need to register with the Territorial Labor Chamber to add their new hires to the General Registry of Employees which stores employment information (i.e. the employee’s individual employment contract) regarding every employee hired in Romania. The registration is done electronically. Employers can either name an official representative (i.e. individual person) or instruct a registered service provider to submit the relevant information. The deadline is the last day prior to the employee’s official starting date at the company. 

Furthermore, employers are required to register for payroll tax purposes with the competent tax office. Usually, the administering tax office is the one closest to the locality where the company is incorporated, but foreing companies with representative offices in Romania are assigned to special tax offices. In any case, registration must be completed within one month after the first employee was hired. For companies that are officially established in Romania via a local legal entity, registration with the tax office is done automatically together with their registration at the trade register. Establishing a local legal entity is, however, not a legal requirement to hire someone in Romania. 

As employee information is filed with the General Registry, there is no further need to register new hires with the tax or social security authorities. Setting up a local bank account is not mandated by law as payments to both employees and authorities can be issued from foreign accounts - provided that the foreign financial institute is able to issue direct payments to a Romanian account in the local currency (Romanian Leu, RON).

Calculating income tax and social security contributions in Romania is a relatively straightforward process. There is only one universal tax rate applicable to employment income and the social security contribution levels are clearly defined with hardly any variation. Social security contributions in Romania are mainly paid by the employee. 

Tax considerations

Income from employment is taxed at a 10% flat rate. Taxable income comprises the employee’s salary (defined as payments in either cash or kind), bonuses, rewards and benefits (regardless of whether paid in cash or kind). Non-resident employees posted to Romania by their foreign employers are taxed at the same rate. 

No income tax is levied on statutory allowances for maternity leave and other family-related leaves, transport and accommodation allowances granted by the employer and income from employment with a foreign company if the work is carried out abroad. Income from employment involving R&D, software development and construction may be exempt from income tax if certain criteria are met. 

Furthermore, there are several allowances and personal deductions related to children and other dependent family members. Social security contributions paid by the employee (i.e. pension and health insurance contributions) are also entirely deductible for tax purposes. The same applies to voluntary contributions to officially approved supplementary pension funds and to private health insurance providers - the deductible amount is capped at an annual maximum of the equivalent amount of EUR 400 in Romanian Leu.

Romanian tax residents pay tax on their worldwide income while non-residents are only taxed for income earned from Romanian sources. There are several criteria which are used to determine whether an individual is a Romanian tax resident. These criteria include: 

• Domicile in Romania

• Center of vital interests in Romania

• 183 days spent in Romania during a 12-month period

An employee who fulfills any of the above mentioned criteria is considered a tax resident of Romania.

Tax withholding and reporting 

Employers are responsible for withholding income tax from their employees’ wages and salaries and submitting them to the local tax authorities on a monthly basis. A monthly tax return (from D112) needs to be filed no later than the 25th of the month following the payroll run. Payments are due by the same date.

Late payments are subject to fines, as are false or late submissions of accompanying payroll reports. However, there is the possibility to submit withheld income tax on a quarterly basis, provided certain conditions are met. There is no legal obligation for employers to file an annual income tax return, but an annual salary certificate must be provided to employees upon request.

In the case of foreign individuals performing work in Romania under an employment contract subject to foreign laws and regulations, the responsibility of submitting the monthly payroll taxes and filing the monthly tax declaration is no longer on the employer but on the employee.

Employees who have other sources of income in addition to their employment must file an individual tax return for each tax year which is due by 25 May of the following year. A separate estimate of the income expected for the current tax year needs to be prepared and handed in by the same date. The tax year is the calendar year. 

Social security contributions

Employers generally only pay 2.25% of the employee’s gross salary towards employment insurance. However, an additional pension contribution equal to 4% to 8% of the employee’s income may be required for employees with special working conditions. Further payments may be levied on companies with more than 50 employees who do not fulfill the mandatory hiring quota for disabled individuals. 

Employees, on the other hand, are required to make a 10% contribution to health insurance and a 25% contribution to the pension fund. The calculation base is the employee’s gross monthly salary. It is possible for employees to further contribute to a supplementary pension scheme, provided that the pension fund provider is officially recognised by the authorities. In this case, the employee enters into a contract directly with the service provider.

The employer’s obligation is limited to making the necessary deductions during the payroll process when calculating the income tax payable by the employee. It is, of course, possible for the employer to also make a voluntary contribution to the employee’s supplementary pension fund. 

It is the employer’s responsibility to calculate and withhold the employee’s share of the social security contributions every month and pay them to the competent authority together with their own contributions. The due date for social security payments is the same as for the tax payments, i.e. the 25th of the month following the pay period the payments relate to. In certain cases, the payment frequency may be reduced to quarterly payments.

Foreign employers may transfer the social security obligations to their employees based in Romania. However, this only applies if the employee is obligated to be insured under the Romanian social security system. Information regarding monthly social security contributions are transmitted as part of the monthly income tax return. No further filing is necessary.

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

• Annual leave and public holidays: 20 days of paid annual leave (minimum), plus 15 national public holidays 

• Maternity leave: 126 days (63 days before and 63 days after birth) paid by social security at a rate of 85% of the mother’s normal wages

• Paternity leave: 5 days at birth

• Parental leave: starting after maternity leave and up to the child’s second birthday, paid by social security at a rate of 85% of the employee’s usual wages

• Sick leave: 5 days paid by the employer, thereafter payments to the employee are refunded by Social Security; sick leave allowance depends on the type of illness and varies between 75% and 100%

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

On 1 January 2022, the national minimum wage rose to RON 2,550 per month. According to a new government ordinance, the minimum wage rate now applies to all employees regardless of their seniority and qualification - with the exception of the construction sector where the monthly minimum wage remained fixed at RON 3,000.

Overtime is either remunerated at a rate of 175% of the employee’s normal wages (200% for work on public holidays) or by additional paid time off. The latter must be granted within the 60 days following the day where the employee was required to work overtime. There is no legal requirement to pay employees in Romania an annual bonus in the form of a 13th salary or similar. 

Romanian law mandates that employees must be paid at least once a month. The pay date is to be fixed in the individual employment agreement, but most employers choose to issue payments to employees either at the end of the month or in the beginning of the month following the pay period.

Payments to employees in Romania should be made in the local currency. Both bank transfer and cash payments are accepted. Although there is no statutory requirement, employers usually provide employees with a payslip at the end of each pay period. Both paper and digital payslips are common. 

Another payroll-related requirement employers should be aware of in Romania is the legal obligation to keep track of employee working hours. Furthermore, employers are required to keep a registry of their employees where they collect employment and payroll-related documents. Those records must be kept for a period of 50 years. Payroll-related reports must be filed with the Romanian National Institute of Statistics on a regular basis (i.e. monthly, quarterly and annually).