KPMG study: Romania has the highest fiscal cost for an employee with minimum wage in the European Union
KPMG in Romania has issued the 4th edition of its Guide on Posting of Workers, a survey on minimum wage requirements and other posting related requirements in all European Union (EU) and European Economic Area (EEA) Member States and Switzerland. The main purpose of this survey is to give companies an overview of the potential costs and obligations related to mobile workers. In this respect, the guide includes information on the minimum wage levels, the tax burden and specific registration procedures required in each of the Member States.
The survey published by KPMG in Romania covering minimum wage and registration requirements within the European Union, the European Economic Area and Switzerland reveals that out of the 26 countries under review, Romania has the highest tax cost for employees (40.85%). This is significantly higher than an employee’s tax cost in other developing countries in Central and Eastern Europe: 17.86% (Slovakia), 22.40% (Bulgaria), 29.29% (Poland) and 33.5% (Hungary).
“Surprisingly or not, countries with low minimum wages have higher employee tax costs. While Ireland, the country with the highest standard net minimum wage in the EU, has a tax burden of 24.07% for the employee, Romania, the country with the second lowest standard net minimum wage in the EU, has a tax cost for the employee of 40.85%”, explains Mădălina Racovițan, Tax Partner, Head of People Services, KPMG in Romania.
The survey also compares the level of the minimum wage applicable across the EU, in each of these countries. Racovitan explains: “Since 2016, when KPMG started this survey, the Netherlands, Ireland and Luxembourg have been the countries with the highest minimum wages, while Romania and Bulgaria have consistently taken the last places, with the lowest minimum wage levels.”
According to the survey, for 2019, out of the 21 countries included in the survey that have a minimum wage set at national level, Romania is ranked 19th, with a gross minimum wage set at national level of 439 EUR, followed only by Latvia (430 EUR) and Bulgaria (286 EUR). As from this year, Romania has a different minimum wage for the construction industry (EUR 633), which is significantly higher than the standard one. Therefore, looking solely at the construction industry, Romania ranks 16th out of the 26 countries that have provided information in relation to the gross minimum wage applicable in the construction sector.
Amid globalization, digital transformation and greater desire for flexibility, compliance with legal requirements associated with mobile workers is creating an extraordinary challenge for organizations. The surveys initiated by KPMG in Romania provides companies with the basic information to rise to this challenge so employers can understand the general principles around posting of workers in order to be able to properly plan the activity of their workforce. Regulations are becoming clearer but also stricter, with every passing year. Consequently, when using posted workers, employers must make sure they comply with the labor law requirements of the Posting Directive – including minimum wage requirements, as well as the country-specific requirements in relation to registration obligations.
Racovitan concludes: “Depending on the country where the posting takes place and the specific situation of the employee, the costs for the employer will be different. There is no recipe or generally applicable rule across the EU when it comes to international postings. Each posting should be looked at individually and analyzed on a case by case basis. This 4th edition of the KPMG Guide on Posting of Workers provides a starting point, helping employers gain an overview of potential costs and obligations. Nevertheless, given the complexity and the multitude of these issues, and the severity of the penalties for non-compliance, it is highly recommended that employers posting employees abroad should seek expert guidance on minimum wage legislation.”
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 153 countries and have 207,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
KPMG in Romania and Moldova operates from six offices located in Bucharest, Cluj-Napoca, Constanta, Iasi, Timisoara and Chisinau.
 Calculation performed for the construction industry, assuming no income tax and social security exemptions can be applied.