A compliance guide to EU payroll A compliance guide to EU payroll

A compliance guide to EU payroll
02 Oct 2018

While many businesses expand into new countries to take advantage of the opportunities presented by new markets, this approach does not come without its challenges – not least in terms of global payroll.

In order to avoid delays and setbacks, it is essential to understand the various rules and regulations that govern how employees are paid and taxed before you start operating in a new territory.

If a move into the European Union (EU) is on the agenda, it is also worth understanding that the region is not a single, homogenous community. While some legislation covers all 28 members of the trade bloc, each state within it comprises a separate nation, which has its own laws and corporate customs.

Here are some of the most important examples of payroll regulations across the continent: 

Income tax

EU countries all operate according to different rules when it comes to their taxation systems and no fixed amount of income tax is paid across the whole continent. As a result, you will need to establish the income tax rate for each country into which you expand.

According to the European Commission's Taxation and Customs Union though, the average personal income tax rate for EU member states as well as Iceland and Norway is currently around 39%. Generally speaking, workers in Western and Northern European countries pay more income tax than those in Eastern Europe. Sweden and Denmark are among those with the highest rates.

As far as tax rules go, people are usually taxed in the country in which they are resident, no matter where their income is generated. An individual generally needs to live in a given country for more than six months of the year to be considered a tax resident. The country in which someone is resident usually taxes their worldwide income, both earned and unearned, which includes wages, pensions, income from property and the like.

Working hours and annual leave

There is somewhat more consensus when it comes to minimum hours worked across the EU as workers’ rights are guaranteed under the Working Time Directive. This legislation states that:

  • There must be a limit on the hours that an individual works each week, which cannot exceed an average of 48 hours, including overtime. How this 48 hours is spread across the days and weeks depends on individual in-country legislation;
  • Workers must have a daily rest period of 11 consecutive hours or more every 24 hours;
  • If someone is on duty for more than six hours, they must be given a rest break;
  • Workers must have 24 hours of uninterrupted rest during every seven day period, which is in addition to the 11 hours of rest they must receive each day;
  • For night work, employees must work no more than eight hours per 24-hour period. They also have the right to free health assessments.

The Working Time Directive also covers annual leave for workers in the EU and states that they must have at least four weeks’ paid holiday every year. 

Sick leave and maternity pay 

Sick leave is another area that varies from country to country, with different rules applying depending on where you operate.

Some countries such as Norway, Germany and Austria have mandatory sick leave pay of 100% of the typical wage, and they pay a full wage for at least one month. Other countries have a minimum statutory rate of sick pay. For example, in the UK, statutory sick pay in 2018 is equivalent to £92.05 (US$119.45) a week.

For maternity pay, the rules also vary from country to country. In the UK, a working mother is entitled to 52 weeks overall, 39 of which are paid. Statutory maternity pay comprises 90% of weekly earnings for six weeks. It is then capped for the remaining 33 weeks at 90% of weekly wages, or £145.18 (US$188.40), whichever is lower.

While this maternity pay system is considered one of the most generous in the EU, schemes in Greece and Bulgaria are even better. Bulgaria provides 410 days of maternity pay, which amounts to more than 58 weeks at 90% of gross pay. Mothers may then take an additional year off on the minimum wage. Greece provides 43 weeks of maternity pay at more than 50% of average earnings.

Overtime pay

How overtime allowances are used in conjunction with the maximum working hour limit varies according to country. In Belgium, for example, rules around overtime allocation are not specified. Occasionally, it can come down to a particular agreement within a particular sector. 

Enhanced rates of pay also vary: Some nations offer 50%, some 25%, some 10% - others leave the situation to be sorted out by specific company agreements.

Payroll record-keeping

Payroll record-keeping again varies by country. In many instances, electronic copies are the only records required. This is certainly the case in France, where electronic copies are admissible in civil proceedings, although it also makes sense to retain archived copies in case they are requested.

In Germany, electronic copies alone are also generally enough with one or two exceptions. Employers here must retain payroll records for 10 years.

 Rick Hammell

Rick Hammell is chief executive of employer of record organisation, Elements Global Services. He developed and grew the organisation following its split from its parent company, where he served initially as director of HR for a short period before becoming vice president and chief operating officer. Rick holds a Bachelors degree in Business Administration with a focus on HR and journalism and also an SPHR certification.

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While many businesses expand into new countries to take advantage of the opportunities presented by new markets, this approach does not come without its challenges – not least in terms of global payroll.

In order to avoid delays and setbacks, it is essential to understand the various rules and regulations that govern how employees are paid and taxed before you start operating in a new territory.

If a move into the European Union (EU) is on the agenda, it is also worth understanding that the region is not a single, homogenous community. While some legislation covers all 28 members of the trade bloc, each state within it comprises a separate nation, which has its own laws and corporate customs.

Here are some of the most important examples of payroll regulations across the continent: 

Income tax

EU countries all operate according to different rules when it comes to their taxation systems and no fixed amount of income tax is paid across the whole continent. As a result, you will need to establish the income tax rate for each country into which you expand.

According to the European Commission's Taxation and Customs Union though, the average personal income tax rate for EU member states as well as Iceland and Norway is currently around 39%. Generally speaking, workers in Western and Northern European countries pay more income tax than those in Eastern Europe. Sweden and Denmark are among those with the highest rates.

As far as tax rules go, people are usually taxed in the country in which they are resident, no matter where their income is generated. An individual generally needs to live in a given country for more than six months of the year to be considered a tax resident. The country in which someone is resident usually taxes their worldwide income, both earned and unearned, which includes wages, pensions, income from property and the like.

Working hours and annual leave

There is somewhat more consensus when it comes to minimum hours worked across the EU as workers’ rights are guaranteed under the Working Time Directive. This legislation states that:

  • There must be a limit on the hours that an individual works each week, which cannot exceed an average of 48 hours, including overtime. How this 48 hours is spread across the days and weeks depends on individual in-country legislation;
  • Workers must have a daily rest period of 11 consecutive hours or more every 24 hours;
  • If someone is on duty for more than six hours, they must be given a rest break;
  • Workers must have 24 hours of uninterrupted rest during every seven day period, which is in addition to the 11 hours of rest they must receive each day;
  • For night work, employees must work no more than eight hours per 24-hour period. They also have the right to free health assessments.

The Working Time Directive also covers annual leave for workers in the EU and states that they must have at least four weeks’ paid holiday every year. 

Sick leave and maternity pay 

Sick leave is another area that varies from country to country, with different rules applying depending on where you operate.

Some countries such as Norway, Germany and Austria have mandatory sick leave pay of 100% of the typical wage, and they pay a full wage for at least one month. Other countries have a minimum statutory rate of sick pay. For example, in the UK, statutory sick pay in 2018 is equivalent to £92.05 (US$119.45) a week.

For maternity pay, the rules also vary from country to country. In the UK, a working mother is entitled to 52 weeks overall, 39 of which are paid. Statutory maternity pay comprises 90% of weekly earnings for six weeks. It is then capped for the remaining 33 weeks at 90% of weekly wages, or £145.18 (US$188.40), whichever is lower.

While this maternity pay system is considered one of the most generous in the EU, schemes in Greece and Bulgaria are even better. Bulgaria provides 410 days of maternity pay, which amounts to more than 58 weeks at 90% of gross pay. Mothers may then take an additional year off on the minimum wage. Greece provides 43 weeks of maternity pay at more than 50% of average earnings.

Overtime pay

How overtime allowances are used in conjunction with the maximum working hour limit varies according to country. In Belgium, for example, rules around overtime allocation are not specified. Occasionally, it can come down to a particular agreement within a particular sector. 

Enhanced rates of pay also vary: Some nations offer 50%, some 25%, some 10% - others leave the situation to be sorted out by specific company agreements.

Payroll record-keeping

Payroll record-keeping again varies by country. In many instances, electronic copies are the only records required. This is certainly the case in France, where electronic copies are admissible in civil proceedings, although it also makes sense to retain archived copies in case they are requested.

In Germany, electronic copies alone are also generally enough with one or two exceptions. Employers here must retain payroll records for 10 years.

 Rick Hammell

Rick Hammell is chief executive of employer of record organisation, Elements Global Services. He developed and grew the organisation following its split from its parent company, where he served initially as director of HR for a short period before becoming vice president and chief operating officer. Rick holds a Bachelors degree in Business Administration with a focus on HR and journalism and also an SPHR certification.

OTHER ARTICLES THAT MAY INTEREST YOU

A compliance guide to US payroll

Posted EU workers given same working conditions as native staff

New European Labour Authority to boost fair movement of workers