Benefits for staff in Croatia

Croatian employees regard performance-related pay and opportunities for professional training as being more valuable than benefits such as pensions or healthcare, says Katrina McKeever

The Republic of Croatia is gearing up for entry into the European Union in 2010 and its labour force is readying itself for fresh opportunities. International companies looking for a base in the region are attracted to the country because of its location and its emerging workforce of young, well-educated people with good language skills. According to the British Council, Croatia also has a stable democracy with a functioning market economy and low inflation. High fiscal deficits and rapid credit growth have been partially responsible for strong economic growth over the past few years, but this is now expected to fall from 5.6% in 2007 to 4.9% in 2009.

Although inflation has risen from 2.9% in 2007 to an estimated 5.8% this year, Petra Malesevic, managing director of Mercer-affiliated HR consultancy Consulteam Zagreb, says the acceleration is less pronounced than in neighbouring countries.

However, foreign investors are often surprised by the relatively high cost of labour in Croatia compared with their expectations of the region. The country’s Central Bureau of Statistics estimates an average monthly gross salary of 7,580 Kuna (£827) but workers are more interested in the net figure, which was listed in July this year as 5,258 Kuna (£574) per month.

Employers should also be aware of the high cost of providing benefits in Croatia. With employment law weighted in favour of workers, employers can find the cost of providing statutory benefits such as pensions and health insurance high. Mandatory pension and health insurance deductions are expensive. For example, all staff must pay at least 15% of their gross salary towards pension funds and up to 45% in income tax. Malesevic says: “There is a huge difference between net and gross salary.”

Pension payments are deducted from employees’ gross salary in two tiers. In addition to the mandatory 15% pension contribution, all employees under the age of 40 years must pay an additional 5%. Staff who were aged between 40 and 50 years on 1 January 2002 could have decided whether they wanted to make this contribution or not. Employers can also make additional contributions if they wish, a benefit that is becoming a popular among higher-ranking employees.

Employer contributions Employers, meanwhile, must pay contributions towards basic state health insurance, and basic accident insurance. This health insurance covers long-term sick leave, although employers must pick up the tab for the first 42 days of leave at a rate of at least 70% of employees’ monthly salary. Some organisations provide additional healthcare, which is becoming increasingly popular as a benefit.

In addition, new legislation concerning maternity payments was introduced in January which mean women are entitled to full salary during the first six months of their leave.

However, when it comes to topping up state benefits Vera Cubranic, executive director of Selectio, a Croatian recruitment agency, says that while some employers offer additional health insurance and pensions, staff do not always perceive these to be important. She adds the most popular perks for Croats are company cars, mobile phones with part or all costs covered by employers, performance-related bonuses and occasional gifts at Christmas and Easter, given either as cash, company products or shopping coupons.

“The structure of compensation packages depends on [employees’] position and net salary. Senior managers almost always expect to have [round-the-clock] use of company cars, a mobile phone with business-related expenses [paid] by the company, performance-related bonuses and professional education.

“Middle and lower managers, depending on position (for example, a sales representative would have a different package from an IT system administrator), expect to be able to use company cars [in] working hours and some kind of performance-related bonus, especially if their work is directly related to profit margins.

“Any additional education paid for by organisations, from foreign language classes to MBAs, is seen as a great benefit. For junior employees, it is a good sign that a company wants to invest in them and their future,” she explains.

If you read nothing else read this…

  • Croatian workers have pension payments deducted from their gross salary in three tiers, but employer third tier contributions are currently optional.
  • Common benefits include cash or gifts at Christmas and Easter, mobile phones, company cars and professional training.
  • Good basic salary, performance-related pay, cash bonuses and education are often considered more important than core perks such as pensions and healthcare.
  • Employees perceive their salary in terms of net pay, rather than the gross amount as significant contributions towards pensions and tax are taken from pre-tax salary. However, staff typically perceive these contributions from gross salary as being their employer’s obligation.