Slovakia to Increase Social Taxes and Labor Costs in 2017

By Jan Stojaspa

High-income individuals will face higher social security burdens in Slovakia as the country removes the ceilings for mandatory health insurance contributions beginning Jan. 1, 2017.

The decision was passed by the Slovak parliament Nov. 30 as an amendment to Act No. 580/2004 on health insurance and signed into law by the president yesterday, Elena Bianchi, a press officer at the president’s press department, told Bloomberg BNA on Dec. 16.

The latest amendment compounds a decision made earlier this fall to raise the maximum amount used in the calculation of mandatory social insurance contributions—which make up the other and significantly larger part of Slovakia’s social security—to seven times the average monthly salary from five.

Taken together, the two decisions will result in lower net salaries for high-income employees—barring the rare scenario when an employer decides to compensate the employee loss of net income with a salary increase—and hundreds of euros in additional labor costs for employers, Lubica Dumitrescu, a tax director with Deloitte Tax in Bratislava, Slovakia, told Bloomberg BNA in a Dec. 16 telephone interview.

Mandatory health insurance and social insurance contributions in Slovakia are calculated as a percentage of employment income, which includes both gross salary and non-cash benefits.

For mandatory health insurance, employees pay 4 percent while employers pay 10 percent. The contributions are paid monthly and, for 2016, cannot exceed 171.60 euros ($179.09) for employees and 429 euros ($447.73) for employers due to the amount used in their calculation being capped at five times the average monthly salary from two years prior. For 2016, this capped amount is 4,290 euros ($4,477.39).

For mandatory social insurance, employees pay 9.4 percent while employers pay 25.2 percent. Mandatory social insurance contributions are also paid monthly and, for 2016, cannot exceed 403.26 euros ($421.08) for employees and 1,046.75 euros ($1,093.02) for employers (plus 0.8 percent of employment income for accident insurance and already uncapped) due to the amounts used in their calculation being capped at five times the average monthly salary. For 2017, this amount is set at 6,181 euros ($6,454.19), which is seven times the average monthly salary from two years prior, Dumitrescu said.

There are estimated to be roughly 15,000 individuals in Slovakia earning more than 4,290 euros a month and most of them are employed, she said.

Higher contributions will typically result in lower net incomes for employees by “a couple of hundred euro,” Dumitrescu said. And labor costs will rise as employers spend more on their employee’s social security, she said.

As a result, employers are unlikely to compensate their employees for losses in net income, Dumitrescu added. “What I hear in the market is that very few employers are entertaining the idea of raising salaries to maintain [their] employees’ net salaries at current levels,” she said.

To contact the reporter on this story: Jan Stojaspal in Prague at correspondents@bna.com

To contact the editor on this story: Jared Mondschein at jmondschein@bna.com

For More Information

The Nov. 30 amendment to Act No. 580/2004 on health insurance is available, in Slovak, at http://www.nrsr.sk/web/Dynamic/Download.aspx?DocID=433275.

More information on payroll issue sin Slovakia is available in the Slovakia country primer.

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