Employers need to increase gross salaries by 19.9% so that their employees will get the same net salaries as they do now, after the social contribution transfer from employers to employees.

If companies don’t make this increase, then net wages go down by 16.6%, according to Deloitte simulations, which take into account the average gross wage of RON 3,131.

The Government yesterday approved that social transfer from employers to employees and other changes to the Fiscal Code under what it called “the fiscal revolution”. The number of social contributions will be reduced from 9 to 3 and their total value will drop from 39.25% of the gross wage to 37.25% of the gross wage. Employees will pay social contributions for pension and health amounting to 35% of their gross wages and employers will pay a labor insurance tax of 2.25%. At the same time, the individual income tax will be reduced from 16% to 10%.

All these measures, which should apply starting January 1, 2018, should benefit both employees and employers, according to finance minister Ionut Misa. He gave a theoretical example which shows that at a 20% increase in the gross wage, an employee will get an extra RON 2 to his net wage. Meanwhile, the employers will have the same costs.

However, the Government can’t force the employers to increase gross wages by 20%. This is why the measure was highly criticized by both unions and business organizations. Moreover, employees in the IT sector and impaired employees will lose the tax benefits they currently have, which means that their salaries will go down when these measures come into force, even with a 20% increase in the gross wages, according to Deloitte.

Minister Ionut Misa explained that the Government decide the social contribution transfer because some 158,000 companies in Romania failed to pay their employees social contributions, which affected over 2 million employees. Companies that fail to pay the social contributions for their employees once the changes to the Fiscal Code come into force will face criminal charges.

editor@romania-insider.com