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Legal changes related to labor taxation from 2018

The Ordinance no. 79/2017 regarding the amendment of the Fiscal Code approved by the Government on 08.11.2017 was published in the Official Gazette of 10.11.2017. This brings important news for both employees and employers.

The main change is represented by the transfer of contributions from the employer to the employee. Out of the total of 9 contributions currently paid by employers and employees, starting with 2018 there will be only 3 contributions, namely:

  • pension contribution under normal conditions CAS - 25%;
  • health insurance CASS - 10%;
  • employment insurance contribution CAM - 2.25%.

The first two contributions will be retained by the employer on behalf of the employee and the third, which sums up the risks of unemployment, accidents at work, sick leave, salary claims, is the responsibility of the employer. The corresponding amounts for these contributions will be whowever calculated and paid by the employer, as it is now.

In other words, the level of contributions decreases by 2 percentage points, respectively, from the total of 39,25% contributions paid today for a gross salary, from 2018 it will be paid a total of 37,25% (35% contributions on behalf of the employee and 2,25% employer's contributions).

Although we are apparently talking about a percentage decline (both for contributions and for income tax), due to the fact that the taxation is different (applied on a different basis), we will not actually have a drop in the wage tax burden. If the company aims to maintain the same net income level of the employees, the total cost of the company will be the same (with variations usually not higher than 0.2% +/-), just declared and calculated differently. 

At the same time, from January 1st 2018, the pension contributions in the case of special working conditions are also reduced as follows:

  • for special working conditions the contribution decreases from 31.3% to 29%;
  • for particular working conditions the contribution decreases from 36.3% to 33%.

Another change is the reduction of income tax from 16% to 10%. This applies not only to employees but also to other categories of persons and incomes: retirees, authorized individuals, copyrights, individual cabinets, rentals, interest, prizes, agricultural activities, lease, investments and income from other sources.

Negatively affected negatively by these changes will mainly be the employees in the IT field, who are currently exempt from income tax. If employers want to maintain their current level of the net salary, they will have to make an increase in the wage costs of these employees by about 6.7%.

Other changes introduced by Ordinance no.79 / 2017 are increases in the personal deduction for employees with low wages. Personal deduction is granted to individuals with a gross monthly income of up to and including 1950 lei, as follows:

  • for employees who have no dependents the deduction will be 510 lei;
  • for 1 dependent person the deduction will be 670 lei;
  • for 2 dependents persons the deduction will be 830 lei;
  • for 3 dependents persons the deduction will be 990 lei;
  • for employees with 4 or more dependent persons the deduction will be 1310 lei.

For the employees earning monthly gross income between 1951 lei and 3600 lei, the personal deductions are degressive in relation to those mentioned above. For a gross income over 3600 lei, no deduction is granted.

The gross minimum wage on the economy will be increased from January 1, 2018 from 1450 lei to 1900 lei, this increase being due to the transfer of the contributions to the exclusive pay of the employee, respectively the employee's net salary will not register a real increase as a result of this change.

With the increase of the minimum wage to 1900 lei, the gross average salary on national level is expected to be in the amount of 3840 lei. This will also impact on the calculation of some indicators, the basis of calculation for some categories of fines or allowances, respectively certain contributions (eg health contribution to uninsured persons, etc.).

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