Payroll Costs in Bulgaria: What You Need to Know Before Hiring
Since joining the European Union in 2007, Bulgaria has become a hotbed for foreign investors and multinational companies. Thanks to its cheaper but highly skilled labor and a hungry consumer base, it’s not surprising that companies from all over the world are interested in expanding to this country. In the next sections, we’ll discuss everything you need to know before hiring in Bulgaria, including payroll contributions and other expenses.
Hiring in Bulgaria – Payroll Costs
When adding employees to your payroll, there are several mandatory costs you need to consider, apart from the wage you agree to pay. Payroll taxes are covered by both workers and their employers. One important difference is that employer payroll contributions, currently between 18.92% and 19.62%, do not affect the worker’s net pay. These include social security (up to BGN 3,400), health insurance, and accident at work and occupational illness fund. Social security aims to protect people in case of unemployment (loss of income), maternity, diseases, pensions for old age or disability, and others.
On the other hand, employee payroll contributions are deducted from the gross payment, thus lowering the net wage. Right now, Bulgaria's employee payroll contributions are 13.78% and include social security and health insurance.
There are also other employment taxes that need to be covered by the employer. Each worker’s net income is taxed at 10%, which must be paid by the employer on behalf of the worker. If the employee receives any bonuses or additional payments, these are also taxed at the same rates as the regular wage.
At the end of the financial year, the employer must inform workers of the total amount of taxes and contributions they paid on their behalf, including the 10% income tax and insurance contributions. The financial year in Bulgaria starts on the 1st of January and ends on the 31st of December.
Payroll contributions must be made by the 25th of the next month by submitting Declaration 1 and Declaration 6 that detail the social contributions of the employee and employer, respectively. Yearly, employers must submit the information regarding the employee’s annual income for tax purposes, with February of the next year as the deadline.
General Employment Law
There are several other aspects employers must know before hiring in Bulgaria, as highlighted in the Labor Code:
It’s compulsory to register all work contracts within three days after signing;
The statutory number of working hours per week is 40, and the minimum wage is BGN 710 per month;
Every employee must have at least 20 days of paid annual leave and 15 national holidays;
In case of illness, compensation is covered by the employer for the first three days (70% of the gross salary), then it’s covered by the government (80% of the average salary in the past 1 year and a half) and there is a maximum of 18 months of sick leave;
Maternity compensation is 90% of the person’s income for the past 2 years and must be paid for 410 days.
Apart from these standard considerations, if needed, employers can negotiate different schedules with employees. For instance, working in shifts, reduced working days, overtime, or part-time work (minimum 4 hours per day) can be discussed. Overtime is limited to a maximum of 48 hours per week, and up to 60 workdays extra per year, and has to be paid more: 150% for regular working days, 200% if working overtime during public holidays, and 175% if working overtime during holidays. In Bulgaria, Sunday must be a day off.
Recruiting – Local Entity vs PEO
Any company that seeks to expand to Bulgaria needs to make a decision: to choose a PEO (Professional Employer Organization) or create a local entity in Bulgaria, such as a subsidiary or local branch. Local entities are capital- and time-intensive, but may help your company acquire a stronger footprint in the foreign market, build brand awareness, and may speed up expansion.
A PEO is basically an outsourcing firm that allows you to hire in Bulgaria without having a physical presence in the country. PEOs provide human resources services, such as payroll, tax administration, benefits, and others. Essentially, a PEO will handle the hiring process and employee management on your behalf. Also, opting for a PEO means that you can easily comply with all the local employment laws since the PEO is the employer of record for taxation purposes, ideal if you are not familiar with local employment practices and regulations.
For many small and medium-sized businesses, PEOs come with strong advantages, ranging from cost-effectiveness to additional benefits, including life and health insurance, dependent care, and more. For large businesses, hiring a PEO to complement their internal human resources department may lead to greater efficiency.
Overall, choosing a PEO or local entity depends on your business, scope, and objectives. A PEO can lead to cost and time savings, but it depends on your activity, too. For instance, you should consider a local entity if you need to import or export products, or you seek to expand quickly and create brand awareness.
All in all, hiring in Bulgaria must follow the Labor Code and other employment acts. Contributions are paid by both employers and employees, and they reach 18.92%-19.62% and 13.78%, respectively. Companies that seek to hire in Bulgaria can opt to do so via a local entity or a PEO, depending on their scope and activity.
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