A significant number of employers, as well as young people, are not familiar with all measures that the state offers when hiring a young person. Certain conditions and circumstances can make the employment of new workers favorable, and by their realization entrepreneurs can achieve significant savings, facilitate this financial process, and improve certain conditions offered to young employees also.
WHO MEETS THE YOUNG PERSON CRITERIA?
A young person is a natural person who is less than 30 years old, and whom the employer decides to report for compulsory pension insurance and compulsory health insurance based on an employment contract for an indefinite period. Also, one of the criteria stated is that until the day of concluding the employment contract, the young person did not have a previously concluded employment contract for an indefinite period with the same employer. The provisions of the Law on Contributions apply to insured persons based on employment and posted workers.
SHOULD A PERSON BE REGISTERED AT THE EMPLOYMENT OFFICE?
A young person employed by an employer is not required to be registered with the Employment Office, nor must he/she have a previously registered length of service in pension insurance. If the young person has already concluded an employment contract with the employer, but for a definite period, and if the person concludes a contract for an indefinite period, the employer may exercise the right to exemption from paying contributions on an ongoing basis. Please note that the employee status cannot be changed to benefit from the exemption from paying salary contributions for an employee who is already employed for an indefinite period and is not registered for pension insurance based on employment as a young person. An employee as a young person may be employed full-time or part-time, but he/she must be registered for an indefinite period.
When employing a young person, the employer is obliged to provide proof. He may take as evidence a copy of an employment contract concluded for an indefinite period. However, this evidence is not required to be submitted to the institutions, but to be archived in their records and shown if the Tax Authorities in their tax supervision procedure so requests, following the provisions of the Ordinance on Amendments to the Ordinance on Contributions. The provisions of the Ordinance also regulate additional issues of the right to use benefits for the employment of young persons when it comes to employers related persons, as well as in the case of status changes of the previous employer.
WHAT BENEFITS CAN AN EMPLOYER USE?
An employer who concludes an employment contract with a young person for an indefinite period, following the provisions of the Act on Amendments to the Contributions Act, which entered into force in 2019, is obliged to calculate only the following contributions:
- CONTRIBUTION FOR PENSION INSURANCE
– at a rate of 20%, i.e., at the rate of 15% for the person insured based on pension insurance on individual capital savings;
– at the rate of 5% for a person insured on that insurance.
From the signing of the contract up to the next five years, there will be no obligation to calculate and pay the following contribution:
- CONTRIBUTION FOR HEALTH INSURANCE
– at the rate of 16.5%
WHAT OTHER CONDITIONS MUST BE FULFILLED?
The provisions of the Contributions Act do not specify any other conditions that must be met for an employer to exercise the rights to this benefit, except for the three already mentioned:
- the person with whom the contract is concluded must be under 30 years of age,
- the employment contract must be concluded for an indefinite period,
- the person under the age of 30 has not previously had an employment contract for an indefinite period with the same employer.
WHAT EXACTLY IS THE EXEMPTION FROM PAYMENT OF THE CONTRIBUTION?
Exemption from payment of salary contributions applies only to the monthly salary determined by the employment contract, rulebook, collective agreement, or special regulation.
Exemption from salary contributions does not apply to contributions calculated on the payment of salary benefits:
- fees and grants paid in amounts exceeding the prescribed non-taxable amounts,
- bonuses,
- annual awards,
- life and supplementary health insurance premiums,
- other receipts.
WHAT HAPPENS IN THE EVENT OF TERMINATION OF THE CONTRACT?
The duration and interruptions of benefits last for a maximum period of five years. If an employee is justifiably prevented from working within those five years, for example, due to sick leave or the use of maternity leave, the employer’s right to exemption from salary contributions is extended.
The provisions of the Ordinance further regulate the issue of the right to use the benefit in the event of a change of the previous employer, when the young person continues to work for the new employer.
CAN A NEW EMPLOYER CONTINUE TO USE THE TAX RELIEF?
The new employer can continue to use the tax relief but under certain conditions. The Ordinance on Contributions prescribes the possibility of continuing to use the tax relief if the new employer is a person related to the previous employer, through the regulations on profit tax, or if the two employers together perform activities in co-entrepreneurship. According to the Ordinance, the new employer can use the remaining period of exemption from paying contributions to the salary of a young person.
The situation is the same if a young person continues to work for a new employer due to a merger, acquisition, or reorganization, but under several conditions:
- that the new employer has taken over all the obligations from the employment contract with the previous employer,
- that the insurance period continues immediately,
- that the person retains the status of a young person.
In addition, the provisions of the Ordinance stipulate that for a young person who during the five years of employment is entitled to compulsory health insurance to salary compensation at the expense of the state budget or whose employment is suspended due to voluntary military service in the Armed Forces of the Republic of Croatia, five years of employment with the same employer, in proportion to the number of days for which he/she was entitled to compensation.
