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January 16, 2023

Hrvoje Vidan

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Repression of undeclared work

The employees’ undeclared (illegal) work has been present in Croatia for a longer period of time changing faces and forms and is on the rise finding loopholes by exercising “alternative” ways of employment. Illegal work may have many faces: from pure unreported illegal work to work outside employment relationship through craftsmen, individual entrepreneurships or even companies where such work has elements of subordinated employment relationship characteristic for employment. High volume undeclared work certainly has negative impact on development of Croatian economy including quality of public health services as a result of shortage in income from taxes and social contributions. On the other hand, employees suffer too; they are deprived of the right to retirement money and certain rights from employment such as severance pay, sick leave, annual paid leave, etc. Neither are employers immune to illegal work as those doing business in a legal way suffer from consequences of unfair competition due to a much more expensive workforce.

In order to prevent all forms of undeclared work by strengthening the legal framework that will encourage entrepreneurial activities and at the same time ensure dignified working conditions for employees and protect entrepreneurs from unfair competition, the Croatian Parliament adopted in November 2022 the Repression of Undeclared Work Act ("RUWA"), which shall enter into force in the beginning of 2023. RUWA defines undeclared work; prescribes the procedure, sanctions, consequences and obligations in the case of undeclared work; and subject to performed inspections and the results thereof, foresees public announcement of the “list of shame” including employers where the existence of undeclared work has been identified and the “white list” of those employers who are in the course of inspection found to comply with the employment laws.


Sunday work in trade sector

Non-working Sundays have been a constant part of negotiations, polemics and public debates in Croatia for many years, confronting the traders’ business interests and employees’ will to spend the time with family. In any case, all involved parties agree that the matter of non-working Sundays needs to be regulated.

On session held 1 December 2022, the Croatian Government proposed amendments to the Trade Act pursuant to which stores will be mostly closed on Sundays and holidays with the exception of: (i) those that are located within certain categories of facilities/objects (e.g. airports, gas stations, hospitals, cultural and religious institutions, hotels, etc.) or are an integral part thereof, which may work also on Sundays; and (ii) sale of agricultural products at markets, occasional sales at fairs and public events, sales via vending machines and distance sales. In addition, kiosks and bakeries may be opened on Sundays and holidays from 7 a.m. until 1 p.m.

As the exception to the general rule on non-working Sundays, traders have an option to choose 16 working Sundays per year on which the stores will be open, based on their needs, seasonality, micro-location and other factors.

As for now the Government has given up on the discussed introduction of “appeal of conscience” which would entitle the employees to refuse to work on Sundays due to employees’ beliefs. At the same time the Government plans to introduce changes to Employment Law imposing employers an obligation to pay Sunday work 50% over the regular work.


Increase of non-taxable payments to employees and minimum wage

Due to a high inflation rate reaching a peak of 12.3% in August 2022, the new Personal Income Tax By-Law has been adopted, increasing the amounts of non-taxable payments to employees (e.g. non-taxable Christmas bonus is increased from EUR 400 to EUR 670; non-taxable reward for work results and other forms of additional remuneration for workers (per year) is increased from EUR 670 to EUR 1,000, etc.).

In addition, the Government has fixed the minimum wage for 2023 to be EUR 700 gross. This is the lowest monthly gross amount payable to an employee for full-time work and does not take into account any additional pay for overtime, night work or work carried out on typical non-working days (such as Sundays, during holidays, etc.).

With thanks to Hrvoje Vidan of Vidan Law for his invaluable collaboration on this update.




Protections for homeworkers

The COVID-19 pandemic has revealed certain deficiencies within the current regulations relating to remote working.  This includes the distinction (or lack thereof) between working and non-working time,  failure of employers to compensate employees for the costs related to homeworking (e.g. utility costs) and uncertainty with respect to the regulation of certain protections for employees working from home.

The Government, employers and trade unions are in an ongoing discussion about the possible amendments to the Employment Act to address these concerns. In any case, the Croatian Parliament is due to adopt the new Employment Act by the end of 2022 to harmonize the legislation with the European Union directives adopted in 2019.

Once the new Employment Act is adopted and comes into force, employees should enjoy greater rights with respect to fixing the place of work and enjoy greater protection with respect to working time and reimbursement of utility costs.


Increase to compulsory pension age

According to current employment legislation, unless the parties reach an agreement to continue the employee’s employment, an employment agreement shall be terminated ex lege once an employee reaches 65 years of age and has 15 years of pensionable service. This inflexible regime of compulsory retirement has been criticised as being unjustified as it prevents employees from gaining economic benefits once they meet prescribed restrictive criteria. The Ministry of Labour is considering introducing gradual prolongation of the conditions for retirement (e.g. each year the retirement age should be increased by three months). Such a change, if adopted, may have a knock-on effect in respect of other pension laws such as the Compulsory Health Insurance Act.

This change would enable employees to continue working beyond the age of 65 without needing to obtain special permission from the employer. Any revised law is likely to set an upper age limit for work after an employee reaches 65 years of age, after which time continuation of employment would be subject to agreement between the employer and the employee.


Curtailment of fixed-term employment contracts

A high percentage of employment contracts in Croatia are concluded for a fixed-term. The primary reason may be the seasonal nature of work impacted by tourism, which is an important part of the country’s economy. However, in practice, fixed-term employment tends to lead to unequal treatment of women as a result of pregnancy and motherhood.

The Government, employers and trade unions are in discussions to amend the Employment Act with to the aim of reducing the use of fixed-term employment agreements where no justified reason for such employment exists. This should result in greater security for employees and should lead to increased pension adequacy due to the fact that employment will not be interrupted by the continuous use of fixed-term contracts. Once these changes come into force, employers should restrict their use of fixed-term employment contracts.


Introduction of new whistleblowing legislation

The Protection of Reporters of Irregularities Act, which came into force on 1 July 2019 and is aimed at protecting whistleblowers, is not fully compliant with the EU Whistleblowing Directive 2019/1937/EU. Croatia failed to implement the aforementioned Directive by the relevant deadline (i.e. 17 December 2021).

On 15 April 2022, the Law on the Protection of Reporters of Irregularities was published in the Official Gazette, thus implementing the Directive on the Protection of Persons who Report Breaches of Union Law (Directive (EU) 2019/1937). The new Protection of Reporters of Irregularities Act shall further strengthen the legal protection afforded to whistleblowers and raise public awareness of a need to report irregularities to protect the public interest. Some of the main changes to be introduced are as follows: (i) anonymous whistleblowers shall enjoy the same level of protection as whistleblowers who immediately disclose their identity if they are subsequently identified and suffer retaliation; (ii) reporting channels may be operated internally (by an employee) or provided externally (by a third party); and (iii) there is no longer an obligation for a whistleblower to report an irregularity internally prior to reporting it via an external channel.




Tax reforms affecting employees' wages

The Croatian Government passed a new package of laws reducing the costs of labour by adjusting the tax rates applicable to wages from 24% to 20% for "medium wages" and 36% to 30% for "high wages." The amount of the monthly minimum wage for the full time work in 2021 increased from HRK 4,062.51 to HRK 4,250 and the basic personal deduction released from taxation has also increased from HRK 3,800 to HRK 4,000.


Sunday work found to be legal even during the epidemic

Despite the fact that the topic of non-working Sundays has been considered in Croatia for many years, the Government's proposal to ban or at least restrict work on Sundays has not been adopted as an epidemiological measure for the purposes of preventing the expansion of COVID-19. Namely, the decision rendered by the Constitutional Court of the Republic of Croatia in September 2020 confirms the Court's standpoint expressed in earlier decisions that the ban on Sunday work is unconstitutional. Therefore, the abolition of the Sunday work ban has been extended during the exceptional circumstances caused by the COVID-19 pandemic.


Abolition of the annual stay and work permits quota

According to the new Aliens Act which was due to enter into force on 1 January 2021, the Government will no longer be rendering a decision determining the annual quota of stay and work permits for an "alien" (being a person who is not a Croatian citizen). The new legislation prescribes that an employer must request the Croatian Employment Service to carry out a "labour market test" prior to submitting the application for an alien's stay and their work permit. If this test shows that there are no available workers meeting the employer's criteria, an employer shall be entitled to submit the application for the alien's stay and work permit to the Ministry of the Interior, who will, ex officio, request an opinion from the office of the Croatian Employment Service regarding the employment of the alien concerned with a Croatian employer.


Expected changes to remote work

An increased demand for remote work has urged the Government to make the possibility of contracting such a work on short notice more flexible and at the same time protect employees from potential misuses by the employer while ensuring just compensation primarily with regard to costs the employees will have to bear by using their own equipment and resources.




Protection of whistleblowers codified in a single law

The Whistleblower Protection Act (commonly known as the Whistleblowers Act) is a new law that was passed with the aim of raising awareness and encouraging employees to report irregularities relating to their employers' business activities. The enactment of the Whistleblowers Act systematises and regulates in detail (for the first time) issues relating exclusively to whistleblowers and protects them from sanctions. The law applies to all public authorities at the central and local level, legal entities with public authority, companies that are majority-owned by the state or local unit and all private-sector employers. The Whistleblowers Act imposes an obligation on employers to adopt policies dealing with internal procedures for reporting irregularities and requires them to appoint a confidentiality person and a deputy.


Minimum wage for 2020

The Government has fixed the minimum wage for 2020 to be HRK 4,062.51 (EUR 541.60) (gross). This is the lowest monthly gross amount payable to an employee for full-time work and does not take into account any additional pay for overtime, night work or work carried out on typical non-working days (such as Sundays, during holidays, etc.).


Recent amendments to Trade Act aimed at restricting work on Sundays

The recent changes to the Trade Act granted the Civil Protection Headquarters an authority to restrict working time in certain special circumstances (i.e., due to an event or situation that could not have been foreseen or avoided, which endangers the life and health of citizens, endangers property of greater value, significantly impairs the environment, disrupts economic activity or causes significant economic damage). The Civil Protection Headquarters subsequently adopted a resolution banning work on Sundays. Although this resolution was later abolished, restricted work on Sundays continues to be a popular concept in Croatia. So much so that the Minister of Economy has recently announced amendments to the Trade Act permitting only 14 working Sundays a year, on such dates to be determined by the employer.

With thanks to Hrvoje Vidan, Ivona Stricak and Petra Lustica of Vidan Law for their invaluable collaboration on this update.

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Suzanne Horne

Partner, Employment Law Department

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Kirsty Devine

Associate, Employment Law Department

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Aashna Parekh

Associate, Employment Law Department

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