Practice Area Articles
Croatia
January 28, 2025
By Paul Hastings Professional
Back to International Employment Law
KEY DEVELOPMENTS FOR 2025
Keeping Records of Employees
On 1 October 2024, the new Ordinance on the Content and Method of Keeping Records of Employees entered into force supplementing the old act. Unlike its predecessor, which only required employers to keep records of employees and their working time, the ordinance obliges employers to keep records both of employees who perform work based on the employment contract but also (i) of natural persons that perform work for the employer outside of employment relationship or work based on special regulations, and (ii) of working time of employees temporarily assigned to the employer by an affiliated company or by a temporary employment agency.
Specific details to be recorded either in written or electronic form for each employee include full name, total daily working hours, hours of field work, hours of standby and absence time, start and end times, and records of any work carried out outside of normal working hours (i.e., night shifts, overtime work, work during holidays or non-working days). Failure to comply with the record-keeping obligations in the manner prescribed by the ordinance may result in a fine of up to EUR 13,270 being imposed. Employers are advised to consider how they will manage the implementation of the additional record-keeping obligations, ensuring they have sufficient legal support and have factored in the increased operational costs that will likely be incurred. In addition, they should (i) review existing records of employees and working hours to ensure alignment with the requirements of the new ordinance, and (ii) review and, if necessary, renegotiate agreements concluded with an affiliated company and/or temporary employment agency.
Tax Reform
In light of economic growth and lower unemployment levels, the Croatian government introduced a tax reform with effect from 1 January 2025 that, among other things, abolishes the tax relief currently experienced by employers for employees under the age of 30 that enabled employers not to pay health insurance contributions to young people that were otherwise calculated on top of their gross salary. However, employers who had been using the relief prior to 1 January 2025 will remain entitled to use it until the five-year relief term expires. The abolition of the relief does raise concerns of a reduction in both the competitiveness of employers and the net salaries that employees will receive as a result of an employers’ intention to transfer the costs of health contribution to the employees that is expected to be achieved by decreasing taxable gross salary amount. Employers should monitor the latest developments in this legislation and its enactment in Parliament as well as take steps to review, and if necessary, adjust the gross salaries of those affected employees to account for the cessation of this tax relief benefit.
Increase in Minimum Wage and Non-taxable Payments to Employees
On 24 October 2024, the government adopted the Decree on the Minimum Wage for 2025 (Official Gazette 124/2024), which increases the minimum gross wage to EUR 970.00, representing an increase of 15.48% compared to the minimum wage in in 2024. In addition, as a part a proposed tax reform, the basic personal deduction shall be increased from EUR 560 to EUR 600 while a threshold for applying a higher personal income tax rate of 30% is raised from EUR 54,000 to EUR 60,000. An increase of the minimum gross wage raises concerns that this will affect already disturbed relations on an employment market between private and public sector, stimulating employees to leave private sector and seek an employment in already overpopulated public sector. Such a shift is detrimental to the private sector that is supposed to be the main financier of the state as the employer. Employers are encouraged to follow legislative updates and adjust their operational budget accordingly with the newly introduced changes affecting employment costs.
KEY DEVELOPMENTS FOR 2024
Amended Employment Law Favours Indefinite Term Employment
In recent years the predominant form of new employment has been hiring via short-term employment agreements. However, faced with increasing trade union demands for greater security of employees, the Croatian Government has introduced legislation regarding the preferable type of employment and prioritised employees’ security over flexibility of hiring. By proposing to adopt the amendments to the Employment Act 2004 (“Employment Act”), the Government set out a number of terms restricting the exceptional circumstances in which a fixed-term employment relationship may be established. In order to avoid serious penalties of up to €8,000 per breach committed, employers may establish a fixed-term employment relationship only in exceptional circumstances where the termination of the relationship is predetermined due to an objective reason or the need to perform the work is temporary (i.e., replacement of a temporarily absent employee, or work whose duration is by nature limited by a deadline or the occurrence of a certain event).
When hiring fixed-term employees, employers must take care to state in the employment agreement the concrete reason for the fixed-term employment. Unless a certain exemption applies (e.g., replacement of an absent employee, or completion of works financed through EU funds), fixed-term employment may not exceed three years. Where a fixed-term employment agreement is concluded contrary to the principles of the Employment Act or if the employee continues to work for the employer even after the expiration of the period for which the employment agreement was concluded, an employment relationship shall be deemed to have been concluded for an indefinite period of time. Taking into account that the Employment Act recognizes the “just cause” principle when it comes to firing, it remains to be seen how the new fixed-term employment regime will affect hiring (including unemployment) in general, and whether it will have any positive effects on social standards and creditworthiness of the working population.
New Regime in Relation to Probationary Periods
In light of the new restrictive regime for fixed-term employment, probationary periods appear to be an efficient tool that employers may use to address uncertainty when hiring new employees. Unlike the old regime under which probationary periods could not last longer than six months, the amended employment law that came into forced in 2023 provides for extended duration of probationary periods when it may last proportionately longer than six months. The conditions for any lengthening of the probationary period are if an employee was absent due to temporary incapacity for work, use of maternity and parental rights according to special regulations and use of the right to annual paid leave.
The employer’s dissatisfaction with the probationary employee is a particularly justifiable reason for termination of the employment agreement, in which case no provisions of the employment law regulating notice apply, save for minimum formal requirements, in that it has to be made in writing and delivered to the employee. Now, as was the case previously, the notice period starts running as of the delivery of notice to the employee, while employees still have the right to challenge the dismissal before the court. If the court finds the dismissal to be invalid, the parties in a dispute may claim judicial termination of employment.
However, employers must take into consideration that in order to be valid, a dismissal during the probationary period can exclusively be exercised before, or at the latest, on the last day of the probationary period, in which case the minimum notice period is one week. Even though the employment law does not differentiate between certain categories of employees on probation, employers must pay special attention to the employment of pregnant employees as a result of the latest ruling of the Croatian Supreme Court recognising that a pregnant employee enjoys special protection against dismissal during their probationary period, even when the reason for dismissal is not related to her pregnancy.
Introduction of “Additional Work”
Recent regulatory amendments in Croatia have focused on additional work of employees due to market changes. A full-time employee with one primary employer or a part-time employee with multiple primary employers, with a cumulative weekly workload of 40 hours, is now permitted to engage in additional work for another employer without obtaining prior consent of the primary employer.
However, they must still inform the primary employer if they execute an agreement for additional work with another employer prior to commencement of such work. The primary employer is not entirely deprived of its rights when it comes to additional work. It may request the employee to discontinue additional work for another employer, provided that there is an objective reason for that (in particular, if such work violates the statutory prohibition of competition or collides with the employee's working time with the primary employer). Judicial practice has yet to rule on the available objective reasons for requesting the employee to stop performing additional work. However, it is clear that the new legislative model of additional work puts the primary employer in a less favourable position. Certain categories of employees that are exempt from performing additional work include employees engaged in jobs requiring special working conditions in accordance with the regulations on occupational safety, employees working in reduced working hours, and employees who are eligible for retirement.
KEY DEVELOPMENTS FOR 2023
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.).
KEY DEVELOPMENTS FOR 2022
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.
KEY DEVELOPMENTS FOR 2021
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.
KEY DEVELOPMENTS FOR 2020
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.
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