Payroll in Bosnia and Herzegovina

Payroll Process

Creating standardized, repeatable processes is critical to the success of any business. When it comes to payroll, that means clearly understanding the steps involved in processing payroll, from start to finish. Businesses with remote employees in Bosnia and Herzegovina need to comply with several local regulations, including work permits, social security contributions and mandatory health insurance. Businesses with remote employees often struggle to keep up with these compliance requirements, leading to costly mistakes.

To simplify the process, here's an overview of the three stages of payroll:

Pre-payroll phase

Setting up the organization

Before initiating payroll in Bosnia and Herzegovina, businesses must set up their organization. Every business is governed by its rules and regulations, which need to be taken into account when setting up payroll. Standardizing processes helps to ensure compliance and makes it easier to make changes down the line. It involves creating policies for:

Business profile

Setting up a business entity in Bosnia and Herzegovina is governed by laws such as the Framework Law on Registration of Business Entities in Bosnia and Herzegovina (Official Gazette of BiH No. 42/04) and the Law on Registration of Business Entities in the Federation Bosnia and Herzegovina. Note that registration requirements often vary according to the district.

Work location

Depending on the number of branches a company has, setting up each work location will vary. It's essential to establish policies for each work location.

Leave policy

Employees are entitled to 18 days of leave per year and up to seven days of leaves of absence. Unlike holiday leave, employees can use an absence from work for major events such as a marriage, death, or illness. Depending on the company's leave policy and the employee's contract, additional days may be added.

Attendance policy

Employers need to define attendance policies that consider the company's needs. You must also define how you may track and manage attendance. For instance, while some businesses opt for manual attendance tracking, others use biometric devices or software.

Statutory components

Businesses must comply with numerous statutory requirements, including work permits, social security contributions and mandatory health insurance. Relevant laws also cover employee rights and obligations, such as the labor law, annual leave entitlement and minimum wage.

Salary components

You must establish policies for salaries and bonuses. This includes setting salary ranges, determining how often salaries will be paid and defining bonus payments. Any policies you create must comply with local laws and regulations. It's essential to choose appropriate salary structures that fit the company's budget and operational needs and also motivate employees.

Pay schedule

Employers must pay salaries after the work is performed in periods, which cannot be longer than 30 days. Additionally, Christmas bonuses are customary in Bosnia for up to 78% of the basic salary, however, they are not required by law by the federal government.

Employee information

Processing payroll involves collecting employee information, such as name, address, tax file number, bank account details, company joining date, etc. It's essential to have accurate and up-to-date employee information on file to ensure that salaries are paid correctly.

Payroll calculation phase

The payroll calculation phase involves calculating each employee's gross salary, deductions and net pay. This includes calculating income tax, social security contributions and other deductions. Calculating payroll can be complex, so it's essential to have a clear understanding of how it works. Organizations can opt for manual payroll calculation or use payroll software. The software involves feeding employee information into the system, and relying on the system to qautomatically calculate payroll.

Post-payroll phase

Salary payments

A critical part of the post-payroll phase is ensuring that employees are paid their salaries on time. Employers can deliver payroll to remote employees internally or remotely or outsource it to a third-party provider. Businesses in Bosnia and Herzegovina must register with relevant authorities and obtain the appropriate licenses before paying salaries.

Payroll accounting

Salaries are significant business expenses and must be accounted for correctly. This includes recording salaries in the accounting system, preparing invoices and making payments on time. You might also have to retain records for tax and compliance purposes.

Payroll reporting and compliance

Bosnia and Herzegovina comprise two entities, the Federation of Bosnia and Herzegovina and Republika Srpska. There's also a third, self-governing region known as the Brcko District. The country has a complex system of government, which can make compliance with payroll regulations challenging.

Payroll Processing in Bosnia and Herzegovina

The Labor Law in Bosnia and Herzegovina requires employers to make social security contributions on behalf of their employees. Personal taxes are also withheld from employee salaries by the employer and remitted to the tax authorities.

Paying salaries to remote employees in Bosnia and Herzegovina can be challenging, and companies must ensure all deductions are made correctly. Companies with foreign employees working in Bosnia and Herzegovina must obtain the appropriate licenses from the relevant authorities before paying salaries.

Payroll Processing Company in Bosnia and Herzegovina

If you are looking for help with payroll in Bosnia and Herzegovina, we can help. Skuad is a leading provider of payroll outsourcing services with a team of experts who can help you with your payroll needs. When you outsource your payroll to us, you can ensure that your employees will be paid on time and in compliance with all the relevant regulations.

Payroll Management in Bosnia and Herzegovina

Maintaining accurate and updated records of employee salaries is critical for payroll management. You may need to retain records for tax and compliance purposes. Skuad can help you with your payroll management needs, from maintaining accurate records to preparing invoices and making payments on time.

Payroll Compliance in Bosnia and Herzegovina

Employers must comply with a range of payroll-related regulations in Bosnia and Herzegovina. These include withholding the correct amount of tax from employee salaries and remitting it to the tax authorities, as well as making social security contributions on behalf of employees.

Skuad can help you with all your payroll compliance needs in Bosnia and Herzegovina. We can provide you with the latest information on payroll regulations and help you ensure that you are in compliance with all the relevant rules and requirements.

Payroll Components in Bosnia and Herzegovina

Compensation

The law stipulates that the minimum wage in Bosnia and Herzegovina is 406 convertible marks per month, but collective bargaining agreements often result in higher wages.

Working hours

Businesses typically follow a standard Monday to Friday, 40-hour work week.

Overtime laws

Overtime is allowed but cannot exceed eight hours per week. The premium rate at which an employer pays overtime is decided by collective agreement and can vary by industry.

Social security

Social security contributions are as follows:

• Contribution for pension and invalid insurance. 17% employee's contributions and 6.0% employer's contributions
• Contribution for unemployment insurance. 1.5% employee's  contributions and 0.5% employer's contributions
• Contribution for health insurance. 12.5% employee's contributions and 6.5% employer's contributions

The employer also pays 0.5% of the contribution for protection from natural and other disasters and 0.5% of the water protection charge, calculated on the net salary.

Sick leave

Employees are entitled to at least 5 paid sick days per year. This is equivalent to 1.37% (5/365 days) of annual income.

Parental leave

Employees can start their maternity leaves up to 28 days before the expected due date, and up to one year after the birth. At minimum, they must take 42 to 60 days after the delivery, depending on where in the country they are located. The Labor Act protects pregnant women, those on maternity leaves, or those using the part-time work benefit from having their employment terminated for any reason.

Public holidays

• January 1 -  New Year's Day
• January 2 -  New Year's Holiday
• January 3 -  New Year‘s Holiday
• March 1 -  Independence Day
• May 1 -  Labor Day
• May 2 -  Labor Day observed
• May 3 -  Labor Day (day 2)

Payroll taxes

In the Federation of Bosnia and Herzegovina, the personal income tax rate is 10%. This applies to residents and subjects them to tax on their worldwide income and non-residents who perform    independent business activities or work in the country.

Other laws

Employees are entitled to minimum severance payments, payable in the event of redundancy, if someone has been employed for two years. The payment would be the lower of:

• A third of the employee's average salary in the three months before termination, times their total number of years of employment; and
• Six average salaries of the employee in the three months before the termination

Conclusion

Payroll processing is an essential but complex task for any business. In Bosnia and Herzegovina, there are several specific regulations that employers need to be aware of to ensure compliance. You can manage payroll internally or outsource it to a professional payroll provider like Skuad.

Skuad's payroll solution in Bosnia and Herzegovina offers a compliant, efficient and cost-effective way to manage payroll for your business. Book a demo with us today to find out more.

Note: As of June 15, 2022, 1 Bosnia-Herzegovina convertible mark equals 0.54 United States dollars.