Bulgaria: Employment Incentives Across Southeast Europe

Last Updated: 23 February 2012
Article by Elena Kostovska

Governments throughout Southeast Europe have implemented various programs for combating unemployment as well as boosting the workplace inclusion of certain population groups. This is mostly being done in the form of various tax or social contribution exemptions granted to employers meeting specific criteria. We have surveyed the region and concluded that even though a myriad of incentives are available for economic growth and investment, social inclusion is a primary goal.

The employment of persons with disability is a common theme of employment incentives across the region. In Bulgaria, hiring an individual with a disability creates conditions for the reduction of the monthly tax base used for calculating personal income tax in the amount of BGN 660. Personal income tax in such cases is only due if the total personal income realised in a calendar year is above BGN 7920. Hiring long-term unemployed individuals registered with the National Employment Agency also provides benefits to the employer in the shape of refunds granted for salaries and social security contributions paid for up to 24 months, under specific conditions.

In Albania, an employer hiring a disabled person receives an exemption for a portion of the taxes payable on behalf of this person and can also request to be reimbursed for any expenses incurred in creating the workplace an appropriate working environment for that person. Recent legislation also focuses on encouraging the employment of women. The draft Law, expected to be passed and enforced very soon, will provide employers certain benefits when hiring women that have been unemployed for over a year or have been victims of human trafficking or are over 50 years of age or: are Roma; have a disability; are divorced and in an inferior social position; have returned from emigration and face economic hardships. The benefits proposed include 100% state coverage of the social security contributions for the first year as well as the state's payment of the 5th, 6th, 11th and 12th monthly salary for the specific employee.

The employment of people with disability is treated slightly differently in FYR Macedonia, with companies who hire individuals with disabilities in a percentage equal to or higher than 40% of the total company workforce actually enjoying a special company form status whereby they are exempt from payment of personal income tax on behalf of their employees as well as pension and health insurance contributions. These companies are also exempt from corporate income tax payments. Beyond this special treatment of companies hiring people with disabilities, the FYR Macedonian government also provides incentives for hiring the long-term unemployed, specifically by exempting companies from payments of personal income tax on behalf of hired employees that had previously been unemployed, under the condition that an indefinite duration contract has been signed. One additional incentive that is aimed at increasing the investment in the technological/industrial development zones in FYR Macedonia is the 10 year personal income tax break for workers hired by companies located in such zones.

The Romanian legislation provides a rather large set of employment-boosting incentives. Apprenticeship contracts are one scenario whereby employers can receive monthly grants in the amount of 60% of the referential social indicator (presently RON 500). Employers hiring people with disabilities are exempt from state budget payments in the amount of 50% of the minimum national gross wage (for each disabled person hired). Furthermore, companies with 50 or more employees are obliged to employ at least 4% of their workforce from this social group. Employers concluding indefinite duration employment contracts with previously unemployed individuals aged over 45 or unemployed sole provider parents are exempt from payments due to the unemployment fund budget for a period of 12 months. They also receive monthly grants in the amount of the referential social indicator value if they keep such employee on their payroll for at least two years. One entrepreneurship-focused employment incentive can be observed in the Romanian legislation whereby micro companies setup by young entrepreneurs (younger than 35 years) are exempt from the payment of social security contributions for up to 4 employees with an indefinite duration employment contract. A specific incentive applicable to employees of Romanian companies with main business activity of creating computer programs can also be noted; employees of such companies are exempt from income tax payments under certain conditions. Various other incentives for hiring graduates of educational institutions are also available.

In Serbia, as of March 2011, employers are given an incentive to hire persons under 30 or over 45 years of age. For such new hires, employers are exempt from the payment of salary tax, typically rated at 12%. When hiring a person who has been registered as unemployed with the National Employment Agency for at least 6 months, Serbian employers are exempt from payment of mandatory pension fund contributions (rated at 11% for both employee and employer) as well as eligible for a 30% salary tax reduction. In order to qualify for these incentives an employer must be active in the private sector as well as to not have used any of the Government's previous employment incentives and is bound to not decrease the total number of employees compared to the levels of March 31 2011 and to not terminate any of these new hires within a calendar year.

Neighboring Montenegro is also focusing on social inclusion through its national employment-boosting incentives. Hiring previously unemployed individuals of certain profiles (Roma minority, individuals over 40 and those that have been registered as unemployed for 5+ years) warrants the employer the ability to cut certain expenses as his share of the contributions (rated at 10%) as well as the personal income tax (9%) are not payable. Similarly, any hires of people with disability result in the reimbursement of 80% of such hires' gross salary in the first year of employment and a reimbursement of 50% of the gross salary paid in any subsequent years of employment. The focus on including people with disabilities in the workplace is further evident from other benefits provided to their employers, including low interest rate loans granted for procurement of workplace equipment necessary for employing people with disability. Another major governmental subsidy can be observed in cases of employing a trainee; 80% of the gross salary of a trainee with a university diploma is reimbursed by the Employment Agency in the first year of employment.

Greek employers are also given incentives to hire individuals who have been registered as unemployed with the National Employment Agency by being eligible for a deduction of a portion of the social security contributions paid. The Employment Agency runs a number of other programs that certain employers can benefit from; for example, employers can apply for a reduction in the social security contributions due for a part of their employees if they have not laid off any personnel in the last trimester and are typically paying contributions within the legally prescribed deadlines. In cases when an employer hires individuals under the age of 25 for the purpose of gaining work experience, the minimum wage applicable can be reduced by 20%; provided that the employment contracts are concluded for a full time working arrangement and the employer is not the recipient of any other employment grant.

While the above outlined stimulations do provide variable results that combat unemployment, we feel that Governments around the region need to broaden the framework of incentives when it comes to employment. Beyond the social perspective (which remains of utmost importance in all jurisdictions), our payroll experts believe that local legislations should also focus on the business community's point of view and provide incentives and exemptions that will not only include certain social groups in the workforce but rather act as a job-creation mechanism by encouraging businesses to increase their staff.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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