The right to exemption from the payment of the base contributions in case of young employees
An employer concluding an employment contract with a young person for an indefinite period of time for a period of up to five years is only obligated to calculate the base contributionsA young person is any natural person who is registered by the employer for compulsory pension insurance and compulsory health insurance on the basis of an employment contract concluded for an indefinite period of time and is less than 30 years of age on the commencement date of the insurance policy, with no previously concluded employment contract for an indefinite period of time with the same employer as of the date of the conclusion of the contract.
These provisions of the Contributions Act apply to both insured persons on the basis of employment and insured persons on the basis of employment as posted workers.
Exemption from Payment of the Base ContributionsAn employer concluding an employment contract with a young person for an indefinite period of time for a period of up to five years is only obligated to calculate the base contributions of the following:
- pension contributions – at a 20-percent rate, or a 15-percent rate for a pension policyholder based on individual capitalized savings
- pension contributions based on individual capitalized savings (for the policyholder) – at a 5-percent rate.
Eligibility for Contribution BenefitThe requirements for obtaining the contribution benefit are:
- conclusion of an employment contract with a person of up to 30 years of age
- conclusion of an employment contract for an indefinite period of time
- a young person under the age of 30 not having previously concluded an employment contract for an indefinite period of time with the same employer.
This means that the benefit does not require the young person to have been previously registered with the Employment Service, or to have previous registered length of service, nor any similar requirement. Also, the employer is not obligated to inform any institution prior to exercising this right. If the young person had previously concluded a fixed-term employment contract with the employer and concludes an employment contract for an indefinite period of time after 1 January 2015, the employer may start exercising the right to exemption from payment of the base contributions from the first day of concluding the indefinite employment contract.
The employer shall provide the young person with evidence thereof, which is the indefinite employment contract. The employer does not have to submit the evidence (copy of the employment contract) to any institution, but shall keep it in its records, and show it at the request of a tax authority within a tax inspection or a special procedure.
Specific CasesIf two employers are engaged in joint entrepreneurial activity or are considered related parties in terms of the provisions of regulations governing income tax, and one of the employers concludes an employment contract for an indefinite period of time with a young person who was previously employed by the other employer or related party, and latter has already exercised the benefit on the basis of employing a young person, the new employer (associated entrepreneur or related party) may continue to exercise the previously initiated benefit of non-calculation of base contributions until the expiration of the period of five years from the date the benefit was initiated by the employee's first employer.
In the event that a young person continues their work commitment with a new employer due to a merger, acquisition or other form of restructuring of the previous employer, that person retains the status of a young person, provided that the new employer has fully assumed all obligations agreed under the employment contract with the previous employer, and that the employment insurance period with the new employer constitutes a direct continuation of the employment insurance period initiated by the previous employer. The new employer may use the benefit as initiated by the previous employer, as non-calculation of base contributions, until the expiration of the period of five years from the date the benefit was initiated by the employee's first employer.
A young person who is entitled to salary compensation paid from the state budget on the basis of rights provided by their compulsory health insurance during the five-year period of employment, or whose employment is suspended due to voluntary military service in the Armed Forces of the Republic of Croatia, the five-year period of employment with the same employer is extended by the number of days during which they exercised the right to salary compensation, i.e. the period during which the employment relationship was suspended.
You can find detailed information on the right to exemption from paying base contributions for young employees by: