When recruiting and employing individuals in Serbia, employers are required to comply with various legal requirements established under the Labor Law in Serbia. These obligations include but are not limited to, mandatory payments, such as salary, contributions to mandatory social insurance, and the provision of other statutory employee rights. In addition to these compulsory requirements, while some benefits are not explicitly required by law, many employers choose to offer supplementary benefits designed to improve their appeal as an employer and to retain outstanding talent in an increasingly competitive market.
As businesses expand globally, the issue of employment-related costs becomes more complex, with more employers operating internationally.
As a result, companies must deal with different laws and regulations and manage the legal and financial impacts of hiring people in multiple countries.
This article provides a detailed exploration of the full spectrum of costs associated with employing individuals in Serbia, categorizing them into mandatory legal obligations and optional benefits that employers may voluntarily offer to foster a more attractive and supportive work environment.
Employer’s Obligations and Costs According to Labour Law
1) Salary
When negotiating salaries in Serbia, it’s essential to understand the difference between Gross 1 and Gross 2 salary, net salary, and minimum wage as these terms impact both employees and employers differently.
What is Gross 1 Salary?
Gross 1 represents the employee’s gross salary before deductions, which includes:
✔️ The net salary (the amount the employee actually receives)
✔️ The employee’s contributions for social security (pension, health, and unemployment insurance)
✔️ The personal income tax (PIT)
Employers often list Gross 1 in employment contracts, as it directly relates to the employee’s earnings before statutory deductions.
What is Gross 2 Salary?
Gross 2 represents the total cost to the employer, which includes:
✔️ Gross 1 salary
✔️ The employer’s contributions for social security (pension and health insurance)
This is the amount that an employer actually pays for an employee to comply with Serbian tax and labor laws.
Net salary (take-home pay) represents the amount of salary the employee receives on a monthly basis in their account. It is essentially the gross 1 salary reduced by the amount of income tax and contributions for mandatory social insurance.
Minimum wage – Employers are required to comply with the minimum wage standards, which are regularly revised by the government. The minimum wage for February 2025 in the Republic of Serbia amounts to RSD 66,244.94 (approximately EUR 560) – gross 1, which amounts to RSD 49,280.00 net (approximately EUR 420).
While the amount of Gross 1 salary will be dictated by the market, the industry in which the employer operates, as well as the experience of the specific employee being hired, the minimum wage is regulated at the national level. The Gross 1 salary amount that the employer and employee agree upon cannot, under any circumstances, be lower than the minimum wage set by the government.
It is also important to note that the Labour Law stipulates that the employer is obligated to pay employees an increased salary based on certain criteria, at a percentage specified by the Law. If the employer wants to provide more favorable conditions for the employee, they can specify more favorable terms, i.e., a higher increase percentage, in an internal act or employment contract, but this is not mandatory.
The legal grounds for salary increases, with their corresponding percentages, are as follows:
- For work on a holiday that is a non-working day – an increase of at least 110% of the salary base;
- For night work – an increase of at least 26% of the salary base (if night work has not already been accounted for when determining the base salary);
- For overtime work – an increase of at least 26% of the salary base;
- For each full year of work in employment with the employer – an increase of at least 0.4% of the salary base.
If the conditions for increasing the salary based on multiple grounds are met simultaneously, the employer is obligated to pay the employee an increase according to all the percentages they are entitled to.
2) Salary tax
In addition to the salary, the employer also pays salary tax for the employee, which, when combined with the contributions for mandatory social insurance, forms the employee’s gross salary (Gross 1).
While the employee is technically the taxpayer for salary tax, the employer is responsible for calculating, withholding, and paying it to the tax authorities.
The tax base for salary tax is the paid or earned salary, while the salary tax rate is 10%.
3) Mandatory Social Insurance Contributions
Social security in Serbia encompasses several key types of mandatory insurance, including:
- Health insurance
- Pension and disability insurance
- Unemployment insurance
Both employees and employers contribute to social security. The salary or wage compensation serves as the contribution base for both parties.
While a portion of these contributions is deducted from the employee’s salary, the employer also covers a share. However, the employer is ultimately responsible for calculating, withholding, and ensuring the full payment of all contributions when processing salaries.
Employers in Serbia are required to contribute to the following types of social insurance:
- Health Insurance
Employers must contribute to the national health insurance fund, which covers employees’ medical care and paid sick leave. The rate at which contributions for compulsory health insurance are calculated and paid is 10.3%.
- Pension and Disability Insurance
Compulsory pension and disability insurance provides benefits in the case of old age, disability, death, and physical impairment. This contribution ensures employees receive retirement benefits and coverage in cases of permanent disability. The rate at which contributions for pension and disability insurance are calculated and paid is 24%.
- Unemployment Insurance
This contribution funds the unemployment benefit system, providing financial support to individuals who lose their jobs when conditions prescribed by law are met. The rate at which contributions for unemployment insurance are calculated and paid is 0,75%.
- Workplace Injury and Occupational Disease Insurance
As of May 2025, all employers will also be required to contribute to additional private insurance specifically covering workplace injuries and occupational diseases.
4) Reimbursement of Expenses
Employers are required to cover certain employee expenses, including:
- Travel expenses:
The employer is obligated to reimburse employees for travel expenses related to commuting to and from work on a daily basis. The law stipulates that the employer must reimburse the employee for travel expenses in the amount of the public transportation ticket, unless the employer arranges their own transportation. The issue of reimbursing travel expenses for employees in Serbia’s capital, Belgrade, has become particularly interesting following the mayor’s decision to make public transportation in Belgrade free of charge, starting from January 1, 2025.
- Business trip expenses:
Coverage for business trips within Serbia and abroad, including transport, accommodation, and meals. This issue should ideally be addressed in more detail through the Employment Rulebook or Business trips policy.
- Daily allowances for fieldwork:
Employers are obliged to cover to employee’s compensation for work and stay in remote areas.
- Meal allowances:
Employers are obliged to cover to employee’s compensation for meal allowances, unless this right has already been provided in another way. The law does not specify a minimum or maximum amount for this reimbursement, so each employer must determine the amount based on the circumstances of the specific case.
It is important to note that disputes over meal allowances have become increasingly common in court proceedings, making it essential for employers to structure this benefit carefully. Additionally, the tax treatment of these expenses varies depending on how they are organized, which can significantly impact the overall cost for employers.
- Annual leave allowance:
Employers are obliged to cover employee’s annual leave allowance when employees take annual leave. Annual leave allowance can be determined in lump-sum amounts and specified in the employee’s employment contract. The law does not specify a minimum or maximum amount for this reimbursement, so each employer must determine the amount based on the circumstances of the specific case.
- Work-from-home expenses:
Work-from-home expenses consist of compensation for the use of the equipment owned by the employee, as well as reimbursement of other costs, most commonly for utilities, such as electricity and internet bills. The law does not specify a minimum or maximum amount for this reimbursement, so each employer must determine the amount based on the circumstances of the specific case.
5) Other Payments
In addition to regular wages, Serbian labor law requires employers to provide certain mandatory payments that are triggered by specific circumstances, such as termination, retirement, or unforeseen events affecting employees or their families.
These payments ensure financial support in critical moments and include:
- Severance pay for redundancy:
When an employee’s agreement is terminated due to redundancy, they are entitled to severance pay. The amount of severance payment is determined by the employer’s internal act or the employment contract, with the condition that it cannot be lower than the sum of one-third of the employee’s salary for each completed year of employment with the employer from whom they are entitled to severance payment.
- Retirement severance payment:
The employer is obligated to pay the employee a severance payment upon retirement, in accordance with the employer’s internal act, in an amount not less than two average salaries in the Republic of Serbia, based on the most recently published data from the national statistical authority. The average gross salary calculated for November 2024 was 138,911 dinars (approximately EUR 1,200), while the average salary after taxes and contributions (net) was 100,738 dinars (approximately EUR 860).
- Funeral expenses:
Employers must reimburse funeral costs in the event of the death of an employee’s immediate family member or, alternatively, for the employee’s family in the case of the employee’s death.
- Compensation for work injuries or occupational diseases:
Employees who suffer workplace injuries or occupational diseases are entitled to compensation covering damages resulting from such incidents.
6) Compensation During Leaves
Serbian Labor Law guarantees employees compensation during various types of leave, ensuring financial stability in cases of illness, personal milestones, or family emergencies. The duration and amount of compensation depend on the type of leave, with employers having some flexibility to provide additional benefits through internal policies or employment contracts.
- Sick leave
Employees are entitled to salary compensation during temporary incapacity for work. If the sick leave is due to a non-work-related illness or injury, the employer covers the first 30 days, after which the health insurance fund takes over. In this case, the compensation is at least 65% of the employee’s average salary from the previous three months (unless the employer grants a higher percentage).
However, if the sick leave is due to a work-related injury or occupational disease, the employer is responsible for covering 100% of the salary for the entire duration of the sick leave. In this scenario, the health insurance fund does not take over payments after 30 days.
- Paid leave
According to the Labour Law, employees have the right to paid leave, which means absence from work with compensation, in cases provided by law. However, the employer may expand the grounds for paid leave through an internal act or employment contract.
The law stipulates that employees are entitled to paid leave for a total duration of five working days during the calendar year in cases of marriage, the wife’s childbirth, and the serious illness of an immediate family member. Additionally, they are entitled to five working days for the death of an immediate family member and two consecutive days for each case of voluntary blood donation, including the day of donation.
7) Special Benefits
The Labour Law provides the possibility for employers, if specified in their internal acts (such as the Employment Rulebook), to pay employees the following:
- Jubilee awards:
In accordance with the employer’s internal acts, employees may receive awards for long service.
- Solidarity assistance:
Financial aid for employees in cases of significant personal or family hardships, also subject to the employer’s internal policies.
Therefore, there is no obligation for employers to pay jubilee awards and solidarity assistance, but they have the option to include these provisions in their internal acts.
Optional Benefits Employers Can Provide
While Labour Law outlines certain mandatory costs and benefits that employers are obligated to provide, many companies opt to go beyond these statutory requirements by offering additional, non-compulsory benefits to their employees. These discretionary benefits, though not legally required, are highly valued by employees and can play a crucial role in enhancing overall workplace satisfaction, fostering greater employee engagement, and improving retention rates. By offering these extra incentives, employers can create a more positive and supportive workplace.
One example of such a benefit is Employee Stock Ownership Plans (ESOPs), which allow employees to acquire ownership stakes in the company. ESOPs can serve as a powerful incentive, aligning employees’ interests with the company’s long-term success and motivating them to contribute to its growth. However, structuring and implementing an ESOP requires careful legal and tax considerations.
To learn more about ESOPs and how they can benefit your business, check out our detailed guide here: ESOP – a Chance to Make Your Best Employees Your Partners.
Examples of Optional Benefits in Practice
Employers in Serbia often implement the following benefits to enhance employee well-being:
1) Health and Wellness Benefits
- Private health insurance:
Offering access to private healthcare providers for faster and more personalized medical treatment. This is actually the most common benefit offered by employers in Serbia, and it is often provided not only for employees but also with the possibility of extending it to family members under certain conditions. It is important to note that the arrangement of this type of insurance does not affect the obligation to pay for compulsory health insurance.
- Vision and dental insurance:
Some employers choose to include additional benefits in their internal policies, such as coverage for routine eye and dental checkups and treatments.
- Life insurance:
Policies providing financial support to employees’ families in case of unforeseen events.
2) Use of the company’s vehicle and premises
- Use of the company’s vehicle:
Employers often allow employees to use company vehicles, in which case employees do not have an additional right to travel expenses, but only to cover the costs of using the company vehicle for commuting to and from work. Employers often also allow employees to use the company vehicle for personal purposes.
- Use of the employer’s premises:
Some employers in Serbia also allow the use of residential buildings or apartments owned by the employer or rented by the employer, with or without paying rent.
3) Additional Paid Leave
Some companies offer additional paid leave beyond the legal minimum for various reasons, such as:
- Family events – such as birthdays and anniversaries,
- Relocation,
- Personal development – attending various courses and additional training,
- Volunteering.
4) Pension Plans
Voluntary pension plans are another popular benefit. Employers may contribute to private pension funds on behalf of their employees to ensure greater financial security upon retirement.
It is important to note that the arrangement of this type of insurance does not affect the obligation to pay for compulsory pension insurance.
5) Childcare assistance
Many companies offer financial aid or access to childcare facilities to support working parents in balancing their professional and personal responsibilities.
6) Workplace Facilities
- Mental and physical wellness programs:
Initiatives promoting employee health, such as gym memberships, counselling services, or wellness workshops.
- Recreational spaces:
On-site areas for relaxation and socializing, such as lounges, game rooms, or outdoor spaces.
The tax treatment of all these additional employee benefits is different. While some are treated as salary and taxed at the rate designated for salaries, others are treated as other income (which is taxed at a rate of 20%), and some are subject to tax exemptions (either fully or up to a certain amount, which is adjusted annually).
Global Considerations for Multinational Employers
For employers with operations across multiple jurisdictions, maintaining consistency in employee benefits can present both challenges and opportunities.
However, by strategically managing these complexities, companies can offer cohesive benefits across all locations.
This can be achieved through:
- Developing comprehensive internal policies that adhere to the legal requirements and regulations specific to each country in which the company operates.
- Standardizing optional benefits, such as private health insurance and wellness programs, by aligning them with the organization’s overarching global corporate policies.
This approach ensures a balanced and consistent benefits structure that caters to both local legal frameworks and the company’s global objectives, ultimately fostering employee satisfaction and organizational cohesion across diverse regions.
