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Business Intelligence Crowe Analysis: One in six employees in Romania will have higher incomes, on paper, due to the new fiscal changes

Crowe Analysis: One in six employees in Romania will have higher incomes, on paper, due to the new fiscal changes

by Crowe Romania November 7, 2023
  • Employers in Romania must increase personnel expenses by up to 18% for a workforce of over 800,000 employees in Romania, according to an analysis by the fiscal consulting firm Crowe. The percentage increases if employees choose to continue contributing to the second pension pillar.
  • The incomes of employees in construction, the agri-food industry, and IT will increase - more so in gross value, as a result of the fiscal changes that came into effect on November 1, 2023.

Employers in three industries – construction, agri-food industry, and IT – must increase their personnel expenses by up to 18% due to the new fiscal changes that came into effect on November 1, 2023, according to an analysis by the fiscal consulting, accounting, and auditing company Crowe Romania. The new measures are immediately applicable in these sectors which together employ over 800,000 workers, which is 16% of the total number of employees in Romania. Law no. 296/2023 fundamentally changes the way in which income is taxed in several key industries, and employers have to make difficult choices in the coming days, which will affect either their budgets and profitability or employee motivation. If in construction and the agri-food industry employers must fully assume the increase in costs, in IT employers can opt to transfer the new tax into the employees' "pockets".

Who is affected? The fiscal reform brings significant changes to the labor market in three sectors of activity:

  • Construction: In the construction sector, where approximately 450,000 employees work, the degree of application of some fiscal facilities introduced in 2019 through a special regime meant to increase the attractiveness of candidates in a field strongly affected by external migration is reduced. Thus, from November 1, 2023, employers in this sector will pay health (CASS) and pension (CAS) contributions for special or special working conditions, contributions from which they were exempted since the beginning of 2019. Construction employees remain with the facility of not paying income tax, but those with salaries over 10,000 lei gross per month are excepted, as the part of the gross monthly income that exceeds 10,000 lei does not benefit from fiscal facilities. In addition to these measures, another change is set to add pressure on the salary budgets of construction companies: the increase in the minimum gross salary from November 2023 from 4,000 to 4,582 lei monthly, so that employees classified on this salary will receive the same net salary after the reduction of fiscal facilities.
  • Agri-food industry: The facilities for employees in the agri-food industry, introduced in May 2022, have undergone progressive reductions, starting with the same year, similar to those in the construction industry. In these sectors, over 250,000 employees are active, according to the National Institute of Statistics. From November 1, employers in this sector will pay CASS and CAS for activities carried out under special conditions, special. Also, employees in this sector remain with the facility of not paying income tax if they have incomes of up to 10,000 lei gross per month, and those who exceed this value will pay income tax for the part of the gross monthly income that exceeds 10,000 lei. Also, the minimum wage in this sector will increase from 3,000 lei to 3,436 lei gross starting with the incomes for November 2023, so that employees classified on this salary will continue to receive the same net salary after the reduction of fiscal facilities.
  • IT sector: Programmers, exempt from paying income tax since 2004, will have to pay, from November 1, 2023, 10% income tax for the part of the gross income that exceeds the value of 10,000 lei gross per month. About 100,000 employees in this sector have benefited from the income tax exemption, and the average gross salary in the IT&C sector was about 14,500 lei gross per month in August 2023, according to data from the National Institute of Statistics. The new limitation is partially compensated by the exemption from the contribution to the second pension pillar, with the possibility for employees to opt in writing to continue contributing to this pillar. In particular, employees with experience in this field, who earn above the average gross salary in the industry, and those who will want to continue contributing to this pillar will be affected.

Employees from all sectors of activity will feel the impact of applying the health contribution for meal tickets and holiday vouchers, as well as other fiscal adjustments, which will influence purchasing power and general well-being. Freelancers have not escaped the new changes: the fiscal burden of authorized individuals is approaching that of employees through the new ceiling introduced for the social health insurance contribution.

Law no. 296/2023 is a turning point for Romania's economy, with still uncertain effects on economic growth and long-term stability. By restricting fiscal facilities in vital industries, the law will have a considerable impact on the labor market, the ability to attract investments, and regional economic dynamics.

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Crowe Romania is a member of Crowe, a global network of consulting, auditing, and accounting, developed to support companies that undertake cross-border commitments. Rated in the top 10 specialty networks worldwide, with over 33,000 professionals grouped in 750 offices, Crowe offers detailed and transparent expertise in over 130 countries around the world. Crowe Romania occupies the 7th position at the national level in the top consulting, accounting, and auditing firms, having a regional presence in Bucharest, Cluj-Napoca, and Timisoara.

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