Employee salary
Social insurance and healthcare contributions
Personal income tax
Directors' fees
The standard cost of employment, based on the Albanian legal framework, comprises the employee's salary, social security and healthcare contributions and personal income tax. This update outlines the formal and practical requirements with regard to payroll calculations and declarations that each employer should take into account (special provisions may apply with regard to specific activities).
Employee salary
Employers operating in Albania should consider several provisions and calculation criteria when declaring employee salaries. Under the Labour Code, the Council of Ministers establishes the minimum salary at national level - this is the lowest base salary under which no employer can remunerate employees who work at least 174 hours per month. This is currently is set at Lek20,000 and is periodically amended by decision of the Council of Ministers.
In addition, Council of Ministers Decision 285/2007 sets out a range of reference salaries to be used by taxpayers as the base gross salary for calculating social insurance and healthcare contributions, as well as personal income tax. These salaries differ based on the industry sector and location in which the employer operates, as well as the position of employees in the company.
Social insurance and healthcare contributions
Based on the Social Security Law (7703/1993, as amended) and the Healthcare Insurance law (7870/1994, as amended), employers are obliged to include all employees in the compulsory social Insurance and healthcare contributions scheme.
Under the Law on the Collection of Compulsory Social Insurance and Health Contributions (9136/2003), the employer must declare its employees through relevant approved forms. Contributions are paid by both employer and employee at the respective rates set by law.
The current rates for full coverage of full-time employees are outlined in the table below.
| Contributor | Social Security | Healthcare | Total |
| Employer | 15% | 1.7% | 16.7% |
| Employee | 9.5% | 1.7% | 11.2% |
| Total | 24.5% | 3.4% | 27.9% |
Contributions are calculated on the monthly gross salary of the employee declared in the payroll by the employer (excluding remuneration that is not of a permanent nature, such as overtime and bonuses). Based on Council of Ministers Decision 285/2007, the tax authorities have the authority to revalue the salary declared by the employer, in relation to one or more employees, if that salary is lower than the reference level, and to revalue and claim the additional scheme contributions, together with applicable fines and late payment interest.
If an employee's monthly gross salary is higher or lower than certain thresholds, the above rates are calculated on the basis of those threshold limits. The lower threshold is currently set at Lek17,540 and the upper threshold at Lek87,700.
The lowest salary on which employers and employees pay contributions is higher then the minimum salary at national level, as outlined above.
Personal income tax
An employee's salary is also subject to personal income tax, under the Income Tax Law (8438/1998, as amended). Personal income tax is calculated on the employee's monthly gross salary, as declared in the payroll by the employer and including any additional remuneration that is not of a permanent nature (eg, overtime, bonuses). The current personal income tax rates are outlined in the following table.
| Monthly employment income | % |
| Up to Lek10,000 | 0% |
| Lek10,001 to Lek30,000 | 10% of the amount over Lek10,000 |
| Over Lek30,000 | 10% of the full amount |
Under Council of Ministers Decision 285/2007, the tax authorities may correct the salary declared by the employer for personal income tax purposes, in relation to one or more employees, if this salary (excluding remuneration of a non-permanent nature) is lower than the reference level, and revalue and claim the additional personal income tax, together with applicable fines and late payment interest.
Directors' fees
Under Article 5 of the Labour Code, the provisions on employment relations do not apply to activities which are exclusively restricted to the exercise of duties as an adviser or member of the managing body of a legal entity.
Thus, company directors who are not involved in the day-to-day management of the company should not necessarily be treated as employees (unless a written employment agreement is in place), and may be remunerated through service agreements.
However, according to Ministry of Finance Instruction 26/2009 and Council of Ministers Decision 1114/2008, as amended, company directors and other persons exercising directive functions should be regarded as employees of the entity, and should thus be subject to enrolment in the compulsory social insurance and healthcare and personal income tax schemes, as outlined above.
Therefore, based on established practice, companies might be penalised if directors are remunerated through services agreements, as envisaged in the Labour Code. Moreover, this practice does not take into consideration those cases where foreign directors of Albanian subsidiaries, already employed by the foreign parent company, are not remunerated at all in Albania, since the management of foreign subsidiaries is already part of the job description in their employment agreement with the foreign parent and they might not be physically present in Albania when carrying out these duties.
In such cases, as a practical solution, directors may choose to relinquish their net salaries in Albania, while the Albanian subsidiaries declare and pay social insurance and healthcare contributions and personal income tax schemes in relation to them.
For further information on this topic please contact Brunila Leskaj at Hoxha Memi & Hoxha by telephone (+355 4 227 4558), fax (+355 4 224 4047) or email ([email protected]).