What an employee really costs the employer in Croatia
An employee with net pay of EUR 1,370 costs the employer at least EUR 2,330 a month, and considerably more per hour of actual work than the payslip suggests.
When a salary is agreed, the conversation is about the net amount. When cost is planned, people look at gross. When the price of an hour of work is calculated for a quote or a product costing, neither number is enough. Between what the employee receives in their account and what the employer really pays for an hour of work done, there are several layers.
Three amounts that are often confused
- Net pay is the amount the employee receives in their account.
- Gross pay is the amount in the employment contract. Pension contributions and income tax are paid out of it, and the rest is net.
- Total payroll cost is gross plus the health insurance contribution, which the employer pays. In Croatian practice it is also called “bruto 2”.
A worked example
Take gross pay of EUR 2,000, an employee in Zagreb with no children or dependants, at the rates used by our salary calculator.
| EUR | |
|---|---|
| Gross pay | 2,000.00 |
| Pension insurance, pillar I (15%) | −300.00 |
| Pension insurance, pillar II (5%) | −100.00 |
| Income | 1,600.00 |
| Personal allowance | −600.00 |
| Tax base | 1,000.00 |
| Income tax (23%) | −230.00 |
| Net pay | 1,370.00 |
| Health insurance paid by the employer (16.5%) | +330.00 |
| Total payroll cost | 2,330.00 |
So the employer pays EUR 2,330 for the employee to receive EUR 1,370. For every euro of net pay there are about 70 cents of contributions and tax.
The tax rate depends on the municipality or city, and the personal allowance rises with the number of children and dependants, so for the same gross pay, net differs from one employee to another. For lower salaries there is also a relief on the pillar I contribution. The calculator gives the exact amount for a specific case.
Costs that are not on the payslip
Total payroll cost is not the total cost of an employee. On top of it come:
- Non-taxable allowances and payments: transport, meals, occasional bonuses, holiday and Christmas payments. They are not mandatory in every case, but most employers pay them because they are more favourable than raising gross pay.
- Sick leave. Salary compensation for the initial period of sick leave is borne by the employer.
- Equipment and workplace: computer, tools, protective equipment, licences, office or production space.
- Mandatory costs: occupational safety, medical examinations, training.
- Hiring and onboarding. The advert, the interviews, and then the weeks or months in which a new employee is not yet working at full output while colleagues give them their time.
- Payroll and administration, working time records and HR documentation.
How much this comes to depends on the business. In office work it is usually a few per cent of total payroll cost; in manufacturing with a lot of equipment and training, considerably more.
What an hour of actual work costs
A product costing or an hourly quote needs the cost of an hour, and this is where mistakes are most common.
A year has 52 weeks of 40 hours, so 2,080 paid hours. The employee does not work all of them:
| Hours | |
|---|---|
| Paid hours per year | 2,080 |
| Annual leave (20 days) | −160 |
| Public holidays falling on working days (about 10) | −80 |
| Sick leave (5 days) | −40 |
| Hours at work | 1,800 |
Annual payroll cost in the example is 2,330 × 12 = EUR 27,960.
- Divided by paid hours and looking only at gross: 24,000 / 2,080 = EUR 11.54 per hour. This is the number most often used.
- Divided by hours at work and using total payroll cost: 27,960 / 1,800 = EUR 15.53 per hour.
The difference is 35%, and that is before allowances, equipment and the time at work that goes on meetings, waiting for material or setup. A company that prepares quotes and costings with the first number systematically understates labour cost.
What the number is for
- Hourly rates in quotes. A service charged by the hour has to cover the real cost of the hour, overheads and margin.
- Product costing. Labour in product cost is calculated from the real cost of an hour. See the article on bills of materials and work orders.
- A hiring decision. The question is not whether the company can pay the net salary, but whether the new position brings in more than EUR 28,000 a year.
- Comparison with an external service. A contractor’s hourly rate looks high until it is compared with the full cost of your own employee.
- Plan and budget. A raise of EUR 100 net is not a cost of EUR 100.
What to check before deciding
The figures in this article are an example for one case, under the rules our calculator uses for 2026. Tax rates differ by municipality and city, and the amounts of non-taxable payments and the rules on reliefs change. Before a decision that depends on the exact amount, check the regulations in force or take advice.
If you want to know what labour really costs you per product, department or project, that is the work of controlling. Get in touch and we will show you what that calculation would look like on your numbers.