Income or salary represents the fundamental motivation for every employee. It is the most crucial right of every worker who has an established employment relationship with the employer.
Income is paid in cash, i.e., through financial compensation for work in the company. In addition to income, employees can also accrue various other rights from the employment relationship, such as paid leave, unpaid leave, including payments that can be made to employees.
Below are more details on this topic – what income consists of, when and how it is paid, whether certain costs are treated as income, and what falls under net and gross income.
1. What is Earning Concept?
In a company, every employee receives a corresponding income (salary) for their work. The amount must be specified in the employment contract, as the level or amount of earnings is a fundamental and mandatory element of every employment contract.
The amount of earnings is determined in accordance with the law, the employer’s general regulations, and the employment contract. The law ensures that it must be equal for the same work or work of equal value that employees perform while working for the employer. The concept of “work of equal value” refers to work that requires the same level of professional qualifications (education), knowledge, and abilities, where an equal contribution is made with equal responsibility.
2. What Does Income Consist of?
The term “income” most commonly refers to gross income. More details about what constitutes gross income will be discussed in the text, specifically in the net and gross income section.
According to the law, income consists of several components representing the gross amount. Therefore, we can state that income in gross amount consists of:
- Earnings for work performed and time spent working,
- Earnings based on the employee’s contribution to the employer’s business success (awards, bonuses, etc.),
- Other income based on the employment relationship.
The earnings for work performed and time spent on work consist of:
- Base salary;
- Performance-based part of the salary;
- Increased earnings.
# The base salary is determined based on the time the employee spends at work and the conditions necessary for performing tasks in the engaged position. The company the employee works for may change the amount of the base salary, i.e., it can set a higher amount than the one determined by the elements in the employment contract.
# Performance at work is determined based on the quality and quantity of the performed tasks, as well as the employee’s commitment to work responsibilities.
# When it comes to increasing earnings, it can be increased based on the following:
- For working on a holiday that is a non-working day – at least 110% of the base salary;
- For night shifts, at least 26% of the base salary;
- For overtime work – at least 26% of the base salary;
- For seniority – based on the time spent working for each full year of service with the employer, at least 0.4% of the base salary.
By the employer’s general act or employment contract, the company has the right to determine other criteria or conditions based on which workers’ salaries can be increased.
3. Elements of Employment Contract
Employment contracts, as one of the forms of work engagement in Serbia, must mandatorily include the employee’s salary. In addition, it must encompass all obligatory elements, including those related to earnings. All the elements that the employment contract includes are:
- The employer’s name and headquarters;
- The personal name of the employee, place of residence, or domicile of the employee;
- The type and level of professional qualifications or education of the employee;
- The name and description of the tasks the employee is expected to perform;
- The place of work;
- The type of employment relationship (indefinite or definite duration);
- The duration of the fixed-term employment contract and the basis for establishing the employment relationship for a specific period;
- The start date of work;
- Working hours (full-time, part-time, or reduced);
- The monetary amount of the basic salary on the day of contract conclusion;
- Elements for determining the basic salary, work performance, salary compensation, increased salary, and other income of the employee;
- Deadlines for the payment of salary and other income to which the employee is entitled;
- The duration of daily and weekly working hours.
If a collective agreement has been concluded between the employer and the employees and contains mandatory elements regarding earnings, or if required earnings are determined by the company’s rules or another company document, the employment contract does not have to include them. These include:
- The monetary amount of the basic salary;
- Elements for determining the basic wage, work performance, salary compensation, increased pay, and other benefits;
- Deadlines for the payment of wages and other benefits.
In this case, the employer is obliged to specify in the employment contract the legal act that contains these elements, as well as the act that defines the rights and obligations of the employees. However, suppose it does not exist or does not establish the rights and obligations of the employee and the elements required by law, the company must include all of this in the contract when establishing an employment relationship with the employee.
4. Non-salary Income Categories
Certain payments made to employees are not considered salary by the Labor Law. These include:
- Employee participation in profits realized during the business year, if stipulated by contract or employer’s act (Article 14);
- Use of work tools and reimbursement of expenses for their use (Article 42, paragraph 3, point 4);
- Compensation for other work-related expenses and the method of determining them (Article 42, paragraph 3, point 5);
- Reimbursement of employee expenses (Article 118, points 1-4);
- Other income (Article 119);
- Jubilee awards and solidarity assistance (Article 120, point 1);
- Severance pay before termination of the employment contract (Article 158).
4.1. Employee Expense Reimbursement
An employer may pay an employee a reimbursement for certain expenses, but it should be emphasized that only specific expenses do not have the treatment of income (they are not considered part of the income). These include:
- Compensation for commuting to and from work (equivalent to the cost of a public transportation ticket).
- Reimbursement for time spent on a business trip within the country (per diems, accommodation costs, transportation costs, reimbursement for the use of a personal car for official purposes).
- Reimbursement for time spent on a business trip abroad (per diems, accommodation and transportation costs, reimbursement for the use of a personal vehicle for official purposes).
- Reimbursement for accommodation and meals for work and stay in the field.
Other expense reimbursements are considered income and include:
- Compensation for meals during work – hot meal.
- Reimbursement for vacation pay during annual leave.
4.2. Other Employee Benefits
Employees are entitled to additional benefits that do not fall under salary treatment. Some employers are obligated to provide these, while others may choose to do so.
- Other benefits that the company is required to provide to employees include:
- Retirement severance pay;
- Compensation for funeral expenses in the event of the death of a close family member (or for the family members in case of the employee’s death);
- Compensation for damages due to a work-related injury or occupational illness.
Through the employment contract or company regulations, the company has the autonomy to determine disbursements of other benefits, such as:
- Christmas and New Year gifts for the children of employees up to the non-taxable amount;
- Bonus for voluntary additional pension insurance;
- Group accident insurance;
- Group insurance for serious illnesses and surgical interventions;
- Jubilee awards and solidarity assistance.
5. Other Earnings of Employees Classified as Income
In addition to the appropriate salary paid to the employee for their work, income includes all earnings derived from the employment relationship, i.e., all payments with the character of income:
- Salary compensation for time off work, in accordance with the law, such as annual leave;
- Compensation for meals during work hours – warm meal;
- Holiday pay;
- Increased salary;
- Compensation for public transportation exceeding the cost of a transportation ticket;
- Field allowance (daily allowance for increased work expenses in the field);
- Other cases where the employer determines the employee’s right to increased income (special working conditions, work on Sundays, work in the second shift, and similar);
- Compensation for using a company car for employees’ private needs;
- Other payments with the character of income (allowance and compensation for separate living, gifts in goods or money for March 8th and other holidays, incentive severance pay in case of mutual termination of the employment relationship, all other earnings not exempt from income);
- Payments to employees for gifts to children for Christmas and New Year above the non-taxable amount.
6. Legal Deadline for Salary Payment
Salaries must be paid monthly. The payment method and the deadline for the employer to make the payment can be determined independently through its legal act or in the employment contract. However, the legal deadline for payment is no later than the end of the current month for the previous month (the last working day). In addition to the salary, by this deadline, the employer is obliged to calculate and pay social contributions, both at the expense of the employee and the employer.
To ensure accurate calculations and records, the company must keep monthly records of earnings and salary compensation for each employee.
7. Net and Gross Earnings
Employers are legally obligated to pay employees their wages in gross every month. We have written in detail about these concepts – the difference between net and gross earnings- but we will briefly explain them.
The total amount of earnings includes the net amount of earnings, income tax, and contributions from earnings (contributions paid by the employee, based on the base). By the end of the month, the company must calculate and pay net tax, contributions from earnings (borne by the employee), and social contributions paid on the basis (borne by the employer) for each worker.
The gross amount represents the sum of net earnings and social contributions. However, to better understand the concept of gross earnings, it should be noted that there are gross 1 and gross 2:
- Net earnings – the employee’s income, i.e., the amount of compensation without taxes and contributions.
- The concept “gross 1” – net earnings on which taxes and contributions are paid by the employee (taxes and contributions from the employee’s earnings).
- Concept “gross 2” – gross 1 and social contributions paid by the employer (taxes and contributions paid on the employee’s earnings).
8. Minimum wage
The minimum wage (commonly referred to as “minimalac”) is the lowest amount of earnings paid to an employee for the time spent at work and the work performed. It is determined based on the minimum established hourly wage, the time spent working, as well as taxes and contributions paid from the earnings. The minimum wage, used to calculate earnings, is applicable for each individual month for which payment is made.
HLB T&M Consulting Belgrade, an agency for accounting services, offers not only accounting and bookkeeping services, inventory and material accounting but also provides personnel services, including payroll services. Our team of specialized experts is well-versed in all legislative changes and updates. Feel free to contact us for any additional information.
