Croatia: Workers’ material rights not strictly defined in collective agreements
Croatian legislation does not regulate the amount of the employees’ salary, instead defining the rules that parties in the employment relationship should apply when determining the cost of labour of individual workers. However, in a large number of collective agreements, important provisions on workers’ pay rights are not strictly defined.
Number of collective agreements
In Croatia, there is no systematic record of collective agreements in force. According to expert Dragan Bagić, there are around 570 collective agreements, with the majority (around 80%–90%) at company level (Bagić, 2016) – although those signed at branch level account for the largest share of the bargaining coverage.
The number of currently applicable collective agreements is approximately 275 less than the figure at November 2009, when their number was estimated to be around 845 (Bagić, 2014). This reduction may be due to a number of factors and does not necessarily mean a reduction in bargaining coverage (the number of workers that are covered) or that there have been changes in the patterns of collective bargaining. It may, for example, be the result of economic processes such as restructuring and consolidation (merging and/or buying) in certain industry sectors (for example in tourism, trade and food processing) or the closure of companies.
Material rights not strictly defined
In a large number of collective agreements, important provisions on workers’ pay rights are not strictly defined. Probably the most important matter of collective bargaining – the basic wage – is not fully defined in around half of the valid collective agreements, leaving substantial space for an employer to unilaterally determine the wage level of workers, particularly in collective agreements signed at branch level. In contrast, wage supplements or monetary or pecuniary rights are more clearly defined (Bagić, 2014, 2016).
Although the calculation of salaries and wages is mandated in specific regulations, bonuses and other pecuniary rights (fringe benefits) can be negotiated in collective agreements. As a result, there are more than 350 different supplementary payments (such as for working conditions, for work in potentially hazardous circumstances and weekend work) added to wages (only applicable in the public sector) and the practice of contracting pecuniary rights in sums exceeding the allowable non-taxable amount is widespread (Bejaković, 2015).
Complicated procedure to calculate a salary
The lack of transparency in the payment of salaries leads to a situation where ‘not visible’ payroll supplements are not deemed (and paid) as wages, but appear under different headings. However, they are taxed as wages and liable to the payment of contributions to the state. In the public sector, in particular, there is a significant problem with the mandatory application of the most favourable right to the worker when calculating the due salary or wage. As a consequence, there are many legal disputes in the public sector, making it necessary for the courts to determine the amount of the most favourable pecuniary right that applies to the worker.
Thus, the administrative costs and the burden on employers deriving from the calculation and implementation of the wage and salary system are high (Ministry of Labour and Pension System, 2017). This extra cost applies to both public and private sectors, although it is more significant in the public sector. The employer often has to make several calculations in order to, for example, determine the correct amount when applying for salary compensation for a sick leave, the daily allowance for business trips, and other expenses. The employer then has to sequentially calculate the remuneration according to law, according to one or even two applicable collective agreements and/or to secondary legislation issued by the Ministry of Finance in order to determine the amount of the most favourable pecuniary right that applies to the worker.
Labour Act (OG 93/14) defines a salary as ‘the basic salary plus all additional contributions in money or in kind, which are paid by the employer, directly or indirectly, to employee for performed work’. The act does not enumerate precisely the items of the basic salary; this issue is regulated by a collective agreement or an individual employment agreement, and if such regulation is missing, the employer applies internal rules, usually negotiated with the workers’ representatives. Due to the extensive interpretation of widely set legal norms, incentives (such as bonuses) and supplements are regularly calculated as a part of the salary.
Supplementary payments and incentives do not represent the regular income of an employee. Instead, they are conditioned by variable business effects related to achieving specific, predefined, measurable goals and results. This practice of calculating supplementary payments to the basic salary as a part of the total salary has resulted in the payment of incentives being avoided: as supplements are already agreed in the collective agreements, there are no further reasons for the employer to pay more for better performance of work. Furthermore, it is a big disincentive for the employers as they are exposed to uncontrolled costs of an increased payment of salaries.
Proposal for improvement
There is a need to resolve the major issue of the lack of a hierarchical relationship between different sources of labour regulation. The legislation and related enforcement rules should be stable, clear and simple, and there is a need to define the most important provisions on workers’ material rights in collective agreements. All these factors are important in order to reduce excessive administrative costs relating to salaries, as well as to enable greater transparency and the rule of law in remuneration.
Bagić, D. (2014), Analysis of the impact of collective agreements on the wage system in the Republic of Croatia, Ministry of Labour and Pension System, Zagreb.
Bagić, D. (2016), ‘Obiljezja kolektivnog pregovaranja u Republici Hrvatskoj: usporedba javnog sektora I gospodarstva’, in Utjecaj kolektivnih ugovora na prava radnika u RH [The impact of collective agreements on workers’ right in the Republic of Croatia], (ed. Rožman, K.), Matica Sindikata, Zagreb, pp. 107–160.
Bejaković, P. (2015), Institutional determination of salaries in Croatia, Ministry of Labour and Pension System, Zagreb.
Ministry of Labour and Pension System (2017), Analiza neto fiskalnih učinaka povećanja plaća u javnom sektoru [The analysis of net fiscal consequences of increase of wages and salaries in the public sector], Ministry of Labour and Pension System, Zagreb.