Albania lies on Southeastern Europe’s Balkan Peninsula. The Adriatic Sea lines its western border, and Greece, Macedonia, and Kosovo border the east. Albania is a developing democratic country with historic roots in the Ottoman Empire, Nazi Germany, and communism.
After the collapse of communism in 1991, Albania transitioned from a socialist republic to a democratic republic.
Albania is currently a candidate for membership in the European Union (EU) and is a member of the United Nations, NATO, World Bank, and other international organizations.
Social and Health Insurances
The central institution for social insurance is the Institute of Social Insurance, which operates according to Law No. 7703, 11/05/1993.
The contribution rates that employers and employees pay for social and health insurance are as follows in Table 1.
Table 1—Social and Health Insurance Contribution Rates
The employer withholds social and health insurance contributions due from employees from their gross monthly income. The employer is liable to pay the total amount of social and health insurance by the 20th of the next month. The relevant tax declarations are submitted to the General Directorate of Taxation using its website.
Self-employed individuals in the private sector are liable to pay 23% of the minimum base salary as determined every year by the decision of the Council of Ministers for social insurance and 3.4% for health insurance at double the minimum base salary.
Monthly payroll slips are required for public and private institutions.
Personal Income Tax
Companies are liable to pay the personal income tax (deducted from the gross salary of the employee and paid on behalf of the employee), based on the base gross salary of the employee (see Table 2).
Table 2—Personal Income Tax Rates
The employment contract must be in accordance with the Employment Contract Template of the Labour Code, which includes clauses such as:
- Identity of the parties.
- Employment duration period—defined or undefined, start date, and workplace.
- Working hours per week and wage information. In accordance with the Albanian Labour Code, the standard number of working hours per week is 40. Additional working hours per week are compensated as overtime.
- Annual holidays.
- The rights and liabilities of both parties.
The two types of employment are:
- Full-time employment
- Part-time employment
The employment contract is concluded in accordance with the Labour Code and includes any particular requirements from the employer and employee. It also includes any additional specifications arising from internal requirements, but they must always be in accordance with the local regulations.
Documents to be submitted upon employment:
- Employment contract
- Certification confirming that the employer is willing to pay social and health insurance and tax returns on behalf of the employee. The employer submits the certification to the Regional Tax Directorate.
Periodic obligations include:
Protection of Employment
- Monthly net salary
- Monthly payment of social and health insurance and tax returns
Obligatory payments of the employer and the Social Insurance Fund occur in the following cases:
Holidays: Annual leave duration is determined in the employment agreement, but cannot be less than 28 calendar days for each year of service in the company. If the period of service is less than one year, the paid leave days are in proportion with the period of service—i.e., if the employee has been in service up to nine months, the paid leave days will be 9/12 x 28 = 21 days. The employer should give the annual leave within the working year or up to the end of the first quarter of the following year, but the annual leave cannot be less than seven consecutive calendar days. The employer determines the date of annual leave commencement by taking into consideration the employee’s wishes.
Official holidays are paid as well—a chart of the official (national) holidays is often published at www.bankofalbania.org and a listing of this year’s national holidays is in Table 3.
Table 3--2018 Official Bank Holidays Schedule
Illness: The employee has the right to sick leave for the whole period of sickness until the doctor confirms they are able to return to their working duties or until the Commission of Medical Doctors declares permanent lack of ability for work.
During sick leave, the employer pays the employee at least 80% of their salary for the first 14 days of illness. From the 15th day onward, the Regional Social Insurance Directorate compensates the employee for 70% of their average salary for the past six months if the employee is insured for up to 10 years, and 80% of their average salary for the past six months if the employee is insured for more than 10 years. The period of temporary disability for work benefit begins on the 15th day of the medical report and can last no more than six months.
Illness of dependent child: The employee has the right to 15 days of paid leave per year in the case of illness of their minor child who is younger than age 3, and 12 days of paid leave per year if the child is age 3 or older. Also, the employee has the right to take 30 additional unpaid days off per year.
Maternity: Women are entitled to maternity leave for 12 consecutive months, including a minimum period of 35 days before childbirth and 63 days after childbirth. Women who carry more than one child are entitled to maternity leave for 390 days, including a minimum period of 35 days before childbirth and 63 days after childbirth. The employee may start to work at her request before the expiration of her maternity leave, but not before 63 days after the childbirth.
During maternity leave, employees are entitled to salary compensation from the Regional Social Insurance Directorate. For the first six months the employee will be compensated with 80% of the average monthly salary of the previous year, and for the following six months with 50% of the average monthly salary of the previous year.
The employee has the right to salary compensation for maternity leave only if she was insured by the Regional Social Insurance Directorate for 12 months prior to the pregnancy and during the pregnancy period.
Payroll Calculation Procedure
Full working days, no bonuses, and no overtime: Net salary is payable to the employee monthly. The total days worked are calculated on the payroll list, as is the base gross salary. Deductions are then made according to the legislation in force and the net salary is derived.
Bonuses and overtime: Overtime is hours of work exceeding 40 hours per week and is compensated with at least 25% more than for regular working hours.
Bonuses are considered one-time income for the employee and thus are not included in the gross salary for contribution purposes. They are included in the gross salary only for the calculation of personal income tax.
At the end of each month, the employer is obliged to transfer the net salary to the employee’s bank account.
Termination of Employment
If the employment period ends according to the agreement, there are no obligations for either party.
If the employment period ends before the contractual date, the employer is obligated to pay to the employee the full amount of salary up to the expiration date of the contract. When the employee resigns before the contractual expiration date, they are liable for penalties for the remaining period, as determined by the contract.
Drilona Likaj is a Tax Accountant at Eurofast Global offices in Tirana. Likaj specialized in employment and payroll solutions, accounting, and domestic tax. She advises on accounting and tax matters and prepares financial reports according to client compliance requirements. Likaj has extensive experience in the banking industry. She graduated from the State University of Tirana, Faculty of Economy, holds a BSc in Finance, and is fluent in Albanian, English, and Italian.