Employment in Cyprus, Simple Guidance
Recruitment of Staff
In Cyprus each salaried person or self employed person must have a Personal Tax Identification Code (T.I.C) and a Personal Social Insurance Number (S.I.C). Consequently, the registration of personnel is made though the Social Insurance Office and the Income Tax Office, unfortunately, on a paper application.
The procedure is not complicated and it usually takes 10 working days for an employee to be registered with Social Insurance Office and the Income Tax Office. In the event that the Company / Sole Trader is not registered as an employer, it should also register as an employer first and then register the employees under its name.
Minimum wage
As per the Social Insurance guidelines, for full time office staff the Minimum Monthly Wage upon recruitment is €870, while the minimum monthly wage for employees, who have completed a six month period of employment at the same employer, is €924 (other rates apply for other professions).
Normal working hours are usually 38 to 40 hours based on normal practice and agreement with each employer.
It is important to note that the minimum wage for salaried and self employed persons varies depending on the profession and it is predetermined by the Social Insurance Office, where it can be obtained upon request.
Social Insurance cost
Whether a self employed person or an employer, you must immediately inform the Social Insurance as soon as you hire a new employee.
At present, Social insurance cost for the company is 11,5% on the gross salary of the employee, while the cost for the employee arises to 7,8% and any tax that need to be paid in case of taxable income over EURO19.500 which is the tax-free amount.
The employer pays the 19,3% (11,5% plus 7,8%) on the employee’s salary to the authorities and deducts the 7,8% from the employee’s salary.
National Health System (NHS)
Salaries
Salaries will be paid net of the NHS / GESY contributions in a similar manner the social insurance contributions are deducted. The Social Insurance office has amended its forms and on line portal for the GESY contributions so that both contributions are collected by the Social Insurance Office on a monthly basis.
The Maximum obligatory amount for the Social Insurance Contributions is Euro 54,648 and it is different from the Maximum obligatory GESY contributions of Euro 180,000.
More detailed analysis of the NHS contributions can be obtained from this article
Pay as you earn (PAYE)
In the cases where the employee’s taxable income (i.e. Gross salary less Social insurance paid) is over the threshold of EURO 19.500, then tax for the employee arises as per below table.
PAYE Brackets are as follows:
<19,500 - Tax Free
19,501 - 28,000 - 20%
28,001 - 36,300 - 25%
36,300 - 60,000 - 30%
> 60,000 - 35%
The employer is informed by its staff of all taxable income and personal circumstances which could lead to a different tax treatment by completing the form IR.59 at the beginning of each year. The employer collects these forms and calculates the appropriate PAYE deductions based on the information provided on these forms.
The amount of PAYE tax is calculated on the estimated income of the employee for the year at the begging of each year and is divided by 12 months. Bonuses and benefits in kind are also included as salaried income and taxed accordingly.
Note: Benefits in Kind and Bonuses are normally subject to Social Insurance Contributions, NHS and P.A.Y.E
The Year-End final payroll taxes (PAYE, NHS, SIC), should agree to the IR.63 and must be matched by the monthly deductions and contributions of these taxes. Any taxes due should be calculated at the year end and be settled via a year end payment / settlement / employee deduction.
Example
We have an employee earning a fixed salary + a year end bonus which is uncertain.
In this scenario, the accountants of the company must deduct PAYE equal to the monthly salary of the employee and at the year end, when the bonus is earned (and hence known to the accountants), deduct the additional PAYE (as well as the Social Insurance & NHS) in the month of December to accommodate the increased taxable income.
Reconciliation Exercise
By adding the the total taxable income including the bonus and benefits in kind for the entire year and proceed with the PAYE, SIC, NHS calculations you must agree to the monthly tax deductions for the year (including the Bonus and Benefit in Kind Decembers).
Contracts of Employment & Termination of Employment
For all the employees, long term or short term contracts need to be signed and all the terms and conditions to be agreed between them and their employer. The contracts must include, amongst other, the position, salary, days of holiday and sick leave and termination conditions.
In respect to termination of the employment the following apply based of the length of employment:
- Employee Terminates Employment:
Length of employment Minimum term of notice
From 26 up to 51 weeks (6 months – 1 year) --> 1 week
From 52 up to 259 weeks (1 year– 5 years) --> 2 weeks
From 260 weeks and over (5 years +) --> 3 weeks
- Employer Terminates Employment:
Length of employment Minimum term of notice
Up to 26 weeks (6 months) No notice required
From 26 up to 51 weeks (6 months – 1 year) --> 1 week
From 52 up to 103 weeks (1 year – 2 years) --> 2 weeks
From 104 up to 155 weeks (2 years – 3 years) --> 4 weeks
From 156 up to 207 weeks (3 years – 4 years) --> 5 weeks
From 208 up to 259 weeks (4 years – 5 years) --> 6 weeks
From 260 up to 311 weeks (5 years – 6 years) --> 7 weeks
From 312 weeks and over (6 years +) --> 8 weeks
Other Employer Obligations
All employers must provide to their employees their monthly payslip which indicates the monthly gross salary and corresponding deductions and contributions arriving to the employees net salary.
In addition they must prepare and submit the Employer’s Tax Return (IR.7) to the tax authorities by the 31 of July of the following year. For instance for 2020 the IR.7 has to be submitted by 31.07.2021.
At the end of each year all employers must prepare and provide to their staff an official form (IR.63) stating the annually gross salary with all deductions and contributions for the year. This form will be thereon used by the employees to prepare their personal tax returns.
Usually this form is provided to the employees during March- April of the next year.
All forms, Payslips, IR.7 & IR.63 are completed by the accountant of the Company / Employer.
?Other Employee’s Obligations
All the employees register in the tax authorities need to complete and submit their personal tax return (IR.1) stating their income from employment and any other income.
The tax return shall be submitted electronically by the 31 of July the following year
i.e. for 2019 it will be the 31.07.2020.
In this form, a calculation of their tax is also included and any differences between the PAYE already paid and the actual tax need to be settled by 30 of June the following year
i.e. for 2019 it will be the 30.06.2020.
In the event tax paid is higher than the actual tax due then the excess amount will be refunded by the authorities once the tax return is examined.
CYAUSE Audit Services Ltd
In our capacity of being Accountants, Auditors & Tax Consultants, Payroll is a monthly routine task we perform for all of our clients staff and as a result we are well aware of all latest developments in the field. In addition, our direct communication with the Local Income Tax and Social Insurance Office ensures that any payroll related matters and assistance is granted quickly.
CYAUSE Audit Services is an Audit & Assurance firm with offices in Nicosia and Limassol. During 2015 we have been awarded by I.C.P.A.C and the A.C.C.A (local and international association of Chartered Certified Accountants) for the Quality of our Audit Services and our Office Procedures.
If you would like us to assist you applying for funding or any other related matter contact us at [email protected] or call us at +357 22 336 321.
Information about CYAUSE Audit Services and the Cyprus Corporate & Tax System can be obtained from our Website or our YouTube channel which provides valuable information about the Corporate & Tax Environment of Cyprus.