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Country Spotlight

What You Need to Know About Payroll in Sweden

Horizontal GPR Feb_19_CountrySpotSweden

By Kristine Willson, CPP

Charts_Feb2019GPR_CountrySpotSweden is a Scandinavian country that lies between Finland and Norway in Northern Europe. It borders the Baltic Sea, Gulf of Bothnia, Kattegat, and Skagerrak. It is comprised of thousands of coastal islands, interior lakes, forests, and mountains. The capital of Sweden is Stockholm, which is built on 14 islands. Sweden’s population was 10.12 million in 2018.

Culturally, Swedes are known to be humble and find boasting unacceptable. They speak softly and calmly, rarely showing any anger or any strong emotion in public. They are also very family-oriented.

 

Labor Standard Act or Employment Act

The main laws governing the employment relationship in Sweden are:

  • Employment Protection Act (1982/80)
  • Employment (Co-determination in the Workplace) Act (1976/580)
  • Work Environment Act (1977/1160)
  • Discrimination Act (2008/567)
  • Annual Leave Act (1977/480)
  • Working Hours Act (1982/673)
  • Parental Leave Act (1995/584)
  • Trade Union Representatives (Status at the Workplace) Act (1974/358)

In addition to the laws listed above, employers must also be aware of collective bargaining agreements, if any, since such provisions may take precedence over those set forth in statutory law.

The Employment Protection Act (Lag om Anstallningsskydd) is geared for both public and private sector employees. There is an exclusion for employees whose duties may be deemed managerial; employees who are members of the employer’s family; employees who work in the employer’s house; employees with special employment support, in sheltered employment, or with wage subsidies for development in employment; and employees who are employed in upper secondary apprentice employment.

Working days and hours are regulated by the Working Hours Act, with collective and tie-in agreements.

Minimum wage–While there are no government-mandated minimum wage rates in Sweden, annual collective bargaining contracts between unions and employers set a minimum wage rate annually. These agreements set the minimum level depending on an employee’s age and experience. According to Check in Price website, the average 2017 salary in Stockholm was around 22,000 SEK (after taxes). This is equivalent to $2,585 USD per month or $31,020 USD per year, based on the current exchange rate.

Working hours–Monday is considered the first day of the week unless another arrangement is in place with the employer. Regular working time may not exceed 40 hours per week, unless where necessary regarding the nature of the business, in which case the working time may amount to an average of 40 hours per week for a period of at most four weeks.

A five-day workweek is normal in Sweden, with 40 hours being the average total hours worked each week.

Overtime pay–Where there is a special need to increase the number of hours worked, overtime may be worked up to a maximum of 48 hours per employee over a period of four weeks, or 50 hours of overtime within a calendar month. Overtime is usually paid at a rate of 50% to 100% more than the normal wage and compensatory rest periods or other rest periods that are scheduled during the employee’s regular working time

Employment contracts–An employment contract must be in place within one month after the employee has started work. It needs to include, in writing, the conditions that apply to the position and apply for an indefinite term. Under certain circumstances, the employment contract can be for a fixed term; for example, if the employment is for temporary substitute employment, seasonal employment, or when the employee reaches age 67.

The contract must contain:

  1. Name(s) and address(es) of the employer and employee
  2. Start date of the employment
  3. Whether it is for a fixed or indefinite term or whether it is probationary
  4. Starting rate of pay, other employment benefits, and the intervals at which the pay is to be paid
  5. Length of the employee’s paid annual leave
  6. Length of the employee’s normal working day or working week
  7. Collective bargaining agreement, applicable where relevant

The Swedish labor market is characterized by the extensive protection afforded to employees’ rights. Employers cannot terminate employment without objective grounds for doing so. In return for such protection—and without the need to be explicitly stated in the employment contract—employers can expect their employees to act in the interest of the company, such as by observing a far-reaching loyalty duty in the course of their work.

National Holidays for 2019

There are approximately 13 national holidays in Sweden (see Table 1).

Charts_Feb2019GPR_CountrySpot2

Income Tax Filing

Employers are obliged to report and pay employer taxes and deducted taxes to the Swedish Tax Agency (Skatteverket). This is reported in an employer’s declaration, known as a tax form. Starting in January 2019, new rules apply for the employer’s declaration. The change means that an employer should report the payments and tax deductions made per employee per month. This is called an employer’s declaration at the individual level.

Almost all of Sweden is digital, which includes tax filing. Skatteverket provides e-services for both the employer and employee to report and pay taxes online.

Income Taxes

The Swedish word for tax is skatt, which means treasure.

Swedish residents are subject to tax on their worldwide income and capital gains. Taxable income includes all remuneration received from employers, whether in cash or in kind, such as free food, free accommodation, company cars, etc. Pensions, unemployment benefits, etc., are also included in the taxable income.

A deduction is allowed for certain costs from the income, e.g., travel costs between work and home up to a maximum amount set annually. A foreign national will be liable for tax if he or she is regarded as a resident in Sweden. A resident is someone who has an essential connection to Sweden, is present in Sweden for a period of more than 183 days, or has a principal home in Sweden during the tax year.

The tax deduction is a preliminary income tax that employers pay to the tax agency for their employees.

Employers usually report and pay employer fees (employer’s contribution) and tax deductions no later than the 12th of the month after payroll.

There is no specific fringe benefits tax.

 

Income Tax Rates

The personal income tax rate in Sweden stands at 61.85%. Personal income tax rate in Sweden averaged 56.78% from 1995 until 2018, reaching an all-time high of 61.85% in 2017 and a record low of 51.50% in 2000. Individuals pay both national income tax and municipal income tax.

In 2019, taxable income of less than SEK 468,700 is subject to municipal income tax only. The municipal income tax is imposed at a flat rate that varies from region to region (32.12% is average, 29.98% in Stockholm). In addition, a church rate of about 1% has to be withheld; for an individual who is not a member of a church the rate is lower. For taxable income exceeding SEK 468,700, there is also a national income tax calculated at a rate of 20% on income up to SEK 675,700.

Charts_Feb2019GPR_CountrySpot3On taxable income exceeding SEK 675,700, the rate is 25%. Taxable income is reduced by a tax allowance of between SEK 13,400 and SEK 35,100 depending on the income. Individuals over 65 years of age are entitled to a higher tax allowance. Since 2007, there is also a general tax education linked to income from active work (see Table 2).

Non-residents are subject to tax only on income from sources in Sweden. Employment income is taxed at a flat rate of 25%.

Social Insurance Programs

The Ministry of Health and Social Affairs within the Ministry in the Government Offices is responsible for issues concerning the welfare of society. Social insurance is administered by the Swedish Social Insurance Agency (Forsakringskassan) and the Swedish Pensions Agency (Pensionsmyndigheten).

Charts_Feb2019GPR_CountrySpot4The social security rate is 38.42%, with a 31.42% rate for the company portion and 7% for the employee (see Table 3).

Time Off

Paternity leave—Swedish parents are offered 480 days of paid parental leave, and each parent has an exclusive right to 90 of those days.

Annual leave (vacation)—Swedish workers have at least 25 days (five weeks) of annual holiday (vacation) to use. Most take time off during the month of July.

Maternity leave/child care—Sweden offers 480 days of subsidized leave per child, which parents can share, with 390 of those days paid at about 80% of their salary—paid by the taxpayer. At least three months of that leave is allocated to each parent on a “use it or lose it” basis, and parents have until the child turns 8 years old before the leave hours are “lost.”

 

Work Environment

The Swedish Agency for Work Environment Expertise (SAWEE) is mandated by the government to serve as the national work environment knowledge center.

SAWEE will gather and disseminate knowledge about safety and health at work. It also monitors and analyzes developments in occupational safety and health along with central government occupational safety and health initiatives.

SAWEE is involved in the development of occupational health services and workplace safety and health in the EU and internationally.

 

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KristineWillson
Kristine Willson, CPP, is a Consultant with kww Consulting. She received the American Payroll Association’s Meritorious Service Award in 2007 and its Special Recognition Award in 2010.