Employer of Record (EOR) Sweden
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Mercans serves as the trusted Employer of Record (EOR) in Sweden, acting as the official employer for workers in the country. As a leading Global Professional Employer Organization (Global PEO), our comprehensive services encompass vital aspects of employment. This includes meticulous compliance with local labor laws, proficient management of payroll, handling taxes, provision of mandatory benefits, and crafting detailed employment agreements.
Our Employer of Record (EOR) services in Sweden ensures:
- Adherence to Employment Laws: As the designated Employer of Record in Sweden, Mercans guarantees strict compliance with the country’s employment laws.
- Efficient Payroll Management: Our dedicated team oversees the local payroll process, ensuring accuracy and timeliness.
- Tax Compliance: We take care of the filing of employment-related taxes and all necessary documentation, maintaining impeccable compliance standards.
- Detailed Payslip Provision: Mercans provides workers with comprehensive payslips, ensuring transparency and clarity in financial transactions.
- Timely Salary Payments: As your Employer of Record in Sweden, we ensure the prompt distribution of workers’ salary payments.
Choose Mercans as your Employer of Record in Sweden to streamline your global expansion. Our Global PEO services offer a hassle-free solution without the need for entity setup. We guarantee legal compliance, a physical presence, and Intellectual Property protection, allowing your business to focus on its core functions. Experience a smooth global mobility and work visa process while cultivating a diverse and efficient global workforce.
EOR Solutions in Sweden
Employment Contracts in Sweden
Within one month of an employee’s commencement of employment, a Swedish employer must provide written information about the applicable conditions. This requirement specifically pertains to EU citizens.
What should be included in an employment contract in Sweden? The employment contract serves as a personal agreement between you and your employer, with some aspects potentially influenced by a collective agreement. While not mandatory to be in writing, certain details must be provided in writing, including:
Key concepts related to employment contracts in Sweden
Working Hours
In Sweden, the standard work week typically spans 40 hours, with common work timings from 9 AM to 5 PM. The concept of a four-day workweek has gained traction as a progressive approach to enhance work-life balance and overall employee well-being.
Probation Period
In Sweden, it is customary for permanent appointments to begin with a probationary period, lasting a maximum of six months. This period allows employers to assess an employee’s fit within the company and their ability to fulfill job responsibilities.
Employees vs Independent Contractor Compliance
In Sweden, the classification of an individual as an employee or an independent contractor hinges on factors outlined by the Employment Protection Act, influencing tax treatment, and benefit entitlements. This comprehensive assessment considers aspects like work autonomy, equipment provision, directive adherence, and more.
| Criteria | Employee | Independent Contractor |
|---|---|---|
| Nature of Work | Performs work individually, without hiring helpers. | Functions as an independent entity, possibly engaging assistants. |
| Equipment Provision | Company provides work equipment. | Responsible for own tools and equipment. |
| Directives and Instructions | Bound by specific directives from the company. | Enjoys greater independence in task execution. |
| Work Schedule Obligation | Obliged to work when the company requires. | More flexibility in determining work hours. |
| Remuneration Structure | Receives a guaranteed salary, at least partially. | Compensation may be project-based without a guaranteed salary. |
| Expense Compensation | Company compensates for direct expenses (e.g., business journeys). | Responsible for covering own business-related expenses. |
| Nature of Relationship | Long-lasting legal relationship. | Relationship may be project-specific or for a defined duration. |
| Exclusivity Clause | Restricted from performing similar work elsewhere. | Free to engage in similar work with other clients. |
| Social and Economic Equality | Comparable to an employee in social and economic aspects. | Functions with greater autonomy, both socially and economically. |
These distinctions have implications for tax treatment, with obligations for preliminary taxes and social security contributions. Employees enjoy benefit entitlements, while contractors are responsible for covering such benefits. Employee termination is subject to extensive protective legislation, whereas independent contractors lack termination protection, with rights based on contractual agreements.
It’s crucial to note that the distinction is not solely based on contractual titles but rather on the degree of independence from the hiring company. Deviations from these norms may incur legal consequences, emphasizing the importance of adherence to established norms and regulations in Sweden.
Payroll in Sweden
A foreign employer can hire employees in Sweden without a permanent establishment. Yet, if the work is performed in Sweden, the employer is usually required to pay taxes, register as an employer, and cover social security contributions for local hires. Alternatively, an agreement can be made for the employee to handle social security contributions. If an employee acts as a dependent representative, the foreign employer may be considered to have a permanent establishment, requiring registration in Sweden. Minimum salary isn’t legally mandated, but collective bargaining agreements often include such provisions.
Additionally, employees must receive a payslip on each pay date, and payroll records must be maintained for at least 7 years.
Minimum Wages
In Sweden, the average wage is currently 193 SEK per hour, equivalent to 2832.482 USD per month as of July 2023. This figure represents a decrease compared to previous months. The wage growth rate in June 2023 was 3.1%. Wages in the manufacturing sector are slightly higher, at 208 SEK per hour or 3052.623 USD per month.
Historically, the average wage has fluctuated, reaching 194 SEK per hour in June 2023 and 188 SEK per hour in November 2022. The maximum average wage was 194 SEK per hour, while the minimum was 134 SEK per hour.
It’s important to note that these figures are based on monthly data published by Statistics Sweden, and the historical chart provides insights into the wage trends over the past months. The data reflects the dynamics of wages in Sweden, indicating variations over time.
Payroll Cycle
In Sweden, payroll processing is typically carried out monthly, with a common practice of disbursing employee payments for the entire month on the 25th. Employees have the option to receive their salary in either the local currency, Swedish Krona (SEK), or in a foreign currency.
Mercans’ Payroll Capabilities in Sweden
Payroll management in Sweden demands meticulous attention and comprehensive solutions. Mercans’ employer of record services simplify the process, ensuring precision, compliance, and operational efficiency.
Mercans: Your Trusted Payroll Partner in Sweden: Mercans’ expertise in Employer Of Record services extends to multi-country payroll management, providing accurate and streamlined payroll operations across various locations.
Social Security and Income Tax in Sweden
In Sweden, employers are obligated to pay social security contributions on compensation for employees covered by the Swedish social security system. This includes considerations such as pension fees and consumption taxes. Here is an overview of the key financial aspects employers should be aware of:
Overview of Financial Obligations in Sweden
| Financial Aspect | Details |
|---|---|
| Social Security Contributions | Swedish employers or foreign employers with a Permanent Establishment (PE) in Sweden must pay contributions at 31.42% of total taxable remuneration (cash and in kind). Different rates apply based on the employer's status, and foreign employers without a PE can reach agreements with employees for payment. |
| Pension Fee | Employees pay a 7% pension fee on gross earned income up to SEK 599,250, with a maximum fee of SEK 41,948. This fee is typically fully tax creditable on the employee's tax return. |
| Consumption Taxes (VAT) | The general VAT rate is 25% on most goods and services, with reduced rates of 12% for specific items like food, restaurant meals, and non-alcoholic drinks, and 6% for passenger transport. Some financial and insurance services are VAT-exempt. |
| Net Wealth/Worth Taxes | The wealth tax was abolished in Sweden as of January 1, 2007. |
| Inheritance, Estate, and Gift Taxes | There are no inheritance, estate, or gift taxes in Sweden. |
| Property Fee | The property fee, paid annually by the registered owner, is a maximum of SEK 9,287 or 0.75% of the taxable value for houses and block of flats. This fee is not applicable to real estate situated abroad. |
| Special Wage Tax on Pension Premiums | Employers, including non-Swedish entities with a PE in Sweden, pay a 24.26% special wage tax on pension costs related to tax-qualified company pension plans. |
Employers and employees alike in Sweden actively participate in the country’s social security system. Notably, employers bear the majority of the contribution burden, accounting for 31.42% of employee salary amounts. Employees, on the other hand, contribute 7% toward their pensions, a portion often offset by tax reductions. The comprehensive social security system in Sweden encompasses essential benefits such as parental leave, sick pay, healthcare, accident insurance, and pensions, showcasing the country’s commitment to social well-being. Despite higher social security contributions compared to some Western European counterparts, Sweden’s robust social safety nets contribute to a healthy, well-educated population, making it an attractive employment destination.
Importance of PAYE
In Sweden, the PAYE system, or Pay As You Earn, is a tax withholding mechanism similar to that used in the United Kingdom and various other countries. Under PAYE, employers deduct income tax and social security contributions from employees’ wages before disbursing salaries. This system guarantees a regular and prompt collection of taxes, streamlining the taxation process for individuals. Employers bear the responsibility of precise calculation and deduction, furnishing employees with payslips outlining the deductions. The PAYE system in Sweden ensures the even distribution of the tax load throughout the year, contributing to effective government revenue collection.
Social Security Contributions (Established businesses)
Navigating the employment landscape in Sweden involves considerations of social security contributions, corporate and personal income taxes, and various aspects of the Swedish tax system. Below is a detailed breakdown of key elements, including employer social security contributions, employee pension contributions, covered social security benefits, corporate income tax rates, personal income tax rates, tax implications for non-residents, criteria for tax residence, pension premiums, income tax administration, and employee insurances.
Employer Payroll Contributions
| Employer Payroll Contributions | |
|---|---|
| Health Insurance | 3.55% |
| Parental Insurance | 2.60% |
| Retirement Pension* | 10.21% |
| Survivors Pension | 0.60% |
| Labor Market Fee | 2.65% |
| Occupational Injury | 0.20% |
| General Payroll Tax (10.21% total contribution for employees born between 1938-1955 and 2003–2005 | 11.62% |
| Total Employment Cost | 31.42% |
Employee Payroll Contributions
| Employee Payroll Contributions | |
|---|---|
| Pension Insurance | 7.00% |
| Church Tax | 1.03% |
| Total Employee Cost | 7.00% – 8.03% |
| Burial fee | Varies |
This comprehensive guide provides insights into the intricate landscape of employment and taxation in Sweden, offering a detailed understanding of key components that employers and employees need to navigate for compliance and efficiency.
Social Security Contributions (Non Established businesses)
Foreign employers lacking a permanent establishment in Sweden are required to contribute to Swedish social security for their locally employed personnel. These employers are subject to a slightly reduced rate compared to other entities. Additionally, foreign employers without a permanent establishment must withhold Swedish preliminary income tax on wages paid to their employees.
Sweden Employee Hiring Cost
To calculate the cost of employing someone in Sweden, you need to consider both the gross annual salary and the associated employer costs. In this example, with a gross annual salary of SEK 9,999.96, the total annual employer costs, which include contributions such as social security, are SEK 8,961.96.
The comprehensive total annual cost is derived by adding the gross annual salary and the total annual employer costs. Therefore, for this example, the total cost of employing an individual in Sweden would be approximately SEK 18,961.92.
It’s essential to account for all relevant expenses associated with employment to get a holistic understanding of the financial commitment for the employer. This includes not only the salary paid to the employee but also the additional costs related to employer contributions and statutory obligations.
Personal Income Tax
Employment income is taxed at the following rounded taxable income amounts (2023):
| Taxable Income (SEK *) | National Income Tax (%) | Municipal Income Tax ** (%) |
|---|---|---|
| Up to 614,000 | 0 | 32 |
| Over 614,000 | 20 | 32 |
*Swedish kronor
**This rate equals the average municipal tax rate.
For non-residents:
- Non-residents working in Sweden for a Swedish employer or a foreign employer with a permanent establishment (PE) in Sweden are taxed at a flat rate of 25% at the source. The same rate applies when a pension is paid by a Swedish source to a person not tax-resident in Sweden.
- Non-residents working in Sweden for a non-Swedish employer without a PE in Sweden are tax liable in Sweden if the beneficiary of the employee’s work is an entity in Sweden, and the work is performed under the management and control of the Swedish entity. The tax rate is 25%. An exception applies if the employee is working in Sweden for less than 15 days in a row and less than 45 days in total during a calendar year.
Regarding capital tax:
- Capital income is generally taxed at a flat rate of 30%. Refer to the “Capital gains and investment income” section in the “Income determination” for more information.
Employee Benefits in Sweden
Here’s the information on statutory leaves in Sweden:
The statutory framework lacks specific regulations on overtime pay. Typically, overtime pay is outlined in collective bargaining agreements. Employees generally have the option to receive overtime compensation either in monetary form or as compensatory leave. In the absence of a collective bargaining agreement, entitlement to overtime pay is not automatic unless mutually agreed upon. Collective bargaining agreements may include provisions allowing employees to forgo overtime pay in favor of compensatory leave, typically applicable to those with flexible working hours or under special circumstances.
Termination, Severance Pay and Notice Period
Termination
Employers have the authority to terminate employees with or without notice. A termination with notice must be grounded in objective reasons, which can either be objective, such as redundancy or reorganization, or subjective personal reasons related to the employee’s conduct or performance.
An overall assessment of various factors is crucial in determining the presence of objective grounds for dismissal. Dismissing an employee with notice won’t be considered objective if alternative solutions, like relocating the employee within the company, were available. Before issuing a notice of termination, employers must explore potential vacant positions within the business for the affected employee. Discriminatory dismissals under the Discrimination Act are prohibited, and additional regulations protect employees from unfair terminations, such as those related to parental leave or educational leave.
Collective Dismissal
The Co-Determination Act doesn’t recognize the term “collective redundancies.” Unlike many other European countries, where collective consultation obligations arise with multiple redundancies, the Co-Determination Act applies even if the redundancy concerns a single employee.
If at least five employees are affected by termination due to redundancy, a notification to the Swedish Public Employment Service is required. This also applies if the total number of termination notices is expected to reach 20 or more within a 90-day period.
When redundancies occur for objective reasons, the “last in, first out” principle applies, favoring employees with the longest aggregate period of employment. Dismissal procedures are outlined in the Employment Protection Act, with variations based on whether termination results from objective or subjective reasons. Consultations under the Co-Determination Act may be mandatory in cases of objective terminations, especially if the employer is bound by a collective bargaining agreement or the employee is a union member.
Individual Dismissal
Negligent performance, serious misconduct, theft, disloyalty, or other serious circumstances may warrant termination for subjective personal reasons. The burden of proof rests with the employer, and evidence supporting termination for personal reasons can be challenging to present. Employers must support employees in improving their performance through education or performance improvement plans. Dismissal without notice is lawful only in cases of fundamental breaches, such as gross misconduct, and should be an exceptional measure.
Before terminating an employment agreement for subjective personal reasons, the employer must provide written notice to the concerned employee and, if applicable, the trade union, two weeks in advance. If a summary dismissal without notice is desired, information must be provided one week before the dismissal. The employee or trade union may request consultations within one week of receiving the information. Swedish law doesn’t mandate prior government agency approval for employee dismissals.
Severance
There are no statutory provisions for severance pay. However, entitlement to severance pay may arise through employment agreements, collective bargaining agreements, or separation agreements.
Work Permit
In general, individuals from non-EU countries must obtain a work permit to work in Sweden. To secure such a permit, the employer must present a job offer, advertise the position in Sweden and the EU for 10 days (for new recruitments), and ensure that the terms of employment meet or exceed those outlined in a Swedish collective bargaining agreement or are customary for the occupation or sector. The employee must earn a gross salary of at least 13,000 Swedish kronor per month, and the relevant trade union must have the opportunity to express an opinion on the terms of employment.
EU and EEA citizens, on the other hand, do not require a visa and have the right to work in Sweden without work and residence permits. Non-EU citizens with a residence permit in an EU country can apply for long-term resident status, granting rights similar to those of EU citizens. The Posting of Workers Act is applicable to posted workers in Sweden.
Work Permit Requirements
- Valid passport for the employee.
- Terms of employment equal to or better than Swedish collective agreements or industry standards.
- Salary meeting Swedish collective agreement standards or industry norms.
- Position enabling the employee to support themselves, requiring a monthly salary of at least SEK 13,000 before taxes.
- Employer-provided insurance covering health, life, employment, and pension when the employee begins working.
For detailed information on the residency permit application process, visit the Swedish Migration Agency website
What Sets Mercans Apart
Conclusion
Mercans is your trusted Employer of Record (EOR) partner, simplifying global expansion into Sweden and 110+ countries. With 500+ specialists and innovative SaaS Products, HR Blizz™ & Mesaar™, we offer compliant, cost-effective, and personalized solutions. Eliminate complexities with our revolutionary service delivery system, and join 5,000+ global clients benefiting from success-oriented teams. Choose Mercans for a seamless entry into the Swedish market, ensuring consistent growth for your organization.