Running payroll in Austria can feel like navigating a maze of complex tax brackets, mandatory social security contributions, and industry-specific collective agreements. 

How do businesses ensure compliance across income tax, social security, and termination procedures while avoiding costly errors? This guide demystifies payroll in Austria, breaking down essential components like progressive income tax brackets starting at 20% for 2025 and mandatory 20.98% employer social security obligations. 

Explore how to calculate 13th/14th-month salaries taxed at a reduced 6% rate, manage leave entitlements tied to Austria’s 25-day minimum annual leave, and align wages with collective bargaining agreements—transforming payroll complexity into actionable insights for operational excellence. 

Core components of payroll in Austria: tax and social security 

The Austrian income tax system 

Austria uses a progressive income tax structure (Lohnsteuer) where employers deduct taxes directly from employees’ salaries. For 2025, the tax-free threshold applies to annual incomes up to €13,308, after which rates escalate progressively. Unlike many European countries, Austria does not impose local income taxes, streamlining payroll calculations. Tax residency applies to individuals with a permanent residence or who stay over 183 days in Austria annually. 

Note: Source: PwC Worldwide Tax Summaries, 2025. Rates apply only to income within each bracket. For example, a €50,000 salary is taxed at 0% for the first €13,308, 20% for the next €8,250 (€13,309–21,558), 30% for €14,372 (€21,559–35,930), and 40% for the remaining €14,070 (€35,931–50,000). 

Social security contributions 

Employers and employees jointly fund Austria’s social security system. Employers contribute 20.98% of gross salaries, while employees pay 18.07%. These cover health insurance, unemployment benefits, pension funds, and workplace accident coverage. Contributions apply to monthly earnings up to €6,450 (€12,900 annually for special payments). Reduced rates of 20.48% (employer) and 17.07% (employee) apply to bonuses or 13th/14th-month payments due to omitted housing subsidies. 

Breakdown for 2025: 

• Employer: 3.78% (health), 12.55% (pensions), 1.10% (accidents), 2.95% (unemployment), 0.60% (statutory funds). 
• Employee: 3.87% (health), 2.95% (unemployment), 10.25% (pensions), 1.00% (statutory funds). 

Employers save 1.10% on accident insurance for employees over 60 and 4.15% for those over 63. Maximum monthly contributions are capped at €2,518.73 for standard workers and €2,863.26 for freelancers. 

Explore detailed guidelines on Mandatory monthly social security contributions via PwC’s 2025 report. 

Additional employer payroll costs 

Beyond social security, employers must budget for statutory surcharges. These vary by region but apply to businesses with a permanent establishment: 

• Family Burden Equalisation Fund (FLAF): 3.7% of gross salaries funds family-related programs. Provincial surcharges apply (e.g., 0.36% in Vienna). 
• Municipal Tax (Kommunalsteuer): 3% of gross salaries supports local infrastructure. Paid to the business’s registered municipality. 
• Severance Pay Fund (MVK): 1.53% of gross salaries, including bonuses, ensures severance payments during insolvencies. 
• Chamber of Commerce fees: 0.32–0.42% of gross salaries, varying by province. Exempt for foreign employers without local branches. 

Combined, these costs elevate total employer expenses beyond the 20.98% social security base, often exceeding 29% of gross wages. For a €5,000 monthly salary, this includes €1,049 for social security, €185 for FLAF, €150 for municipal tax, and €51 for MVK—a total of €1,435, or 28.7% of gross wages. Payments are due by the 15th of the following month, with electronic reporting mandatory. 

Understanding the Austrian payroll cycle and compensation structure 

The monthly payroll cycle 

In Austria, payroll processing follows a strict monthly cycle. Employees typically receive their salaries at the end of the month or the beginning of the next. Employers must provide a detailed pay slip (Lohnzettel), which outlines gross salary, tax and social security deductions, and net income. This document is essential for transparency and compliance. 

Clear human resource policies are critical to ensure accurate payroll administration. Employers must adhere to collective agreements and legal requirements, such as timely salary disbursement and precise reporting. Mistakes in the Lohnzettel can lead to disputes or legal penalties, emphasizing the need for meticulous record-keeping. 

The 13th and 14th month salaries 

Austria mandates two additional salary payments: the 13th and 14th months. These are known as Urlaubszuschuss (vacation bonus) and Weihnachtsremuneration (Christmas bonus). They are typically paid in June/July and November/December, respectively, and are integral to employment contracts under collective agreements. 

These payments benefit from favorable tax treatment. The first 620 EUR is tax-exempt, while the remainder is taxed at a reduced rate of 6% up to 24,380 EUR, with progressive rates applying beyond that. Employers must ensure compliance with these tax rules to avoid penalties. 

Special payments like these are subject to social security contributions but offer significant advantages for employees. Understanding tax brackets and exemptions is crucial for accurate payroll management. 

Working hours, overtime, and minimum wage 

The standard workweek in Austria is 40 hours, with a daily limit of eight hours. Overtime exceeding this threshold requires a 50% premium on the regular hourly rate. Employers must balance flexibility with legal obligations to protect employee rights and avoid disputes. 

While Austria lacks a national minimum wage, over 95% of employees are covered by sector-specific collective bargaining agreements. These agreements establish minimum salaries, often exceeding 1,700 EUR gross per month, and are legally binding for most employers. 

Compliance with these regulations is non-negotiable. Violations, such as underpayment or incorrect overtime compensation, can result in fines or legal action. Employers must prioritize adherence to collective agreements and maintain accurate records to mitigate risks. 

Navigating Leave Policies and Termination Procedures in Austria 

Annual Leave and Public Holidays 

Austrian law guarantees a minimum of 25 paid annual leave days for employees working five days a week. This increases to 30 days after 25 years of service. Leave must be taken within the calendar year, with unused days paid out upon termination. Employees must coordinate leave schedules with employers. Illness during leave requires medical certification after three days and does not count toward annual leave. 

• New Year’s Day (1 January) 
• Epiphany (6 January) 
• Easter Monday 
• Labour Day (1 May) 
• Ascension Day 
• Whit Monday 
• Corpus Christi 
• Assumption Day (15 August) 
• National Day (26 October) 
• All Saints’ Day (1 November) 
• Immaculate Conception (8 December) 
• Christmas Day (25 December) 
• St. Stephen’s Day (26 December) 

Sick Leave and Other Types of Leave 

Employees must notify employers immediately of illness and provide a medical certificate if absence exceeds three days. Employers cover full salary for 6–12 weeks (depending on tenure), followed by partial payments from the social security system. Maternity leave spans 16 weeks (extendable for complications), with salary replaced by state benefits. Parental leave extends until the child turns two, with flexible sharing between parents. Paternity leave is limited but includes a “family bonus” for fathers taking time off post-birth. 

Termination of Employment Rules 

Notice periods for termination in Austria depend on tenure: six weeks for up to two years, scaling to five months for over 25 years. Employers must align terminations with collective agreements. The human resources compliance framework mandates adherence to these rules to avoid disputes. Two systems govern severance: Abfertigung ALT (pre-2003 contracts) requires 25 years of service for full benefits, while Abfertigung NEU (post-2003) guarantees 1.53% of gross salary into a pension fund (MVK) from day one, with payout options available after three years. 

Non-compliance risks costly legal penalties and reputational damage. Employers must document terminations thoroughly and respect employee protections, especially during maternity or parental leave. For detailed compliance strategies, consult global payroll guides. 

Setting up payroll and ensuring ongoing compliance in Austria 

Initial steps for employer registration 

Launching payroll operations in Austria requires precise registration with key authorities. These steps ensure legal compliance and prevent penalties. 

1. Register with the Austrian Tax Office (Finanzamt): Obtain a tax number for wage tax withholding within one month of starting operations. 

2. Register with the Austrian Health Insurance Fund (ÖGK): Secure a contribution account number for social security insurance, covering healthcare, pensions, and unemployment. 

3. Register with the competent municipality: Comply with the 3% municipal wage tax on salaries paid to employees working in Austria. 

4. Adhere to the relevant Collective Bargaining Agreement: Identify industry-specific agreements that dictate minimum salaries and working conditions. 

What is a competitive salary in Austria? 

Austria’s competitive salary landscape extends beyond legal minimums. Consider these critical factors: 

• Industry benchmarks: Pharmaceuticals pay €66,547/year on average, while hospitality roles hover around €38,000/year. 
• Regional variations: Vienna’s average salary (€56,980/year) outpaces Carinthia (€46,667/year) due to higher living costs. 
• Cost of living: Vienna requires €7,000/month for a comparable lifestyle that would cost €5,612/month in Salzburg. 
• 13th/14th salaries: Mandatory annual bonuses (June/November) boost total compensation by 16.7%. 

For example, a €4,123/month salary (Stepstone 2023 average) translates to €4,948/month in Vienna versus €3,980/month in Carinthia after regional adjustments. 

Choosing your payroll solution: in-house vs. outsourcing 

Managing Austrian payroll internally demands deep expertise in 20.98% employer social security contributions and 18.07% employee rates. Consider these options: 

• In-house: Requires local HR expertise and systems to handle 55% top income tax rates and monthly submissions before the 15th. 
• Outsourcing: Partnering with an HR outsourcing specialist ensures compliance with complex regulations like Lohnfortzahlung (sick pay) and Sonderzahlungen (special payments). 

Outsourcing eliminates risks of non-compliance penalties while maintaining data security through certified platforms like ELDA. This approach particularly benefits foreign companies navigating Austria’s 14 salary payments per year structure. 

Managing payroll in Austria requires understanding its progressive tax system, social security contributions, and employer obligations. Compliance with payroll cycles, leave policies, and termination rules prevents legal risks. Given tax and collective agreements’ complexity, outsourcing ensures accuracy, compliance, and competitive strategies for sustainable operations. 

Frequently Asked Questions (FAQ) 

How are salaries structured in Austria? 

In Austria, salaries are typically paid monthly, with most employees receiving their wages at the end of the month. A distinctive feature is the “13th and 14th-month salaries,” which are common practice under collective bargaining agreements. These additional payments occur during summer (13th month) and winter (14th month), effectively providing 14 payments annually. The system aims to support employees during periods of higher expenditure, such as holidays. It is important to note that these extra payments are subject to a reduced tax rate, making them a cost-effective benefit for employees. 

Why does Austria have a 14-month salary system? 

The 14-month salary structure is rooted in Austria’s labor culture and collective agreements. While not legally mandated, this practice is widely adopted across industries. The additional payments (13th and 14th months) serve as standardized bonuses to support employees during peak spending periods. These payments benefit from favorable tax treatment: the first 620 EUR per year is exempt from taxation, with the remainder taxed at a flat rate of 6%. This approach reduces the administrative burden compared to progressive tax calculations, aligning with Austria’s pragmatic payroll framework. 

What are the payroll tax rates in Austria? 

Austria applies a progressive income tax system, with rates ranging from 0% to 55% for 2025. The first tax bracket applies to income up to 13,308 EUR annually (0%), while earnings above 1,000,000 EUR are taxed at 55%. Employers withhold these taxes at source. Additionally, social security contributions total 20.98% for employers (capped at 6,450 EUR monthly) and 18.07% for employees. Employers also pay supplementary costs like the 3.7% Family Burden Equalisation Fund (FLAF) and 3% municipal tax. For detailed 2025 tax brackets, refer to the PwC Worldwide Tax Summaries. 

Is 3,000 EUR a competitive salary in Austria? 

A 3,000 EUR gross monthly salary falls below Austria’s average of 3,800 EUR. While sufficient in rural areas or lower-cost regions like Burgenland, this amount may be challenging in high-cost cities such as Vienna. The adequacy depends on factors including housing, family situation, and industry standards. For instance, tech professionals in Vienna often earn 4,000–5,000 EUR, while entry-level roles in tourism might align with 3,000 EUR. Collective bargaining agreements frequently set higher minimums, particularly in sectors like manufacturing and IT. 

Does Austria mandate a 14th-month salary? 

The 14th-month salary is not legally required but is standardized through collective agreements covering over 95% of employees. These agreements establish clear expectations for both employers and employees. The payments are typically split between summer (13th month) and winter (14th month), with the first 620 EUR exempt from taxation. This system balances employee welfare with administrative efficiency, as noted in the KPMG TIES Austria report. 

Is 40,000 EUR an adequate annual salary in Austria? 

A 40,000 EUR gross annual salary (about 3,333 EUR monthly) sits below the national average of 45,600 EUR. In Vienna or Salzburg, this may require careful budgeting due to higher living costs. However, it could suffice in regions like Burgenland or rural areas, where housing and utilities are more affordable. Key factors include housing arrangements, family status, and industry standards. For example, professionals in finance or IT often exceed this amount, while roles in hospitality may align closer to 40,000 EUR. 

Are lunch breaks compensated in Austrian workplaces? 

Under Austrian labor law, lunch breaks are unpaid unless specified otherwise in employment contracts. Employees receive 8 hours of work daily and 40 hours weekly, with breaks typically lasting 30 minutes after 6 hours of continuous work. Collective agreements or workplace policies may influence break policies, but the legal default assumes unpaid intervals. This approach reflects a balance between employee welfare and business operational efficiency. 

Is 2,500 EUR a reasonable monthly salary in Austria? 

A 2,500 EUR gross monthly salary is below average and may pose financial challenges in most regions. While viable in rural areas with lower housing costs, this amount struggles to cover essentials in cities like Vienna, where average rents exceed 1,200 EUR for a one-bedroom apartment. Sectors such as hospitality or part-time roles might offer this level, but full-time positions in most industries exceed it due to collective agreement requirements. 

What percentage of salary is taxed in Austria? 

Austrian income tax follows progressive brackets, starting at 0% for earnings under 13,308 EUR annually. The highest rate of 55% applies to income over 1,000,000 EUR. Social security contributions add 18.07% (employee) and 20.98% (employer), capped at 6,450 EUR monthly. Additional employer costs include 3.7% FLAF and 3% municipal tax. For precise calculations, employers and employees should consult the PwC tax summaries, which outline 2025 thresholds and deductions.