Payroll in Cyprus: Taxes & Benefits Guide

No matter whether you’re launching a local startup or operating in multiple countries around the world, staying compliant is essential. That’s why our ultimate guide to payroll in Cyprus covers all of the social insurance contributions employers and employees need to know about. We will also take a deep dive into scheduled increases in social insurance fund contributions, key details of the minimum wage legislation, and clarify the potentially confusing issue of paying an optional 13th salary.

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What are the working hours in Cyprus?

Employers in Cyprus cannot ask their employees to work in excess of 48 hours a week. This total includes any overtime that the employee is working. It is typical for many workers to follow a five-day working week and a two-day weekend, with office hours of approximately 8 am to 6 pm common across many industries. Workers are also protected by a strict law governing the minimum wage.

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What are the overtime rules in Cyprus?

When employees work over 40 hours in any given week, the excess hours are classed as overtime. Weekly overtime cannot exceed eight hours a week, but overtime hours can be paid at a higher rate, subject to the terms of the employment contract. It is common for employees in seasonal professions to work overtime to increase their overall annual income.

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What is the national minimum wage in Cyprus?

In Cyprus, full-time employees are entitled to a minimum wage of €1,125 (gross) per month. It’s important to note that this figure assumes 12 equal monthly payments through the year. Employers are also allowed to offer a so-called ‘starting wage’ to employees who have been with them for less than six months. During this six-month period, the employee will receive 90% of their full rate of pay.

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For part-time workers, the minimum wage is applied proportionally so that the amount of money received per hour worked is the same as that received by a full-time worker. For example, if you worked 10 hours a week and a full-time worker logged 40 hours a week, you would be paid 25% of their minimum monthly wage.

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Reductions & deductions to the minimum wage

Young workers under 18 years of age who work for less than two months at a time can have their pay reduced by as much as 25% of the full minimum wage. In addition, in cases where the employer provides food or accommodation, they are permitted to make deductions. Such deductions will be outlined in the employment contract and are capped at 15% for food and 10% for accommodation.

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Understanding payroll tax in Cyprus

The gross earnings that a worker generates through their labor are subject to a range of taxes and deductions, and employers must also make a series of mandatory contributions. To ensure your business remains compliant, we are going to explore these in detail in the following section. And if you are new to these types of issues and looking to scale quickly, our guide on the best payroll for startups will help.
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The main issues are the ongoing changes with compliance regulations in Cyprus and how they require businesses to comply with all languages in the country. Companies can struggle to adapt to these regulations due to the rapid, ongoing updates made to Tax Reporting and Social Insurance systems. When businesses are unable to conform to the most up-to-date compliance regulations, operational consistency can sometimes be interrupted

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General Healthcare System (GESY) contributions

Cyprus’s national healthcare system is funded by mandatory contributions from employers (2.9%) and employees (2.65%). The percentages are based on the employee’s gross salary, and no cap is applied. Payments have to be submitted monthly; non-compliance can result in financial penalties.

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Mandatory social insurance contributions

Social insurance is used to fund retirement, provide disability support, offer unemployment aid, and pay for a range of other benefits. Employees and employers each contribute 8.3% of the annual gross pay. There is a maximum earnings cap that is adjusted on an annual basis. All contributions are made monthly, generally at the end of the next month.

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Employer funds in Cyprus

There is also a statutory obligation for employers to contribute to the Redundancy Fund, Industrial Training Fund, and Social Cohesion Fund. Monthly amounts are based on the gross salary employees receive and are always 100% paid by the employer. A full list of these national programs is given here:

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• 8.3% - Social Insurance (currently capped at €57,408 a year)
• 2.0% - Social Cohesion Fund
• 1.2% - Redundancy Fund
• 0.5% - Training & Development
• 2.9% - National Health System
• 8.0% - Central Holiday Fund

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Although the Central Holiday Fund is administered at a national level, there are cases where specific companies have been successful in applying to become exempt from contributing.  

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Planning ahead for social insurance rises in Cyprus

Social security is something that many countries around the world are having to increase due to growing populations and ageing workforces. In Cyprus, contributions will rise to:

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• 24.1% in 2029: 9.3% (employers), 9.3% (employees), 5.5% (state)
• 25.4% in 2034: 9.8% (employers), 9.8% (employees), 5.8% (state)
• 26.7% in 2039: 10.3% (employers), 10.3% (employees), 6.1% (state)

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Factoring in these scheduled increases will help ensure compliance in the years ahead.

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Paying a 13th salary in Cyprus

It is customary to pay employees a 13th salary instalment during December, although there is no legal obligation to do so. However, if this type of income is outlined in the employee’s contract, it then becomes obligatory as per the Protection of Wages Law and subject to all of the regular taxes in Cyprus.

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Pension contributions in Cyprus

The system in Cyprus is built so that both employers and employees make a contribution to the Social Insurance Fund through taxes. This is how the state finances old-age pensions so that everyone can afford to retire when they reach retirement age.

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Understanding the insurance system in Cyprus

Because of the complex and evolving nature of contributions in Cyprus, it’s useful to break things up and take a closer look at key parts of the insurance system.

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National health insurance in Cyprus

This part of the insurance system is designed to provide universal healthcare coverage to everyone resident in Cyprus. It is funded by both employers and employees, as well as receiving additional contributions from the state. Employers are legally obligated to make a contribution for every employee they have registered on their books.

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Occupational health insurance in Cyprus

The Social Insurance Scheme for workplace accidents and occupational health issues, such as diseases and chronic conditions, is designed to protect every employee. Benefits are available to cover injury and disability that result in a loss of earnings, as well as a death benefit paid to the next of kin. The same fund will also provide financial help should a funeral need to be arranged.

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In addition to paying into this scheme, every employer has to have liability insurance to cover themselves against injuries and health conditions experienced by their employees as a result of the work they are undertaking.

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Unemployment insurance in Cyprus

A portion of payroll tax will be used to fund the portion of the insurance system that covers unemployment insurance when people are out of work. Eligible workers will receive benefits for up to 156 days, provided they sign their local unemployment register and attend any required meetings and assessments as dictated by the insurance scheme.  
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One of the most common mistakes businesses make in terms of compliance is misclassifying the employment status of an individual or not registering employees timely for the Department of Social Insurance. Many times, businesses unintentionally incur penalties due to an error or oversight that negatively impacts cash flow and distracts them away from their growth objectives.

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Leave, allowances, and benefits in Cyprus

Businesses operating in Cyprus also need to be aware of the following allowances and benefits that employees are entitled to:

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• Annual leave: A minimum of 20 working days of paid leave per year is legally required in Cyprus, rising to 24 working days for those who work a six-day week. Parental leave and sickness have to be classed as working days when calculating the remaining annual leave entitlement an employee has.
• Family allowances: In line with many countries, Cyprus offers a Child Benefit program designed to help households with any children who are legally minors.
• Parental leave: Both the mother and the father are entitled to take 18 weeks off, during which time they will receive an allowance from the Social Insurance Fund.
• Sickness benefit: This begins on the third day that a worker is unable to attend their place of work, continuing for up to 156 days.
• Meals and transport: It is becoming increasingly common for employers to offer meal and transport vouchers to employees who have roles that involve a lot of time away from home.
• Extra leave: Additional days off for things such as studying and personal events are at the discretion of the employer and should be clearly outlined in the contracts and company handbooks.

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Ensuring payroll compliance when operating in Cyprus

Payroll management may feel like a challenge if you are looking at it for the first time, but with the right payroll system, it becomes a highly standardized process. Having an electronic system that ensures you meet all of your statutory obligations is essential, especially if you are working with a rapidly growing workforce across a variety of industries and locations within Cyprus. As a guide, make sure that your approach includes:

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• Monthly pay-as-you-earn tax declarations that are filed online.
• Monthly contributions to the Social Insurance Fund.
• GDPR compliance when it comes to storing your payroll records.
• Written contracts of employment that clearly outline the salary, basic working hours, and the nature of the employment.

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If you find that your current solution is causing issues with compliance, you will find our guide on how to switch payroll providers helpful.

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Managing common payroll challenges in Cyprus

The most widely reported challenges with payroll in Cyprus are the rapidly evolving nature of the tax system and the complexity of legislation governing how employee data is stored and used. Solowise offers a flexible solution that can be used by businesses of all sizes, as well as by independent contractors, to ensure compliance and streamline operations.

You may want to consider outsourcing compliance functions when the cost of maintaining compliance in-house, including all overhead costs for managing HR and Tax Reporting as well as your local labor laws, is routinely higher than the cost of using a third-party compliance provider. An obvious time to outsource compliance functions is when you need to grow your headcount quickly without the additional burden or resources necessary to build your own internal payroll systems

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