Sweden: Understand the Payroll Basics

What is Sweden’s personal income tax rate?

Personal income tax in Sweden varies depending on how much an employee earns (national income tax) and the local tax rate of their registered municipality (municipal income tax). In 2020, national income tax is only applicable to income of over SEK 509,300, and is charged at a rate of 20%. Municipal income, on the other hand, is applicable on all earnings and is charged at a rate of 32%. Some religious denominations in Sweden may be due up to 1% of an employee’s income, should the employee be a registered member of that religion.

To verify individual tax rates, employers should ask their employees to obtain an A-Tax certificate from the Swedish Tax Authority. Any tax liability beyond the employer’s withholding obligation rests with the individual.

What is the Swedish social security contribution rate?

Social security or social fees in Sweden are charged to employers at a rate of 31.42% of gross salary - but are due on almost all forms of compensation and benefits that are paid or provided to employees. Employees themselves are usually not obligated to pay social fees.

With the exception of their pension component, the social fees that fund the Swedish welfare system are designed to collectively benefit all residents of the country rather than specific employees.

How are pension contributions handled?

In Sweden, statutory pensions are funded by employer social fees and benefit all Swedish taxpayers. The pension contribution rate is 10.21% of an employee’s monthly salary (and taxable benefits) up to a limit which is updated every year: in 2020, that limit is SEK 538,700 and matches a monthly salary of SEK 44,892.

Many employers in Sweden offer occupational pension schemes to their employees instead of public pensions. Occupational pensions involve a pensions tax, charged to employers at 24.26% - a more favourable rate than the 31.42% charged for social fees. Employees don’t pay income tax on their occupational pension until they retire, however, if a pension allowance is paid in cash, that payment is subject to normal tax and social fee withholding regulations.

How are pensions handled for non-EU citizens?

Most non-EU citizens must have a private pension in order to obtain a work permit in Sweden. Accordingly, employers normally include an occupational pension scheme as standard policy in remuneration packages for their prospective non-EU employees. In these instances, occupational pensions are generally offered at around 4.5% although higher rates can be agreed between employers and employees.

How is employee vacation pay calculated?

Every employee in Sweden is entitled to at least 25 days of paid holiday every year: a period that runs from 1 April to 31 March. Vacation days accumulate at a rate of 2.08 days per month: an employee can carry over up to 5 unused days every year (or more if they are entitled to over 25 days), and save those days for up to 5 years. Employees wishing to take holidays can only normally do so in the year following the one in which the time has been earned - unless they make special arrangements with their employer. All vacation scheduling should be arranged with the mutual consent of employer and employee.

Vacation pay is calculated as the daily rate paid to the employee plus a premium of 0.43% of their monthly pay. Swedish law also mandates 12% vacation pay on any bonuses, commissions or additional variable pay that an employee receives. Vacation pay is subject to standard income tax and employer social fee contribution rules.

How is sick pay calculated?

Employers must provide sick employees with sick pay for the first 14 days of their absence, at 80% of their normal pay - with a deduction of 20% of the employee’s weekly pay. Employees must provide a doctor’s note for absences of longer than 7 days (although an employer may demand a doctor’s note at any point if they feel that is justified).

Sickness absences longer than 14 days must be reported to the Swedish Social Insurance Office, which will take over the provision of sick pay to the employee from that point (that provision is only available to employees with Swedish social insurance numbers). The Social Insurance Office provides a maximum monthly sick pay of SEK 25,226, although that amount is typically reduced over time. Some employers may continue to provide sick pay to employees in the form of a long-term illness stipend or insurance plan.

How much parental leave are employees entitled to?

The Swedish government offers paid parental leave to all employees along with the option of changing their full-time role into a part-time role. In more detail:

• Pregnant mothers can take up to 60 days of government-funded leave before childbirth, or longer if there are medical grounds to do so.
• Fathers or partners may take up to 10 days of parental leave near to the time of birth and when the child is born.
• Parents may take up to a collective 480 days of parental leave until their child is 12 years old (or 8 years old if the child was born prior to 2014). That leave is paid at the minimum compensation level.
• Parents may take extended periods of unpaid leave during the first 18 months after childbirth.

How is parental leave calculated?

Most parental leave is paid at 80% of salary up to a limit of between SEK 250 and SEK 1059 per day (the exact rate depends on what type of leave is being taken). In the last 90 days of parents’ collective leave, the daily limit is set at SEK 250. Employers are not obliged to pay a salary to employees on parental leave unless that has been specifically arranged,

Parental leave can be extended in cases of serious illness. More information on parental leave can be obtained by contacting the Swedish Social Insurance Office.

Do employers have to enter into collective agreements?

Employers in Sweden may choose to enter collective agreements with labour unions but are not obliged to do so. Most Swedish employees are, however, members of a labour union and in some industries those unions carry enough influence to pressure employers to sign a collective agreement, which then takes precedence over certain articles of Swedish legislation. Like other territories around the world, collective agreements tend to raise costs for employers and involve noncompliance fines.

What benefits does labour union membership offer employees?

Labour unions don’t offer their members more labour rights than non-union employees but membership does confer a greater level of protection. Even when employers have not signed a collective agreement, they must request a negotiation with a labour union before they terminate a member-employee or when a transfer of undertaking takes place. Failure to request a negotiation could result in punitive damages for the employer.

Browse activpayroll’s Global Insight Guide for more Swedish tax, social security, and payroll information: our Insight Guide also provides background on Sweden’s economic profile, industrial landscape, and business practices.