Article
11 min read
How to Reduce Payroll Costs in Austria
Global payroll
Global hiring

Author
Shannon Ongaro
Published
October 02, 2024
Last Update
January 31, 2025

Key takeaways
- Why understanding local labor laws and collective agreements is crucial for managing payroll costs in Austria
- How flexible work arrangements can help reduce payroll expenses significantly
- How outsourcing payroll services can improve accuracy and streamline compliance, resulting in cost savings
Efficient and compliant payroll and benefits management is key to the success of businesses that operate or employ talent in Austria. Organizations must navigate challenges such as the country's complex and frequently-changing labor laws and tax liabilities, potential language barriers, and industry-specific collective agreements. This can inflate the cost and number of labor hours needed to manage payroll. By strategically reducing payroll costs, Austrian businesses can improve their financial performance and allocate resources more effectively.
In this article, we'll explore some of the main factors that determine the cost of payroll management in Austria, and outline proven cost-saving strategies and legal considerations for employers.
Key Factors Impacting Payroll Costs in Austria
In Austria, payroll costs are influenced by multiple factors, including:
- Local lacor laws dictate minimum wage requirements, working hours, and eligibility for overtime pay.
- Collective bargaining agreements, known as 'Kollektivvertrag', are industry-specific contracts. They can impose minimum pay scales and extra benefits, resulting in higher outlay costs in Austria than in other EU countries.
- Rates of taxation and mandatory employer contributions significantly impact payroll costs. Employers in Austria must contribute to programs such as social security, known as 'Sozialversicherung', which covers health insurance, pension schemes, and unemployment insurance. The social security tax rate for employers in Austria is higher than the European average, at approximately 20-25% of gross salaries.
- Additionally, mandatory employer liability insurance and contributions to the severance pay ("Abfertigung") system further increase payroll costs. These expenses vary by industry and region, based on salaries and the cost of living.
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Proven Strategies to Reduce Payroll Costs in Austria
Employers can implement the following practical strategies to effectively manage payroll costs in Austria:
- Restructuring the workforce and reallocating responsibilities to meet each department's needs can allow organizations to cut their excess labor expenses.
- Offering flexible working arrangements, such as part-time roles, remote work, or compressed workweeks, can also lower payroll expenses by reducing the need for overtime and decreasing workplace overheads. Some tasks can also be outsourced to independent contractors or service providers, which may be more cost-effective than hiring full-time employees.
- Integrating with robust payroll software and automating processes increases payroll accuracy and efficiency for businesses. Employers who leverage services that specialize in global payroll ensure compliance with local and international payroll laws and may even secure favorable rates for services such as currency conversion and cross-border payments.
- The Austrian government offers some incentives and tax breaks aimed at reducing payroll-related expenses. For example, companies investing in employee training programs or R&D activities may qualify for specific tax benefits that reduce their overall tax burden.
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Legal Considerations for Cutting Payroll Costs in Austria
To avoid potential legal liabilities and penalties for non-compliance, Austrian employers must remain compliant with legal regulations when managing payroll. For example, employers must not attempt to pay lower wages than the minimum rates and conditions stipulated in collective agreements and labor laws. Similarly, parental leave and vacation entitlements must comply with Austrian labor laws.
Worker terminations must be compliant with Austrian labor laws. Employers are required to provide notice and follow specific procedures to mitigate the reputational and financial risks of wrongful termination claims. If the worker is entitled to a severance package, this must be provided.
Employers must ensure that any alterations to a worker's role, salary, or benefits are documented and agreed upon by both parties.
FAQs
What are the best ways to reduce payroll costs in Austria?
To reduce payroll costs in Austria, consider optimizing workforce structures, offering flexible work options, and utilizing automation and payroll software. Outsourcing payroll services and exploring tax incentives are also effective strategies.
How can automation and payroll software help reduce costs?
Automation and payroll software reduce costs by improving efficiency, streamlining processes, improving accuracy, saving time, and centralizing payroll management.
Are there legal risks associated with cutting payroll expenses in Austria?
Yes, the legal risks include potential non-compliance with local labor laws, unlawful termination procedures, and failure to follow collective agreements. Employers must ensure they adhere to all regulations to avoid penalties.
Which industries benefit most from payroll cost-reduction strategies?
Industries like tech, manufacturing, and retail benefit significantly from targeted payroll cost-reduction strategies, such as automation, flexible staffing, and using contractors for short-term projects.
How can outsourcing payroll help companies save money?
Outsourcing payroll can reduce administrative overheads, enhance accuracy, ensure compliance with local regulations, and offer scalable, cost-effective solutions tailored to businesses' needs.
What payroll tax incentives are available for businesses in Austria?
Austria offers tax incentives for activities such as employee training and R&D, which can reduce a company’s tax burden and associated payroll expenses.
Is it legal to reduce employee benefits in Austria?
Employee benefits can be amended but must comply with collective agreements and labor laws. Employers should review and negotiate terms within legal frameworks to ensure compliance.
Disclaimer: This guide is for informational use only and shouldn't be considered legal, business, or tax advice. Consult an expert for guidance on your specific case.

About the author
Shannon Ongaro is a content marketing manager and trained journalist with over a decade of experience producing content that supports franchisees, small businesses, and global enterprises. Over the years, she’s covered topics such as payroll, HR tech, workplace culture, and more. At Deel, Shannon specializes in thought leadership and global payroll content.