For the last year and a half, a lot of speculation has been circulating about the new Croatian law on foreigners and what it will look like. While the law itself is still in the consultation phase and is unlikely to be implemented by the beginning of the next year, being prepared for the changes to come, especially in a “dynamic” regulatory environment is a must. As such, we bring you the top changes that are currently being discussed, and how they might affect the Croatian labour market.
First of all, a big disclaimer. The law itself has not yet been announced, and the data we have is based on media reports as well as people and businesses in direct consultations with the government. With that out of the way, here are the most important changes.
Foreigners’ working permits to be extended to 3 years
One of the major changes to the Croatian law on foreigners is the fact that the working permits are to be extended, in all their forms. Seasonal working permits, which up to this point have lasted for 3 months, are being extended to up to 9 months. Regular working permits, be it for deficient professions, or for regular professions, are to be extended to 3 years. Furthermore, these new working permits should become biometric, like the temporary residence cards (TRCs) which are issued after the working permits are.
These changes are surely set to positively impact the Croatian labor market. The extension of the working permits will mean that fewer requests overall will be made each year, unburdening the Croatian Employment Service and, even more importantly, the police in the entire process of the working permit issuance. 9-month working permits for seasonal workers are also a welcome addition. While in the immediate term, this will probably cause some form of a bottleneck after implementation, in the longer term it will provide more flexibility. However, it has to be noted that the laws in the current form, be it the usual labour law or the foreigners’ law are both quite good at addressing many of the issues. The real problem, however, is the magnitude of the work. As an example, during only 8M of 2024, 144k were issued, 16% lower than in 2023. However, if this trend continues, app. 216k of working permits could be issued by the end of the year, a 25% increase YoY.
Working permits issued in 8M 2024 by sector (top), country of origin (bottom)
Source: Croatian Ministry of the Interior, InterCapital Research
Companies will have to issue IOUs if they also pay for the foreigners’ accommodation
Up until this point, the responsibility for the deportation of foreign workers was solely on the Government, both in terms of the procedure and, more importantly, costs. With the new changes, each company which also provides accommodation for its foreign workers, will have to issue an IOU (I Owe You), which should amount to the average gross salary in the year prior (2023).
This amount would then be used, in case the workers do not start their contracts, or leave the company for any unjustified reason. In this case, the change both penalizes and incentivizes employers. It incentivizes employers to make sure that their foreign employees aren’t unhappy, but at the same time, it penalizes that as often it is the bureaucratic delays that lead to the fallout between workers and companies, and thus costs. This also does not take into account the fact that the companies have to pay for accommodation, and with these additional new costs, for example, the public notary cost will also be added. As such, with the aim of strengthening the regulatory system, the Government is putting more pressure on employers, which is certainly not a welcome sight.
The ratio of domestic to foreign workers is changing
Until now, the ratio of foreign to domestically employed persons in Croatian stood at 3:1 for working permits in professions that are not considered deficient, while for the deficient professions, only 8% of workers have to be domestic, translating to app. 12:1 ratio. According to the new changes, the ratio is changing towards 1:1 from 3:1, but only when it comes to small Croatian companies. According to the latest info, this would mean that if a company employs 50 domestic workers, it would only receive 50 working permits instead of 150 like before. If it employs 100, 150, etc. it’s the same story ratio story. However, if it employs 250 people or more, the requirements are lifted.
This change was made to ensure that many smaller companies that were abusing the system with the working permits were more regulated. On the other hand, this kind of intervention destroys small companies and their ability to both innovate and reduce costs, especially in professions where there is a huge lack of domestic workers. All this while favoring larger companies, which while positive for them, is not the way to go to boost overall economic growth. As the saying goes, “Competition breeds excellence”.
Accommodation to have a minimum liveable space requirement for foreigners
One of the more welcome news, for both companies and foreign workers, is the start of the discussion regarding the minimum living spaces for foreign workers. Until now, this has largely remained undetermined, which led to many news stories reporting foreigners are cramped into huts and small living spaces that no person, and especially a group of people could or should live in. The new discussion set the base at 14m2 for foreign workers, which is a good baseline to start, however, might seem to be a bit too high, especially considering that many Croatian families would not fulfill this condition at the present moment. As such, this could be considered a positive move in the right direction, as it will also indirectly control the price-to-quality ratio of offered accommodation for foreigners, but more discussions need to be made.
Foreign workers will be able to apply for jobs at the labour exchange directly
Another welcome addition is the fact that foreigners will be able to apply for jobs directly at the labour exchange. However, this comes with several caveats, as only foreigners which are considered here legally, that is the ones with the issued TRCs can apply. While this is positive, it doesn’t take into account the scams and unreliable employers, but also foreign employees who do not understand the working culture of Croatia and how it might impact them. In other words, it offers a road toward a solution but leaves many obstacles on that road.
Even foreigners who received all documentation up to the point of the TRC (which is made last) will have issues applying for new jobs. Without more details about how this part of the regulatory changes will work, it is hard to say how this will affect labour. The current law regarding processing foreigners in Croatia is inefficient at best, and at worst, creates extra stress and costs for employers and foreigners alike. As such, additional consideration have to be made to make the whole process as easy and simple for foreigners as possible. The new biometric, 3 year working permits however, will help this process.
Some additional suggestions & conclusion
While the new law changes are a step in the right direction, Croatia in most cases does not have a case of “bad” laws, maybe too detailed laws in many cases, but rather Croatia has a problem with implementation. Many of the changes proposed are in response to the blatant violation of previous laws by employers, employees, and in many cases unfortunately, the Government on its local level itself. The main problem with the current framework, even with the issues that do require balance (and not a turn towards the extreme!) is implementation, not regulation. Police administrators are far and away overwhelmed by the surge in demand for working permits.
As such, one of the lowest hanging fruits, and something that could be implemented immediately, even without the law changes would be better incentives for employment in this branch. Furthermore, given the fact that Croatia by itself, and EU as a whole is missing workers, doing things that will complicate the process even further is not condusive for growth. Lastly, it has to be noted that something is often overlooked – Croatian Government benefits massively from the influx of foreign workers. Be it due to all the money that has to be paid for the documentation in the entire process, or the extra taxes and pension payments that they attain from these foreigners. Given the fact that 15 years of employment and payments into the pension system are required to be eligible for pension, the Government is also receiving a large, non-refundable amount from foreigners, as it it unlikely that many, or most of them would stay and work in Croatia for that long.
If these changes are implemented properly, balanced on some items, and if there’s enough people to monitor and enforce them, the immediate term will experience a bottleneck, but in the long term the whole process will work much more smoothly. At this point however, it remains to be seen in what form will the law be implemented, and even more importantly, when will it be implemented. Do not expect it this year.
