Collective Bargaining (Kollektivvertrag) in Austria: What Foreign Employers Must Know

Summary:

• Austria has no statutory minimum wage; pay floors and many terms are set by sector collective agreements (Kollektivverträge), which cover ~98% of employees through compulsory WKO membership.
• The applicable KV is determined by the employer’s industry classification, and it mandates the 13th and 14th salaries — taxed very favourably (first €620 tax-free, then a flat 6%).
• Employer on-costs run roughly 28–31% of gross (≈21% social security plus DB 3.7%, DZ, the 1.53% severance-fund contribution and, where there’s a local PE, 3% municipal tax); the 2026 social-security ceiling is €6,930/month.
• A foreign company can run payroll without an Austrian entity, but employee activity can create a permanent establishment — which is why many use an EOR.

Quick answer: In Austria there is no statutory minimum wage: pay and many conditions come from the sector Kollektivvertrag (collective agreement), which covers about 98% of employees because chamber (WKO) membership is compulsory. The applicable KV is set by the employer’s industry and mandates the 13th and 14th salaries, which enjoy favourable 6% taxation. Employer on-costs are roughly 28–31% of gross. You can run payroll without an entity, but watch permanent-establishment risk — which is why many companies use an EOR.

Austria has no statutory minimum wage. Instead, minimum pay and many core conditions are set by sector-level collective agreements — Kollektivverträge (KV) — negotiated between the trade unions and the Austrian Economic Chamber (WKO). Because WKO membership is compulsory for businesses, a KV binds all employers in a sector and all their employees regardless of union membership, giving Austria roughly 98% collective-bargaining coverage — among the highest in the world.

Crucially, the applicable KV is determined by the employer’s industry classification (its WKO sector), not by the employee’s job title. There are 800+ KVs, and identifying the right one is the first step in any Austrian hire: it sets minimum pay by category and seniority, working-time rules, allowances, and the special payments below. Employees of a foreign employer are entitled to at least the KV pay owed to comparable Austrian employees at the place of work.

Virtually every KV mandates two extra annual payments — Urlaubsgeld (holiday pay, ~June) and Weihnachtsgeld (Christmas pay, ~November) — so Austrian salaries are quoted “14 times a year.” Their standout feature is tax: within the annual “Jahressechstel” allowance, the first €620 is tax-free and the remainder is taxed at a flat 6%, far below the rate on regular salary. This materially lowers the blended annual tax rate and is a key part of how Austrian compensation is structured.

Social security (Sozialversicherung) is split roughly 21% employer / 18% employee, on earnings up to the 2026 monthly ceiling of €6,930 (up from €6,450 in 2025). On top of social security, employers carry several additional charges:

• DB (employer contribution to the family-burden fund): 3.7% of payroll.
• DZ (surcharge to the DB): ~0.32–0.40%, varying by province.
• Kommunalsteuer (municipal tax): 3% — but only where the employer has an Austrian permanent establishment.
• Abfertigung neu (severance fund): 1.53% (see below).

All in, employer on-costs run roughly 28–31% of gross, depending on province and PE status.

For employment that began on or after 1 January 2003, the old tenure-based severance lump sum was replaced by Abfertigung neu: the employer pays 1.53% of monthly gross (from the second month of employment) into a Betriebliche Vorsorgekasse (BV-Kasse) fund. The accrued capital follows the employee across jobs rather than resetting with each employer — a modern, portable model that foreign employers should budget as a fixed on-cost.

Wage tax (Lohnsteuer) is progressive for 2026: 0% up to €13,539, then 20% / 30% / 40% / 48% / 50%, and 55% above €1,000,000. Other key terms:

• Probation: maximum 1 month.
• Notice: harmonised for blue- and white-collar staff since October 2021; employer notice scales from 6 weeks (up to 2 years’ service) to 5 months (over 25 years), usually ending at a calendar quarter.
• Annual leave: 25 working days (5 weeks), rising to 6 weeks after 25 years with the same employer.
• Working time: standard 40 hours/week (many KVs set 38.5).

A foreign company can register directly with the health-insurance carrier (ÖGK) and run Austrian payroll without forming an entity. The catch is permanent-establishment risk: depending on the activity, an employee in Austria can create a Betriebsstätte, triggering Austrian corporate tax and the 3% municipal tax. An Employer of Record in Austria employs the worker on your behalf — identifying the correct KV, registering with the ÖGK, and running payroll, Lohnsteuer, the severance fund and the 13th/14th — without you setting up an entity. If you already have one, our Austria payroll service handles the monthly run. Read more about the EOR model or get in touch.