Employer of Record  |  Croatia

Ending your EOR contract doesn’t end the employment contract: what exiting a Croatian hire really costs

How notice, severance, sick leave and dismissal rules work when a foreign company stops using an Employer of Record (EOR) in Croatia, with a worked Zagreb cost example

Picture a one-line email from a sales director in Munich: “We’re closing the Croatia position, please end Ivana’s contract at the end of the month.”

On the sender’s side, that sentence closes the matter. In Zagreb, it opens one. Ivana’s contract is not with the Munich company, and nothing in it says the job ends when Munich changes its plans. It sits under the Croatian Labour Act, the same law that protects every other employee in the country, and that law decides how the job ends, how long it takes and what it costs.

We see this from the employer’s chair. Ambacia was founded in Zagreb in 2008, and through our own Croatian company we are the legal employer for foreign businesses that hire here without an entity of their own. When a client ends its agreement with us, our work as employer does not end with it. It starts a process that we have to get right, because our name is on the decision.

Why cancelling the EOR agreement doesn’t end the job

An EOR arrangement rests on two separate contracts. Your service agreement with us is commercial and ends on the terms we agreed. The employment contract between Ambacia and the employee is a labour contract, and we can only dismiss on a ground the Zakon o radu recognises. For a regular dismissal, Article 115 lists four: business reasons, personal reasons, the employee’s conduct and failed probation. “Our client cancelled” is not on the list. At best it is evidence that the work has genuinely disappeared, which the employer then has to prove.

The same logic applies to who speaks. A dismissal must be written, reasoned and delivered by the employer (Article 120). A Teams message from a client manager telling someone their job is over ends nothing in law. It only creates a record that the client, not the employer, made the call, which is the last thing either of us wants if the case ever reaches a courtroom.

What a lawful dismissal requires in Croatia

Most client exits lead to a business-conditioned dismissal (poslovno uvjetovani otkaz). For it to hold, the employer has to:

• document a real economic, technical or organisational reason before the decision, not after it;
• deliver a written decision that states the reason (Article 120);
• respect the notice period (Article 122) and pay severance where due (Article 126);
• not hire anyone else for the same work for six months (Article 115).

Protected periods, including pregnancy, maternity and parental leave, and incapacity after a workplace injury, block dismissal altogether. After the contract ends, the employer also has 15 days to return the employee’s documents, hand over a copy of the pension and health insurance deregistration and issue a certificate of employment (Article 130).

Minimum notice when the employer dismisses (Article 122)

What exiting a Croatian hire really costs: a worked Zagreb example

A typical scenario, not a specific client. A software company hires a sales manager in Zagreb through Ambacia at EUR 2,800 gross a month. Three years and five months later it leaves the Croatian market. The employee lives in Zagreb, has six days of leave left, is not on sick leave, and the dismissal is business-conditioned.

Start with an ordinary month, because that is the number most exit plans quietly use.

Income tax follows the employee’s place of residence, not the office address, so a hire living in Split or Rijeka is taxed at that city’s rate. In Zagreb the 23% rate applies to a monthly tax base up to EUR 5,000 and 33% above it.

Now the exit:

Employment cost adds the employer’s 16.5% health contribution to every taxable item. The severance carries none because it stays under the tax-free limit of EUR 960 per completed year for business- or personally-conditioned dismissals (EUR 2,880 for three years), so the employee receives the full EUR 2,800. The unused leave is taxed like salary, with the 20% pension contribution and income tax deducted from it.

Then the fee. Ambacia charges its monthly service fee for as long as the employment lasts, and the employment lasts until the notice period ends. In this example that is another month and a half, on top of the EUR 8,625.

So the real exit is more than two and a half times the EUR 3,262 most plans assume, and that is the clean version. Watch two details. Severance only starts after two years of continuous service, so 23 months and 25 months are very different exits. And its base is the average gross pay of the last three months, so overtime or a performance bonus paid in that window raises it.

How sick leave can stretch notice to six months

Notice stops running during sick leave, up to a hard stop six months after the decision was delivered, and the employer pays sick pay for the first 42 days. Because our fee runs until the employment ends, a stretched notice period stretches that too. The exception is easy to miss: if the decision was delivered before the sick leave began and released the employee from work during notice, the notice keeps running, unless a collective agreement, work rules or the contract say otherwise. That one sentence in the decision can be worth months of cost.

Is a mutual termination cheaper?

A written termination agreement (sporazum o prestanku ugovora o radu) skips notice and procedure, and it is often the cleanest exit. It is rarely the cheapest. Under the Labour Market Act, an employee who leaves by written agreement generally loses unemployment benefit from the Croatian Employment Service (HZZ), with narrow exceptions. And any payment agreed is taxed as salary in full, at 20% pension, 23% income tax in Zagreb and 16.5% health on top, because the EUR 960 exemption covers only severance on a dismissal. Expect the offer to have to beat the statutory package after tax.

Who carries the dispute if the dismissal is challenged?

We do. As the legal employer, Ambacia receives the employee’s request for protection of rights, which must arrive within 15 days of delivery. We have 15 days to answer, and the employee then has 15 more days to sue (Article 133). If it goes to court, Ambacia is the defendant. Money claims skip the first step and expire only after five years, so a miscalculated final payslip can come back much later. The final settlement has to be right the first time.

If a court finds the dismissal was not permitted, the employee returns to work or, if that is unacceptable to them, the court sets an end date and awards three to eight monthly salaries (Article 125) on top of pay up to that date. In our example that is EUR 8,400 to EUR 22,400 before back pay.

The responsibility sits with us. The costs sit with the client: our service agreement passes notice, severance, leave payout, any award and the legal costs of a dispute to the company the employee worked for. It is written into the agreement from the start, because an exit cost that appears for the first time in month 40 is a bad way to end a good working relationship.

Our view: price the exit before the first payslip

An EOR is a fast, sensible way into Croatia. It should not be a blind way out. Before you sign with any provider, and certainly before you send that email:

• Read the exit clause. Ours puts notice, severance, leave payout and dispute costs on the client. If a provider’s agreement says nothing, ask who pays.
• Mark month 24. Statutory severance starts at two years of continuous service.
• Talk to your account manager first, never the employee. The legal employer builds the reason and delivers the decision.
• Don’t reopen the role within six months. It undermines the original dismissal.

Probation (up to six months, with at least seven days’ notice) is for judging the person. It is not a hedge against a market plan that might change, and a court will see the difference.

This article is general information about Croatian employment law and Zagreb payroll rates as of October 2026, not legal advice on a specific case.

FAQ: ending EOR employment in Croatia

Can a client company dismiss an EOR employee in Croatia?

No. Only the legal employer can end the employment contract, with a written and reasoned decision delivered to the employee under Article 120 of the Labour Act. With Ambacia, that employer is our Croatian company. The client ends its service agreement or asks us to start the process.

Does ending the EOR service agreement end the employment contract?

No. The service agreement is a commercial contract. The employment contract ends only on a ground the Labour Act recognises, most often a business-conditioned dismissal with notice and, after two years of service, severance.

How much severance does Croatian law require, and is it taxed?

After two years of continuous service, at least one third of the average monthly gross salary of the last three months per completed year, capped at six monthly salaries unless a contract or collective agreement gives more (Article 126). It is tax-free up to EUR 960 per completed year in 2026. Payments agreed in a mutual termination are taxed as salary in full.

Who handles a dismissal dispute when the employee is employed through Ambacia?

Ambacia does, as the legal employer. The employee’s request for protection of rights and any lawsuit are directed at us, and we answer them. The financial consequences, such as an award, back pay and legal costs, pass to the client under the service agreement.

How long does an employee have to challenge a dismissal in Croatia?

Fifteen days from delivery of the decision to ask the employer to reverse it, then a further fifteen days to go to court if the employer refuses or stays silent (Article 133).

Sources

• Zakon o radu (NN 93/14, 127/17, 98/19, 151/22, 64/23), Articles 115, 120, 122, 125, 126, 130, 133
• Zagreb income tax rates of 23% and 33% (tportal)
• Neoporezivi primici 2026: severance tax-free limits and the EUR 600 personal allowance
• Zakon o tržištu rada: pravo na novčanu naknadu (TEB)
• Povreda radnog prava: deadlines and five-year limitation for money claims (gov.hr)