The Tribune

The average extra cost, across the world, to businesses in social security and other ‘taxes’, of employing a worker is now almost 23 per cent of an employee’s salary, according to research by UHY, the international accounting and consultancy network.

UHY tax professionals studied data in 25 countries across its international network, including all members of the G-7 and the emerging BRIC economies. UHY calculated the value of payments a company had to make, such as social security contributions, on top of the gross salary they pay to individual employees (see tables below).

UHY says the average employer will have to pay out an extra $6,757 on top of a gross salary of $30,000 in various employment costs (22.5 per cent of gross salary), from mandatory pension provisions to healthcare cover. For a gross salary of $300,000 the average employer has to pay an extra $41,206, 13.7 per cent of the gross salary.

Ladislav Hornan, chairman of UHY, said: “Governments in many countries have heaped on extra employment costs over the past decade or so. In countries with precarious financial positions and unemployment problems, high employment costs are now undermining the job creation agenda.

“Lower employment costs can help labour market flexibility and new business creation, which can be vital in periods of economic difficulty.”

Mr Hornan added: “Many of the social security structures that exist today were put in place decades ago, and the principles behind them haven’t been touched for decades. Some would argue, employment costs have been allowed to grow unchecked as a result.

“The countries with the consistently lowest employment costs are places like the US, Denmark, India and Canada.”

UHY adds that seven of the 10 countries with the highest employment costs for low or middle-income workers are European. An average European employer must pay an extra $17,860 (23.8 per cent of gross salary) on salaries of $75,000. American employers have to pay an extra $6,182 (8.2 per cent), and Chinese employers have to pay an extra $9,263 (12.4 per cent).

Mr Hornan added: “Now that parts of the world – particularly Europe – are struggling economically and have increasingly elderly populations and fewer workers contributing to the social security system, existing social security structures could become even more of a burden for businesses.

“We have the terrible situation where high employment costs may actually prolong the European unemployment crisis. Businesses in some European countries will be unwilling to take on new workers knowing that the salary they pay the worker is actually just a fraction of what that worker will actually cost.

“Europe might have comparatively low employment costs for very high earners, but this won’t help businesses that can’t afford to hire the huge number of unemployed graduates or young people looking for their first job.”

UHY says that average G-7 employers have to pay an extra $7,263 (24.2 per cent) on top of a gross salary of $30,000, and an extra $61,063 (20.4 per cent) on top of salaries of $300,000. For average employers in BRIC countries, the respective employment costs are $8,488 (28.3 per cent) and $56,565 (18.9per cent).

UHY adds that there is a huge disparity between countries with the highest employment costs and those with the lowest. Employment costs for gross salaries of $30,000 are 16 times higher in the countries with the heaviest burden than they are in countries with the cheapest employment costs.

For salaries of $300,000, employment costs in the most expensive country – Brazil –-are 40 times higher than those in the cheapest country - Denmark. Brazilian employers must pay an extra $172,667 on top of a gross salary of $300,000 (57.6 per cent of gross salary), while Danish employers must pay an extra $ 4,332 (1.4 per cent).

Mr Hornan said: “Countries like the UK, Germany, Ireland or Denmark have an advantage in that their employment costs are far lower than those elsewhere in the Single Market. It’s much cheaper to start a new business and take on new workers than it is anywhere else in Europe.”

Eric Waidergorn, director of UHY Moreira and member of UHY in Brazil, said: “Brazil’s employment costs are exceptionally high, which will hold back new business development and job creation and could encourage informal employment arrangements.

“While direct personal taxes are low, compared to developed countries and BRICs, high employment costs are a significant hurdle to Brazil’s economic development.”

Martin Cairns of McGovern, Hurley, Cunningham, and member of UHY in Canada, said: “Unlike other countries, Canada has managed to keep its mandatory employment costs relatively low as a percentage of salaries over the past couple of years, leaving Canadian businesses with some of the lowest mandatory employment costs in the world. This will have contributed to Canadian businesses’ ability to cope with the dip in international trade that followed the financial crisis.”

John Bain, managing director of UHY, Bain & Associates, and member of UHY International in the Bahamas, said: “In the Bahamas, the Bahamian government remains the largest employer.

“Government employees can enjoy benefits that may increase the payments made to employees anywhere from 18 per cent to as much as 27-30 per cent, depending on their levels in the Government, the amount of training and travel and the associated benefits including non-contributory pension costs.

“Private sector employers may pay between 10-15 per cent above the normal wages for various reasons. Hotels commonly provide food and at times transportation. The private and governmental employers would also pay for paid vacation time, national insurance contributions, pension contributions, medical insurance contributions and overtime, if needed.

“Note that these costs can increase even further by hiring expatriate workers for specialised areas that require additional skills. In this case, the work permit may add as much as $9,000 to $20,000. If the company is also responsible for rent, then the total cost of an expatriate worker could top 50 per cent over the gross salary.

“The total cost of employment can be a significant barrier to reducing unemployment in the Bahamas. While I don’t think that the Bahamas is the highest in the region, the total employee cost should be monitored carefully by the Government to ensure that we maintain our competiveness for the attraction of foreign investment.”

Mr Bain added: “We must find a way to encourage the hiring of Bahamians by making it easy to do and reasonable in comparison to any additional employee cost. If not, we risk pricing ourselves so high that it may make us uncompetitive in terms of our cost.”