Payroll Tax: Employment Taxes Fall Globally, But Remain ‘Surprisingly High,' Study Finds

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By Jenny David

March 1—The average cost to businesses of social security and other employment taxes has fallen by 5 percent since 2012, but still remains “surprisingly high,” according to a study released Feb. 22 by the UHY international accounting and consultancy network.

Globally, employment taxes account for an average 20 percent of an employee's annual salary. Many countries have experienced double-digit percentage increases in employer costs since 2012, however, with the fastest rises identified in the Netherlands and China, followed by Israel and France.

According to UHY, such proportionately high costs could put job creation and real income growth at risk in many countries worldwide.

“Governments risk undermining much-needed growth if they disincentivize job creation and stifle income levels with sky-high employment-related taxes,” UHY Chairman Bernard Fay said in a statement.

“At a time when the global economy is only gradually returning to health and the recovery in many countries is still very fragile, this is more vital than ever,” Fay added.

Biggest Jumps in Netherlands, China

Of the 29 countries surveyed, the Netherlands saw the greatest increase in employment costs, which more than doubled from 6.7 percent in 2012 to 14.8 percent in 2015, based on a gross annual salary of $30,000. The jump was mainly caused by the 2013 enactment of the Uniform Definition of Wages act, which levied mandatory contributions for health insurance on Dutch employers.

China came in second place, with a 33 percent increase in employment costs. Some 42 percent of a Chinese employee's salary now consists of employment taxes, more than double the global average of 20 percent.

Israel placed third, with an 18.3 percent increase.

The cost of employment in BRIC countries (Brazil, Russia, India, China) came in at an average 36 percent of gross annual salary, and the U.S. and Canada held steady at rates of 8.8 and 7.4 percent respectively.

The report also noted that in the U.S. employers and employees split social security and hospital insurance taxes, “enabling the burden on employers to remain relatively light compared to many other countries.”

At the top of the scale, Brazilian employers still pay the highest taxes and compulsory insurance costs of any country in the study at 71 percent of a $30,000 salary or almost 19 times more than the country with the lowest employment costs: Egypt at 4 percent.

Costs in G7 Countries Fall to Global Average

By contrast, businesses in the G7 economies (Canada, France, Germany, Great Britain, Italy, Japan and the U.S.) saw their social security and other employment costs fall on average by 18 percent over the same period, bringing them into line with the 20 percent global average, the study found,

Costs remained high in several G7 nations, however, such as France (43 percent) and Italy (39 percent) even though Italy experienced a 25 percent drop since 2012.

Not only could the high employer costs undermine efforts to cut unemployment, they could adversely affect real incomes, hamper labor market flexibility and make it very difficult for firms to take advantage of growth opportunities, the report said.

More Countries Adopting Targeted Reductions

“Governments recognize the logic of reducing employment taxes, but many fear that across-the-board cuts cannot be afforded, particularly given the costs associated with aging populations,” Fay said, noting that “increasingly, we are seeing measures targeted at particular socioeconomic groups, such as the unemployed or the young, as a compromise.”

For example, National Insurance payments for British employees under age 21 were reduced in 2015, and Italy recently introduced new tax and social security exemptions for employers offering first jobs or permanent jobs to those previously unemployed, the UHY report noted.

To contact the reporter on this story, Jenny David in Jerusalem at correspondents@bna.com

To contact the editor responsible for this story: Rick Vollmar at rvollmar@bna.com