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UHY study on employment taxes

Press release by UHY

Press release by UHY - Taxes on employment start to fall globally but businesses still paying out more than a fifth of employees' salary in employment taxes

  • Costs of social security and other "taxes" on employees rising fastest in the Netherlands and China
  • Significant differences in employment costs across G7 economies

The average extra cost to businesses in social security and other employment "taxes" has fallen by 5% since 2012, but globally still accounts for 20% of an employee's annual salary, according to a new study by UHY, the international accounting and consultancy network.

UHY says while the global decline in the amount that businesses have to pay in additional employment "taxes" - on top of employees' wages - is encouraging, it still remains persistently high, and many countries are now seeing double-digit percentage increases.

According to UHY, employers in the Netherlands, China, Israel, and France have had to bear substantial increases in employment costs they pay for each employee in the last three years.

UHY says that such proportionately high levels of employment costs could put job creation and real income growth at risk in many countries world-wide.

The Netherlands saw the greatest increase in employment costs of the countries studied, with employment taxes more than doubling since 2012* from 6.7% to 14.8% of an employee's salary.

The reason for the dramatic jump is the 'Uniform Definition of Wages' law , enacted in 2013, under which mandatory contributions for health insurance are now levied on Dutch employers.

China has seen one of the largest increases of any country in the study: the amount of 'tax' and social security payments paid by employers has increased by 33% since 2012*.

Chinese employers are now paying an average of USD12,518 per year in employment costs for an employee earning USD30,000, equating to 42% of an employee's salary.

This is up from 32% in 2012 or USD9,263 more than employers were paying three years ago.

This is well above the global average of USD6,141 (or 20% of gross annual salary), and the average of BRIC countries of USD10,732 (36% of gross annual salary).

UHY studied data in 29 countries across its international network, calculating the value of payments companies have to make, such as social security contributions, on top of the gross salary they pay to individual employees (see tables below).

UHY adds that China has seen double-digit increases in employer taxes as a proportion of wages across every salary band studied (USD15,000, USD30,000, USD75,000 and USD300,000).**

Employers in China are now paying USD834 more per year on a salary of USD15,000 (an increase 14% since 2012), USD4,188 more per year on a salary of USD 75,000 (up 42%), and USD4,188 more per year on a salary of USD300,000 (also up 42%).

Brazil still has the highest taxes and compulsory insurance costs for employers of any country in the study at 71% of a USD30,000 salary, with no significant changes since 2012, apart from a Government payroll tax exceptions policy. At USD21,408 in payments on top of salary, this is almost 19 times higher than the country with the lowest employment costs in the study - Egypt, where firms pay just 4% extra (USD1,108).

Significant differences in employment costs across G7 economies

By contrast, businesses in the G7 economies saw their social security and other employment costs fall by 18% over the same period, meaning that they now tax in line with the global average at 20% of salary.

They now pay an additional USD6,050 - USD482 less than three years ago.

However, while several G7 nations - notably Canada, the US and the UK - have comparatively low employment costs (ranging from 7-9% for low earners) France and Italy's costs remain high (at 43% and 39% respectively).

This is despite Italy seeing one of the biggest falls of more than 25% since 2012.

UHY highlights that employers in France now pay USD12,797 when hiring an employee with a salary of USD30,000, a 16% increase in costs since 2012.

Comments Bernard Fay, Chairman of UHY: "Governments risk undermining much-needed growth if they disincentivise job creation and stifle income levels with sky-high employment-related taxes."

"High taxes on employment encourage employers to substitute staff for technology."

"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."

"France is a clear case in point. The downsides of mandatory employment costs escalating so rapidly at this stage need to be carefully weighed up against the benefits the government hopes to achieve."

"Countries such as China are struggling to regain their economic momentum, having seen growth slowing dramatically. But rising wealth in the last couple of decades means there is still strong political pressure to offer social security safety nets. They are starting to face the same challenges seen in developed economies of the need to balance welfare provision, economic growth and fiscal responsibility."

Increased prevalence of targeted incentives to tackle unemployment

UHY adds that many countries seek to tackle unemployment and minimise its impact on their welfare budgets by incentivising employers to create new jobs. These are often targeted at specific groups such as the unemployed, or those starting their first jobs.

Bernard Fay explains: "Governments recognise the logic of reducing employment taxes, but many fear that across-the-board cuts cannot be afforded, particularly given the costs associated with ageing populations."

"Increasingly we are seeing targeted measures as a compromise.

For example, from 2015 in the UK, employers pay less National Insurance for employees aged under 21. Italy has also recently introduced changes, with new tax and social security exemptions for employers offering first jobs, or permanent jobs to those previously unemployed."

"However, too many exemptions can lead to an overly complex tax code."

In Sydney, for example, an AUD5,000 rebate is available for businesses creating new jobs, while other Australian states offer rebates and exemptions for apprentices. Similar incentives for employers of apprentices or those starting their first jobs also exist in France, while in Mexico there are also incentives for employers with staff over retirement age.

Tax, social security and other payments made by businesses on top of gross salaries by USD and payments as % of gross salary 2015 - ranked by percentage change since 2012


*Based on a gross annual salary of USD30,000

**The other salary brackets examined are (USD15,000, USD30,000, USD75,000 and USD300,000) and can be consulted in the supporting report.

***Based on figures for Shanghai as a representative city of Chinese costs

****Including levies

*****Unranked as 2012 data unavailable


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