Employment taxes in decline - slowly

Taxes on employment start to fall globally but businesses are still paying out more than a fifth of employees’ salary in employment taxes.

Costs of social security and other “taxes” on employees is rising fastest in the Netherlands and China; Malta tax maintains stability with one of the lowest employment costs in Europe.

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 which UHY Malta forms part of.

UHY says that, 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 the 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.

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.

UHY Malta also contributed to the findings of the study. Malta compares well with countries with the lowest employment costs such as the United Kingdom and Canada. The percentage of gross salary paid in employment tax (based on USD30,000) is 8.03% in Malta, 7.9% in the UK, and 7.4% of salary in Canada. These figures score well below the Global and European averages of 20.5% and 21.8% respectively.

Interestingly the amount of ‘tax’ and social security payments paid by employers in Malta has increased by 10% since 2012*, whereas in the United Kingdom and Canada these payments decreased by -2.6% and -20.1%.  Malta`s 10% increase might seem alarming; however, in real terms this increase is minimal and equates to USD 169.11 over the three-year period. (2175.16USD in 2015 less 2006.05USD in 2012). The increase results in a minimal increment since there is a capping of the amount of social security payable in a year with the only movement related to statutory increments.

When asked about the global results of the findings, Bernard Fay, Chairman of UHY said, “Governments risk undermining much-needed growth if they dis-incentivise job creation and stifle income levels with sky-high employment-related taxes.”

He went on to say that “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.”

Furthermore, Pierre Galea Musu`, Partner at UHY in Malta commented that, “In Malta, successive governments have always been reluctant to increase social security contributions, despite the fact that there are strong arguments on the sustainability of pensions in an ageing population. Government policy has typically focused more on efficiency coupled with strict controls on who receives social security benefits rather than hindering employers with higher employment taxes. Quite to the contrary, the Maltese Government does its best to find ways to incentivise employers as well as attract foreign business to the island.”

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 either 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.”

Pierre Galea Musu` said, “In Malta, changes to employment costs have never factored into the approach to incentivise employment. The approach has been from a totally different angle. Whilst continued and ongoing efforts are prevalent to curb abuse of the welfare system, there are ongoing efforts to create employment (and therefore increment the welfare contributions) and a range of tax credits and incentives have been introduced to entice mothers to return to the workforce. Incentives such as free State childcare have been hugely successful instantaneously. These measures, together with other measures related to attracting FDI, have impacted hugely on unemployment with records being at their lowest in the last 50 years. The stability of the system has in fact been one of the major contributors to attracting companies to set up in Malta.”

UHY Pace, Galea Musù & Co. is a member of the UHY network of independent accounting and consulting firms with offices in over 296 major business centres across more than 89 countries.

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

GROSS ANNUAL SALARY of USD30,000

#

Country

Employment tax paid by
employers in USD

Percentage of gross salary paid
in employment tax

% change in proportion of
employment taxes paid since 2012

1

Netherlands

$4,431

14.8%

121.1%

2

China***

$12,518

42%

33%

3

Israel

$5,039

16.8%

18.3%

4

France

$12,797

42.7%

16%

5

Malta

$2,406

8.03%

10.01%

BRIC Average

$10,732

35.8%

7.8%

5

Japan

$4,570

15.2%

3.5%

5=

Australia

$4,485

15%

3.5%

7

Brazil

$16,467

71.4%

0%

7=

Spain

$10,018

33.4%

0%

7=

India

$3,600

12%

0%

7=

Ireland

$3,225

10.8%

0%

7=

USA

$2,652

8.8%

0%

12

Russia

$5,400

18%

-0.3%

14

United Kingdom

$2,380

7.9%

-2.6%

Global Average

$6,141

20.5%

-5%

15

UAE****

$2,182

7.3%

-5.4%

Europe Average

$6,531

21.8%

-6.9%

16

Denmark

$1,279

4.3%

-10.2%

17

Germany

$6,124

20.4%

-10.5%

G7 Average

$6,046

20.2%

-17.9%

18

Canada

$2,206

7.4%

-20.1%

19

Italy

$11,596

38.6%

-25.4%

20

Mexico

$4,115

13.7%

-26.4%

21

Romania

$6,930

23.1%

-34.6%

Belgium

$10,500

35%

*****

Portugal

$8,973

29.9%

*****

Argentina

$7,800

26%

*****

Poland

$6,222

20.7%

*****

Croatia

$5,156

17.2%

*****

Jamaica

$3,080

10.6%

*****

 

New Zealand

$1,341

4.5%

*****

 

Egypt

$1,108

3.7%

*****



*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

 

Pierre Galea Musu
Partner at UHY Pace, Galea Musù & Co.