Salary Calculation for Employee and Employer
Tax Game No. 18 dealt with the deduction of social security contributions from salaries and the resulting impact on income tax. The question asked about the net pay for the employer and the net salary for the employee. The basis was the salary of a senior executive who receives a gross monthly income of €10,000.
Salary Calculation for Employee and Employer
Tax Game No. 18 dealt with the deduction of social security contributions from salaries and the resulting impact on income tax. The question asked about the net pay for the employer and the net salary for the employee. The basis was the salary of a senior executive who receives a gross monthly income of €10,000.
Question 1:
What social security contributions does the employer have to pay in addition to this salary?
Question 2:
How much social security is deducted from the employee’s pay, and what is their net salary once income tax has also been deducted from the remaining taxable income?
Result:
The ranking is determined by the difference between the total burden on the employer and the resulting net salary for the employee.
As social security contributions are split in most countries – with one part paid by the employer and the other by the employee – this Tax Game focused on the total burden of social security and tax contributions for a monthly gross salary of €10,000. The difference between the total cost to the employer and the remaining net salary for the employee served as the benchmark for assessing the cost ratio.
The results vary surprisingly across the countries. Whilst in the United Arab Emirates (UAE) the employer does not have to pay any social security contributions, in France the employer incurs an additional €4,200 in social security contributions on top of the €10,000 salary. The highest net salary of €8,915 also remains with the employee in the UAE, whereas in Portugal the employee is left with only €5,650.
The lowest gap figure was €1,085 for the UAE, which also meant that, of the participating countries, employers there incur the lowest costs whilst employees receive the highest net salary.
However, there were also examples such as Japan, which lies in the middle of the table. There, the employer’s costs are only slightly higher at a total of €10,899, but the employee, with similarly low social security contributions of €798, faces a high income tax rate of €2,900, resulting in a low net salary of €6,301.
The results for all 19 participating countries can be found in the table below.
Tax Game 18 – Salary Calculation for Employee and Employer – Results
Note: Negative values indicate deductions from the gross salary. The “Gap” column represents the difference between the total employer cost and the employee’s net salary.
Hans Ronneberger – Of Counsel - Certified Public Accountant (CPA) / Tax Advisor
Rentrop, Germany
