Employer Social Charges

I am often surprised at how little attention potential clients pay to employer social security costs. Clients — and especially payroll or Employer of Record providers, who work on very thin margins — invariably press me on fees. Fair enough: although I joke that if we gave the service away free, some firms would still ask for a discount.

But these firms seem to display little interest in employer social charges, which are often colossal and far more important than the fees: 46% of gross remuneration in France, 39% in Italy, 33% in Vietnam, 30% in Colombia, 26% in Algeria. Clients assume the social charges quoted are mandatory and accurate. But this isn't always the case — the costs actually charged can vary substantially.

1. In many countries the employer social security cost is capped at a certain maximum salary, or at a certain figure for the social security payments. In Vietnam, for instance, social charges are 33% of gross remuneration capped at 20 times the average wage. More simply, in Turkey the limit for payments is TRY 195,041 a month (about $4,750). But some providers of EOR services charge a standard percentage for employer social charges and pay no attention to the salary limits. USA FICA, FUTA, and SUTA costs are capped at various levels, but a provider of Employer of Record services there once cheerfully told me that his company ignores these limits and charges the routine percentage on full salaries.
2. Even where there are no salary limits, as in France, the social security charged can vary. I normally quote 46%, but the EOR provider we use for France manages to sometimes get this down to 43–44%. 2% of French salaries can be serious money.
3. Some providers of EOR services also throw in company costs and claim they're "social charges" — things like audit costs, professional liability insurance, employer's liability insurance, and so on. One of my colleagues said this was like "charging clients for keeping the lights on."
4. Some providers charge a percentage for potential end-of-service payments or severance pay. Fair enough — it's important to have something in the accounts to offset the cost. But these costs should be seen as a provision, and if the employee leaves in circumstances where no severance pay is needed, the provision should be returned to the client.
5. And there is sometimes real expertise involved. Our partner for payroll administration in Italy once advised a client that the collective agreement they were under was simply wrong. The new collective agreement reduced the employer social charges by 1%. That saving, multiplied across 20 or so staff, was far higher than the entire payroll administration cost.

Le Cheminant International produces a spreadsheet of social charges in 150 or so countries. We send it out free. We don't guarantee it's always 101% up to date, as governments can change social charges whenever they feel like it, but it's useful for budgeting and inter-country comparisons.

— John Tinsley, john.tinsley@lecheminantinternational.com