Payroll Burden for International Employers ─ Explained

Introduction

Hiring employees is a burden for employers in many ways. In addition to sourcing costs to attract and place employees, employers are in for a long ride of costs as employees join the team and start getting paychecks.

The journey of paying employees — often called employer burden or payroll burden — does not stop at monthly salaries but extends to cover a wide range of statutory and optional benefits varying from one jurisdiction to another according to local employment and payroll laws and regulations.

As an international employer, understanding your payroll burden is a must to meet mandatory employment requirements where you operate and keep a tap on your employment costs. In an ideal world, payroll burden is a final checklist of salaries and benefits you give to your employees monthly, quarterly, and at year-end. In practice, however, significant variations in local laws and changing employment regulations in response to growing employee needs and the nature of work make employment costs more elusive.

That is why an in-depth understanding of what you need to know about your employer's burden to meet a range of internal control needs (your finances) and external regulatory requirements (employment laws and policies) is crucial.

Here you can learn what payroll burden is, how payroll burden compares internationally, and why understanding and managing payroll burden is essential to your business.

What is payroll burden?

The payroll burden concept in work management refers to a wide range of costs an employer must incur to meet minimum statutory payments and benefits given to employees and contractors. In addition to minimum statutory salaries and wages (as stated in local laws), employers are required by law to incur additional employment cost burdens including but not limited to:

• Social insurance
• Healthcare insurance
• Unemployment benefits
• Job hazard and safety benefits
• Parental leave benefits
• Pensions
• Relocation and lodging costs (for expatriates)
• Special levies (as for military forces in some jurisdictions)

This list can be expanded (or contracted) depending on where you as an employer operate and which local employment laws are applicable. That is why understanding local employment laws and practices are fundamental to your business continuity in your chosen jurisdictions of operation. In addition, some local payment practices and conventions (such as a 13th-month salary) may add yet another layer of complexity to your payroll burden.

Payroll burden: what do the numbers look like in different countries?

The following is a select list of payroll burden contributions (by employers) to employment costs in certain jurisdictions to get a sense of how payroll burden varies from one jurisdiction to another:

The United States

U.S. employee compensation costs vary from one sector to another as follows:

• Civilian workers — $41.03 per hour worked in June 2022, split between $28.31 (69%) for wage and salary costs and $12.72 (31%) for benefit costs
• Private industry workers — $38.91 per hour worked in June 2022 split between $27.44 (70.5%) for wage and salary costs and $11.47 (29.5) for benefit costs (with $1.33 for retirement and savings and $2.96 for insurance)
• State and local government workers — $55.47 per hour worked split between $34.23 (61.7%) for compensation costs and $21.25 (38.3%) for benefit costs (with $0.56 for supplemental pay and o $7.11 for retirement and savings)

Canada

Employment costs are incurred by employers at federal and state levels as follows:

Federal level

0.6% — for unemployment benefits

6.2% — for social security tax

1.45% — for Medicare tax

State level

3.4% — for unemployment insurance

0.1% — for employment training tax

The European Union

The European Union (EU) has a different payroll burden structure which accounts for substantial variations in corporate and personal incomes between low-, medium- and high-earning member states. The EU has a payroll burden structured as follows:

Gross wages/earnings

• Taxes (income tax)
• Net earnings (including family allowances)

Social contributions

• Unemployment benefits
• Pensions

Other costs

• Taxes (fewer subsidies) on work services
• Training costs
• Additional costs (recruitment, job uniforms, etc.)

The average employment cost per hour in 2021 was set at €29.1 ($28.35) in U member states and €32.8 ($31.95) in eurozone countries. This EU average covers a wide range of employment costs from €7.0 ($6.82) in Bulgaria and as high as €46.9 ($45.69) in Denmark and €51.1 ($49.78) in Norway.

China

• The payroll burden in China follows a Schedular system where employer contributions — such as social insurance, healthcare, etc. — are decided based on a wide range of criteria, including income bracket, source of income, administrative arrangements, and more.
• Uniquely, China has a relatively higher income tax on top-earning individuals at 45% compared to ASEAN-5 and OECD averages of 32% and 36%.
• Employers must also give employees a personal allowance of ¥42,000 ($5,834.95).
• For urban workers, wages and salaries are subject to various social security contributions such as pensions, healthcare, unemployment, maternity/paternity, job hazard, and safety.
• For rural workers, employer contributions largely cover pensions only, and rates, low as are, vary from one province and area to another.
• Employers are also required to contribute to the housing fund at rates ranging between 5% and 20% and at an average of 12%.

Japan

The payroll burden in Japan varies according to whether employees are single or a one-earner of a married couple with two children (or more):

• Single worker — 32.6% in 2020 and 2021
• One-earner of a married couple with two children — 27.4% in 2021

Brazil

In Brazil, the payroll burden is relatively high compared to many jurisdictions, given how extensive worker rights are. This is an indicatory list of what employers need to contribute as part of employment costs in Brazil:

• Social security tax (basic rate) — 20%
• Social security tax (mandatory insurance) — 1%
• Annual paid leave — 8.33%
• 13th-month salary — 8.33%
• Severance pay fund — 8%
• Termination FGTS compensation fine — 3.2%

On average, employees in Brazil cost 73.33% more in addition to their basic, statutory compensation.

South Africa

Unlike many jurisdictions, South Africa does not have a universal social security or healthcare insurance system. This makes contributions made by employers minimal. Meanwhile, employers are obliged to contribute to unemployment benefits at a 1% rate capped at ZAR 212,544 ($11,695.14) for each employee per year.

That said, employers should take all above-payroll burden costs as only indicatory since variations year-on-year may result in considerable additional employment costs you may have yet to provide for.

Reduce payroll costs, improve profitability

The most intuitive rationale for carefully and correctly calculating your payroll burden is to reduce your payroll costs and, as a result, improve your profitability. You can go solo and incur often prohibitive costs to hire in-house legal experts to help you manage your payroll burden.

Or, you may reach out to an established HR and payroll platform such as Skuad to pay your employees and contractors smoothly and compliantly and stay abreast of best-in-industry payroll management practices.  

Having the expertise to help relieve you of your payroll burden is a business necessity. Given the wide-ranging payroll laws, regulations, and practices in different jurisdictions, your in-house expertise may not stand up to an ever-challenging employment management landscape.

Suppose you are a small-to-medium enterprise planning to expand internationally. In that case, the stakes are high to reduce your payroll costs so you can improve profitability (crucial as is for your growth) if you need to be well-prepared and equipped with sufficient knowledge of local payroll burdens in your chosen jurisdictions of operation.

Why addressing payroll burden is vital to your business

Coming to terms with your payroll burden is a challenging job. In addition to the complexities you need to handle compensating your employees and contractors according to mandated statutory requirements, you also need to consider a wide range of payroll costs varying considerably from one jurisdiction to another and, in some instances, as in China, from one province or area to another.

Minimizing payroll costs to improve profitability is a goal every employer is after. Still, managing your payroll burden should not be limited to a narrow application of local payroll laws and considerations. Instead, make payroll burdens an asset that works for you by:

• Tweaking compensation and benefits costs to attract and retain skilled workers by giving your employees and contractors options to swap one or more benefits for alternatives more convenient for each worker's lifestyle
• Tapping into local legal expertise to gain insights into how to manage your payroll burden smoothly and compliantly
• Staying top of most recent developments and best-in-industry practices in payroll management

To do so, you need world-class HR and payroll experts such as Skuad.

Skuad enables organizations to manage payroll end-to-end for international clients worldwide seamlessly. Our in-house legal experts have deep knowledge of and extensive experience in payroll laws, management, practices, and more in many jurisdictions worldwide.

Take no chances with your payroll burden, and book a demo so we can help you manage your payroll burden for each jurisdiction you operate in.