Businesses in the United States are paying out 8.8% of their employees’ annual salaries in social security and other so-called employment “taxes,” according to a new study by Urbach Hacker Young International Limited (UHY). This is well below the global average of $6,141 or 20.5% of salary.
According to a press release from UHY, the international CPA firm and consultancy network, businesses in the U.S. are now paying an average of $2,652 per year in these employment taxes—on top of employees’ wages—for an employee earning $30,0001.
There has been a global decline, since 2012, in the amount that businesses have to pay in additional employment “taxes” on top of employees’ wages, from 21.6% of an employee’s salary to 20.5%. However, UHY says that the global average still remains persistently high, with many countries seeing double-digit percentage increases since 2012.
For example, according to the study, 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 3 years.
Dennis Petri of UHY Advisors, a member of UHY, comments that, “[B]y keeping a lid on employment-related taxes, the U.S. is helping to bolster competitiveness and underpin much-needed growth.
“At a time when the global economy is only gradually returning to health, and the recovery is still very fragile, ensuring that revenue-raising policies don’t disincentivize job creation and stifle income levels is more vital than ever.”
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.
For example, China has seen one of the largest increases of any country in the study. Chinese employers are now paying an average of $12,518 per year in employment costs for an employee earning $30,000, equating to 42% of an employee’s salary2.
Brazil still has the highest taxes and compulsory insurance costs for employers of any country in the study at 71% of a $30,000 salary. At $21,408 in payments on top of salary, this is over 19 times higher than the country with the lowest employment costs in the study, Egypt, where firms pay just 3.7% extra ($1,108).
Significant differences in employment costs occur across the “G7” economies (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States). Overall, businesses in the G7 economies saw their social security and other employment costs fall by almost a fifth over the same period (from 24.6% to 20.2%), meaning that they are taxing less than the global average at 20.5% of an employee’s salary. They now pay $6,050 in such additional costs—$482 less than 3 years ago.
However, while several G7 nations, notably the U.S. Canada, and the United Kingdom, have comparatively low employment costs (ranging from 7% to 9% for low earners), France and Italy’s costs remain high (at 42.7% and 38.6%). This is despite Italy seeing these costs decrease by over a quarter since 2012 in one of the biggest falls in the study3.
At 8.8%, the U.S. now has the third lowest employment cost in the G7 nations for an employee earning $30,000. These same “taxes” are now almost half the rate as they are in Japan, where the cost is 15.2%.
Countries increased targeted incentives to tackle unemployment
UHY adds that many countries seek to tackle unemployment and minimize its impact on their welfare budgets by incentivizing employers to create new jobs. These are often targeted at specific groups, such as the unemployed or those starting their first jobs.
Dennis Petri explains that, “Governments recognize 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, in Canada employers can receive tax credits for newly qualified employees, while in the U.K., employers have paid less national insurance for employees aged under 21 since 2015.”
Petri does caution that “too many exemptions can lead to an overly complex tax code.”
For complete figures for the study, click here.
1 Based on a gross annual salary of $30,000
2Based on figures for Shanghai as a representative city of Chinese costs
3The salary brackets examined are ($15,000, $30,000, $75,000, and $300,000) and can be consulted in the supporting report.