What are Employer Payroll Contributions?
Employer payroll contributions are tax contributions associated with employing workers as a business. These tax contributions typically fund social programs, such as social security, national healthcare, and unemployment insurance, and are essentially the taxes an employer pays in order to employ someone in a certain country.
What components are taxed as part of employment tax schemes?
Every country has its own employment tax laws and systems. This is the case even when countries are part of a union such as the European Union (EU). As such, there is no single, unified employment tax system across anywhere in the globe. Even different states and provinces within the same country would often have differing tax systems.
However, there are several common components that employers can expect to have to contribute to, even if the percentages may differ significantly.
For more information about tax rules in a specific country, check out our country guides.
Social security and pension contributions
Social security contributions are mandatory payments made by employers to fund social insurance programs, which may include healthcare, pension or retirement contributions, and other social benefits. The rates and thresholds for these contributions vary from country to country.
In some countries, such as Norway and Hungary, while both employers and employees must pay taxes into the social insurance program to help cover things like unemployment benefits, sick pay, birth and parental leave pay, and old age insurance, companies must also provide their workers with an option to open and contribute to supplemental pension plans or pension insurance.
Most countries have some kind of social healthcare system that both employers and employees help finance through taxes. (The main exception to this is the United States.)
Depending on the country, employers may pay varying rates toward social health insurance schemes based on the number of workers they employ; the nature of their business (such as whether they are a nonprofit organisation versus a for-profit company, as in Portugal); or decisions made by a particular governing body, as in France.
Some countries, such as Finland, require employers to take out accident insurance on all their employees. As the name suggests, this insurance is meant to help cover costs of work-related accidents as well as illnesses or diseases contracted as a result of the employee’s work.
In France, there are two kinds of accident insurance. The basic work accident insurance is a relatively low tax amount that varies slightly between in-office workers (approximately 2.22%) and employees working from home (about 1.90%). The other kind of accident insurance is called provident insurance (Prévoyance) and serves as a form of life insurance for when employees may fall ill or have serious or fatal accidents in their line of work.
Special unemployment insurances
Many countries require businesses to pay some kind of unemployment insurance tax as part of the social insurance tax or other tax scheme. In Lithuania, employers pay two separate tax rates to protect workers from lost jobs.
The guarantee fund consists of monthly payments equaling 0.16% to be paid to workers in the event that the business goes bankrupt and the worker loses their job. Likewise, the long-term employment fund ensures workers receive the same 0.16% saved contributions in the event they are terminated without cause.
Each country has its own tax regulations and laws, and required employer contribution categories vary dramatically in percentage amount and name. For specific tax rules and percentages in a particular nation, check out our country guides.
What is the difference between employer payroll contributions and statutory salary deductions?
While both employers and employees pay taxes on a regular basis, the terms ‘employer payroll contributions’ and ‘payroll statutory salary deductions’ have a few distinct differences despite their similar-sounding names.
Employer payroll contributions are based on each worker’s gross salary amount but are not deducted from the employee’s take-home pay and instead come on top of gross salary. These amounts are paid to the local tax governing body and are often higher percentages than what employees contribute through their income and other local tax requirements.
Statutory salary deductions, on the other hand, are tax amounts also based on a worker’s gross pay but are deducted from employees’ paychecks before salaries are paid. These are taxes paid by employees, including income tax, local taxes, social security or pension contributions, and possibly expatriate taxes when applicable.
Employer payroll contributions and statutory salary deductions can vary drastically from country to country. For specific tax rules and percentages in a particular nation – paid by both employers and employees – check out our country guides.
Be confident and ensure accurate global payroll contributions with Boundless
No two sets of employment tax laws or regulations are alike, making it a challenge for businesses operating in multiple countries to stay compliant from one location to another. Mistakes can be costly and difficult to maneuver.
Feel confident about your employer payroll contributions by working with Boundless. Our team is intimately familiar with tax differences in countries across the globe and can help ensure you calculate your contributions accurately.
Talk with one of our experts for more information about how we can help.