US salaries are mostly discussed before taxes, while often for EU countries it's after taxes and/or after mandatory health insurance and retirement savings.
For the Netherlands, your contract will state a wage "before taxes". But the employer will play "employer's taxes" over this wage, making you effectively ~20% more expensive. What gets transferred to your bank account is wage "after taxes", but this is after income taxes.
For example, say that your salary in the Netherlands is E50,000. Your employer pays E60,000 for that, but E10,000 goes straight to the government (doesn't show on your payslip, used to fund primarily social security systems). After that, you pay income taxes, let's say 30%, so you get E35,000.
Of course, effectively you're paying close to 50% taxes and your employer considers you as costing E60,000, but the two-step process hides part of it and makes it somehow more palatable for the employee/tax-payer. This is a really large part of why European wages are lower than American ones.
- FICA tax is 7.65% (6.2% social security, 1.45% medicare)
- FUTA tax is 0.6 to 6.0% (varies, iiuc)
- And then employers (generally) also pay an amount towards health care. But that's not a tax, per se; more of a mandatory "benefit"
Sorry it's in French, but very simple. Choose by month or year, and you have in order: total cost (what the company pays), before tax salary (what's on the contract), "net" salary (ignore that), after tax salary (what they employee actually gets).
You can see that the employee gets about half of the total employer cost.
Indeed "employer's taxes" really does NOT belong to the employer, it is very much a part of the employee's salary. Some left-wing parties in France are starting to call this out and call it "the socialized portion of the employee's salary", which is a good way to put it. A major issue is that this often does not even appear on pay slip, it is an invisible tax that employees do not see (the best kind of tax is you are the one levying it...). This robs people blind, they don't even realize what the things those taxes finance (social security, healthcare, retirement) really cost... if they knew, they would overthrow the government over this..
A data point from Norway: Employer tax of 14% of pre-tax salary is paid by employer. Employer also has to pay 2-13% (dependent on individual negotiation) of pre-tax salary for retirement savings. These are both part of the cost to the employer, and are rarely considered part of "total compensation". So employers have to pay an extra 16-27% of each person's salary in addition to what the employee gets.
An 8% tax for compulsory retirement savings is then taken from the employee's pre-tax salary, along with other individual taxes, that will usually sum up to around 33%. This is not part of the cost to the employer. The number before these taxes are subtracted is usually quoted as the person's salary.
Although for a US comparison, few employers in Norway have significant expenses for health insurance. And the cost of US health insurance, a considerable percentage, is rarely considered part of your "total compensation".
There should be no "employer taxes". That's money that otherwise could be going to the employer so all taxes and the like should be reported coming out of the employee's salary.
Example: the US has 6.2% Social Security taxes levied on both the employer and employee. This should be reported as 12.4/106.2 = 11.7% of the employee's income.
BTW companies do this too. Airlines charge fuel surcharges (there's no such thing; the fares are just more expensive). US ISPs are famous for things like "Infrastructure Surcharges" and other charges you can't avoid. The FTC/FCC should step in and make it illegal to underreport true costs with mandatory charges like these.
Another beef with the US government I have in particular is the "standard deduction". This is actually a way of hiding a regressive tax on lower income people. Think about it: you're eroding the value of itemized deductions but lower income people are disproportionately affected.
Can be refuted in a debate, but of course the dishonest rhetoric reflects what people actually believe and vote.
- 10% of the first $100,000
- 20% of the remaining
- The standard deduction is $20,000
Now consider three incomes: $40,000, $80,000 and $200,000.
1. $40,000 is $4,000 (10%) tax to $2,000 (5%)
2. $80,000 is $8,000 (10%) tax to $6,000 (7.5%)
3. $200,000 is $30,000 (15%) tax to $26,000 (13%)
So on the face of it it seems progressive and would be if it wasn't for the fact that it offsets itemized deductions. Imagine each person above could deduct 25% of their income:
1. No change.
2. No change.
3. $50,000 deduction, which is an additional $30,000 of $6,000 in savings.
So the highest income earners still get itemized deductions and both the standard and itemized deductions are offsetting a marginal higher tax rate.
The point is that the "standard deduction" is (IMHO) dishonest. You can achieve a progressive tax system by... just having a progressive tax system.
https://www.cbo.gov/sites/default/files/110th-congress-2007-...
States also assess a payroll tax to pay for unemployment benefits; this varies by state and industry. It is also subject to relatively low income caps, especially compared to tech-sector salaries.
For example in Quebec the government waves a sizable chunk of taxes if the employee works on "research". With research being voluntarily defined very loosely so video game development falls into that category. The goal was to draw Ubisoft, EA, Unity, etc... in Montreal.
But I doubt any employee is comparing your offer on that. They are going on the top line number.
At the end of the day it doesn't really matter if it's an employer tax or an employee tax, the employer spends some amount of money and the employee gets a portion home. But the discussion never includes employer taxes.
Either way, the point stands - for cross-border salary discussions, you need to consider the “fully loaded” cost of an employee, not just net salary. You also have to consider non-cash benefits and costs (high US salaries offset by high health care costs, etc).
I'm sure there's some shuffling they would end up doing when it comes to wages, stock options (not really a thing), transportation, and other benefits.
E.g. My employer pays X1.25 for my "before tax" salary of X because there is 25% payroll taxes/fees. I pay 35% taxes on that, so my net is 0.65x. Is X "before"or "after" taxes here? It's after payroll taxes and similar deductions, but before income taxes (which I pay myself).
Officially, on the employment contract, the salary is shown before-tax, but after mandatory pension and healthcare deductions.
However, in the negotiations, in casual conversation, and when you're hearing someone talking about their salary in the media, it's always discussed after taxes. Most people have no idea how much tax (or health insurance) they're actually paying.
And if you're working from another country, then you're a fiscal resident in that country and you have to pay taxes there. But in that case you'd be a contractor or own a company, so that's a totally different story.
Employment contracts in Germany have gross salary (Bruttogehalt), all the social security, healthcare and taxes will be deducted from that amount.
Estonian employment contracts are a bit of a mix: the amount listed is gross (brutopalk), but the employer pays an additional 33+% on top of that gross salary for social security etc.
So these aren't really issues.
It's all withheld by employer - employee never sees a penny out of it. Although they always get full documentation of exactly what's wihhheld, in my experience almost nobody ever reads it.
Note that there are some adjustments employees can make a return for at the end of the year, which takes into accounts stuff like dividend income, tax deduction on mortgages and similar.
>Note that there are some adjustments employees can make a return for at the end of the year
So you don't know "exactly" how much your employees' after tax income is. You just know how much you are withholding and have some kind of an estimate of what they make after taxes.
Here you might live in a different township or city, taxes will be different depending on school district, etc.
AFTER you hire them, sure, you will probably know what their tax rate is. I think originally the discussion was about before you hire someone.
The way this works here in practice is the employer assumes "standard" level of taxes based on your location. So for example, you'd negotiate €2k net salary, and you'd get a some € extra if you have a dependant, mortgage, etc.
Is this common outside the US? I thought this co-taxation thing was becoming less and less common. I have only ever been taxed as an individual.
So the employers knows for sure what the employee makes in 99% of cases. That's why salary negotiation is on net salary.
In the US, my wage slip shows the portion of my salary that was withheld to pay federal/state income taxes on my behalf, plus my personal pre-tax retirement account contribution, plus health insurance fees. It does NOT show the taxes paid by my employer in my name (workman's comp, employer share of FICA, employer share of health insurance, etc).
When I worked at a university, they made a big deal about how they contributed 10% of your income into a retirement plan. Unfortunately it had a cliff vesting cycle that I never got close to meeting. (another scam that employers use to pay you less)
It's not in the UK. I'm not sure which countries you are thinking of.
Have you worked in the EU?
Citation? I think pretty much all salaries discussed in Europe was before tax
(Stock option on the other hand are usually not counted)
So salaries discussed/negotiated will still have in them 1) tax; 2) employee social deductions; 3) health insurance. This is deducted, and result goes to employee's account. In many places, its cca 50% or less that gets into account depending on many things (state, family situation, type of employment etc.)