Employers in the UK have the lowest cost per employee per annum (pa) anywhere in Western Europe, according to Towers Watson’s annual Global 50 Remuneration Planning Report2. According to the research, the mandatory costs and taxes associated with employing people in each country shows the UK to be particularly favourable to business while France was found to have the highest costs for employers operating in Western Europe.
The amount employers are required to contribute in taxes and mandatory pension contributions for employees varies significantly across the major economies of Western Europe. For a middle-ranking professional or junior manager3 earning £33,000 or approx. €40,0004 pa, the UK offers the lowest costs in the region at £3,940. The Netherlands and Germany are second and third with costs of £5,250 and £6,200 respectively while France levies the highest costs on employers at £14,200 per employee.
Darryl Davis, Senior Consultant in Towers Watson’s Data Service division commented: “The Global 50 report shows that there is a big difference in costs for employers across Western Europe. It appears that the UK is amongst the most business-friendly countries in the region on the basis that the tax burden on companies is the most favourable.”
The same trend is seen for lower earning employees in Western Europe, such as entry-level professionals earning £23,000 (approx. €28,000). The UK maintains the lowest financial costs for employers (£2,570) followed by the Netherlands, Germany and France respectively, with the latter levying the equivalent of £9,995 per employee at this level.
A different story emerges as employees rise up the salary scale according to the Global 50 report. For higher salaried employees, such as middle managers earning £65,000 (approx. €80,000) the Netherlands and Spain offer the lowest costs in Western Europe – £6,180 and £7,830 respectively. The UK and Germany are close together with £8,500 and £8,670 respectively while France (£27,930) and Italy (£31,720) were the most costly.
When compared to other areas of the world, the Global 50 report identifies a trend for Western European countries to be more expensive for employers. China (Beijing) in particular has amongst the lowest costs to employers anywhere in the world across all three salary brackets. The USA (New York) was also more globally competitive than Western Europe with consistently lower costs for employers.
Mark Reid, Managing Director of Talent and Rewards EMEA at Towers Watson said: “Most European countries are looking at ways to stimulate growth and become more competitive but there are significant differences in the level of taxes and levies on businesses. In a globally mobile business environment these differences can influence where multinational companies, wishing to retain a competitive edge, are located. Interestingly, while a country like the UK appears to be competitive within Europe, on a global basis it is less so with the USA, Russia, China, Australia and Japan all placing lower costs on employers.”
The Global 50 report also analyses the tax burden placed on employees at different income levels across the world. Within Western Europe countries are more consistent with employee taxes than with employer costs. An employee earning £33,000 gross in the UK will take home approximately the same as their equivalents in France, Germany, Spain, the Netherlands and Belgium – between £25,860 and £27,270 with the UK employee at the top end of that scale. The only significant difference within Western Europe is Italy where higher income taxes result in a lower net salary of £21,750 for this level.
The UK also offers the most generous income-tax terms for entry-level professionals earning £23,000 (approx. €28,000) with deductions of £1,140, compared to the equivalent in Italy which of £6,515. For higher earning middle managers the research shows the UK, Germany, Spain and the Netherlands to be reasonably consistent with net salaries of between £46,680 and £42,375. Italians paid the highest taxes in this category, taking home £37,080 whilst French middle managers paid the lowest, enabling them to take home £50,220.
Davis commented: “The differences in income tax levels for employees in Western Europe are far less marked. Broadly speaking, mid-level employees in most countries face roughly the same level of deductions making Western Europe quite a level playing field for all employees.”