Daily, workers perceive that their gross salary, before taxes, and net salary, after IRPF and contributions, reflect the total compensation their company provides each month. However, other contributions by the company are not necessarily reflected on a pay stub. Other contributions make up what is the total compensation to the worker for the company. These costs are divided into the following categories:
- Common contingencies (social security and pensions)
- Professional contingencies for unemployment (unemployment insurance)
- Vocational training (courses that the worker must receive to be up to date in their profession)
- The Wage Guarantee Fund (coverage of dismissals of companies in bankruptcy)
The companies share these costs distinguishing between the company’s contribution and the worker’s contribution when it comes to the total compensation to the worker. And this difference is reflected in the payrolls, where only the second one is reflected.
Specifically, the gross salary reflected in the payroll is deducted from the IRPF and the items contributed by the workers in the form of contributions for common contingencies (4.7%), unemployment in fixed contracts (1.5%), unemployment in temporary contracts (1.6%) and professional training (0.1%).
However, there are other costs that payroll does not reflect, and that are contributions by the company to the worker, such as common contingencies (23.6%), professional contingencies for unemployment in fixed contracts (5.5%), for unemployment in temporary contracts (6.7%), by professional training (0.6%) and by the Wage Guarantee Fund (0.2%).
Or, put another way, workers’ compensation is usually around 30% higher than their gross salary before taxes and contributions reflect their payroll. The OECD, the United Nations System of National Accounts, and the National Institute of Statistics (INE), define workers’ compensation as the sum of the salary or profit reflected in their payroll (and where personal income tax and contributions are deducted). Part of the worker), and social contributions by the company.
Regarding this second item, it is essential to highlight that social contribution for workers made to the public treasury is included and differentiated, such as, for example, Social Security contributions for public pensions and contributions made to private social insurance programs. as can be private pension funds.
On the other hand, the European statistical office defines wage compensation as labor cost, this being the sum of three items: the compensation of employees (including salaries and wages in cash and in-kind and employer contributions to the social security), the costs of professional training, and other expenses.
As can be seen, the most critical organizations define similarly what is salaried compensation, also called labor cost or salary remuneration, differentiating, on the one hand, the gross wages and salaries received by a worker on the payroll, and on the other the social contributions for pensions or public unemployment contributed by the company.
The critical question to answer is: can wage compensations be considered salaries in their broadest sense? Can this labor cost be modeled as a wage income? To answer this hypothesis, the following arguments are proposed.
One of the arguments against this hypothesis is that Social Security contributions, both by the employer and the worker, are made in different items, subject to different tariff and rebate policies. Therefore, they cannot be interpreted as the same.
However, all this is an accounting device, since in the fictitious assumption that the Ministry of Labor changed the law. The company was obliged to provide the entire taxable base to the worker. No significant change would be appreciated if this should now provide, for example, 28.30% of common contingencies (4.7% + 23.6%). As will be seen below, there are countries where their labor model works similarly.
Secondly, it is argued that social contributions are contributions, and therefore cannot be considered salaries. And although it is technically correct, that is, it is a future income that is not enjoyed in the present (it cannot be used for consumption), it does constitute a contribution in the worker’s name to receive rights in the form of future contributory benefits, equivalent to payment in kind.
For example, many companies provide part of the salary in food vouchers, gasoline for transportation, schooling of children, etc. Instead of providing liquid money, payment is provided on future goods and services equivalent to liquid money that is not perceived.
Thirdly, countries where the standardized methodology for measuring compensation do not include social contributions to public social security, either because it does not exist or because it is collected through other channels.
The first case is proposed as an example to the United States, a country where there are no universal public pensions. The company contributes no social contributions for this public insurance. Private pension funds are negotiated and included as “benefit” and other items, such as health insurance (private) or benefits in the form of company shares, to cite three examples.
On the other hand, there are paradigmatic countries such as Denmark whose model work model does not include contributions from the company (“Employer SSC”) to Social Security. The following graph shows the percentage represented by Income Tax (“income tax”), the contribution to social security by the employee (“Employee SSC”), and the contribution by the company (“Employer SSC”), concerning the total cost of the worker, also called total remuneration of the employee, for different countries of the European Union.
This phenomenon is that in Denmark, social services and benefits are financed mainly through IRPF, so this item absorbs the other two. Or, put another way, unlike the payrolls of workers in the United States in which only salaries and salaries can be verified (and their corresponding contributions by IRPF and common contingencies), Danish workers’ payroll would be reflected all the remuneration salary.
Finally, some countries implement specific quotes in a radically different way than in the United States. In our country, the contingencies for unemployment are contributed directly to the public insurance of Social Security, where the worker contributes a part, and another contributed by the company.
However, in countries such as Austria, they are implemented in the form of an Austrian backpack. The difference between one and the other is that the first contributes to an unemployment benefit only in being unemployed.
In the second case, the employee receives from the entrepreneur an annual contribution in a capitalization fund throughout their working life, becoming a de facto equity in his name that can be incorporated in the form of income when he deems it appropriate. In other words, unlike public insurance, the Austrian backpack works as a “piggy bank” that can be accumulated throughout the working life on behalf of the worker.About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.