Businesses hit by employment tax rises

A new report has warned that the rise in employment-related payments in the UK could impact competitiveness, hinder job creation and limit future growth.

According to research from UHY Hacker Young, the average extra cost to businesses in social security and other ‘employment taxes’ accounts for 11.5% of an employee’s annual salary, up from 11.2% in 2012.

The study claims that businesses in the UK are now paying an average of £5,460 per year in employment taxes – on top of employees’ wages - for an employee earning £47,680, an increase from £5,360 in 2012.

However, during the same period, the global average has fallen from £8,680 to £8,460, or 17.7% of salary.

Despite the fact that the UK’s employment costs are still well below the global average, UHY’s report stated that the increase in the level of employment costs for businesses in the UK could impact job creation and real income growth.

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 (see table below).

Source: UHY

Brazil still has the highest taxes and compulsory insurance costs for employers of any country in the study at 71.4% of a £47,680 salary. At £34,030 in payments on top of salary, this is almost 50 times higher than the country with the lowest employment costs in the study – Egypt, where firms pay just 1.5% extra (£700).

Auto enrolment and National Living Wage to hit global competitiveness

Commenting on the report Roy Maugham, head of UHY’s tax London department, said that the government’s introduction of auto enrolment may be “putting an additional burden on businesses”.

“Add that to other measures like the National Living Wage”, continued Maugham, “and employers are seeing cost burdens being heaped on across their workplace. Inevitably, that will hit new job creation.

“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 disincentivise job creation and stifle income levels is more vital than ever.”

Targeted incentives

UHY added that many countries seek to tackle unemployment and minimise its impact on their welfare budgets by incentivising employers to create new jobs. These are often targeted at specific groups such as the unemployed, or those starting their first jobs.

Maugham said that “governments recognise 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, since 2015 in the UK, employers pay less National Insurance for employees aged under 21.

“However, too many exemptions can lead to an overly complex tax code.”