Employer-side wage tax

Who really pays?

In addition to an employee’s wage tax (payroll tax) obligations, employers are also required to pay tax on an employee’s wages. Employer-side wage taxes go toward funding unemployment insurance, disability insurance and other schemes that are of potential benefit to the employee in the future.

Although the tax is levied on the employer, there is a question as to who burdens the cost. In the face of higher labour costs due to employer payroll tax contributions, employers have two options:

  1. Reduce the number of people they employ.
  2. Reduce the wages of employees.

Research has found that employers often choose the latter and reduce their employees’ wages by the cost of the employer-side payroll tax. In the absence of such a tax, the likelihood is that workers would be paid more.

It is no surprise that employees are seldom aware they bear the burden of this tax (in the form of lower wages) because it does not appear as a deduction on their payslip. This is problematic because it masks the true share of payments ordinary taxpayers are in fact being asked to make.

LevlUp aims to make the compensation structure as simple and transparent as possible. The different “employer-side” taxes are wrapped up into what we call “deductions” and subtracted from the employees share of the annual turnover. Since employer-side wage taxes are capped at a certain wage level and all our employees earn above that level, the “deductions” are essentially a constant.