What Are the Main Costs of Hiring in Europe
Hiring in Europe involves finding the right talent at the right price. This involves many factors, including costs and complexities that are not often considered.
While Europe is an attractive business area with affluent markets, stable economies, and accessibility, it is also vast and varied. Here are just a few of the main costs your business should consider when hiring in Europe and ways to overcome these challenges.
Payroll calculation for employees in your home country is fairly predictable. Unless there’s a sudden need for workers due to a new product or service, your business can reasonably determine its payroll expenditure.
Uncertainty enters the picture when a company decides to hire others for work in Europe. When foreign exchange rates change it can cost a business more, or work in their favor.
Unless a company chooses to work with a well-qualified European payroll provider, advantageous exchange shifts vanish quickly. Equally, without a good European payroll solution companies will realize significant increases in payroll expense when exchange rates don’t work in their favor.
Payroll complexity also increases when payroll obligations span several European countries. A global payroll solution is often the preferred solution for multinational entities as it provides better oversight and control.
European Tax Compliance
Europe includes 44 countries, but at the moment only 28 belong to the European Union. Each region has its own tax compliance requirements, rates, systems, and incentives.
Clearly, maintaining tax compliance without expert assistance is often challenging. Business needs a sound accounting strategy and an experienced European partner. Otherwise, they can find themselves at high risk for tax liability and non-compliance.
Since tax rates vary widely within Europe, companies also need to choose their region carefully. For instance, EU countries such as Hungary, Cyprus, Latvia, Poland, and Ireland have very low corporate income tax rates.
Conversely, France, Belgium, Luxembourg, and Italy have some of the highest corporate tax rates in Europe.
European Accounting Standards
Most of the world uses International Financial Reporting Standards (IFRS). However, many U.S. companies use another system called Generally Accepted Accounting Principles (GAAP). Problems can arise when subsidiaries of U.S. companies in foreign countries must comply with IFRS reporting requirements because they differ from GAAP.
As an example, GAAP allows Last In – First Out (LIFO) as an inventory cost method, but this is not allowed under IFRS. Additionally, raising capital and cross-border mergers often demands the use of IFRS.
As a result, PwC suggests it is vital companies are “financially bilingual”. An experienced European accounting expert can simplify your accounting challenges for business expansion success.
Minimum Wage Requirements
Eurostat data suggests the average hourly labor cost including wages, salaries, bonuses, and non-wage costs in the European Union is €27.40. Still, the spread between countries is very wide.
The cost of workers in Bulgaria is about €5.40 per hour, while Denmark’s is about €43.0 per hour. Romania, Lithuania, and Latvia also have low rates, while Luxembourg, Belgium, Sweden, and the Netherlands are high.
Some European countries require employers to pay salary bonuses. For instance, in Spain employers divide the annual pay into 14 installments. The employee receives bonuses in July and December.
Portuguese and Greek employers pay employees an additional month’s pay in December, plus one-half month’s pay at Easter and another half month at vacation time.
To further complicate matters, in countries such as Austria, Belgium, Cyprus, France, Germany, and Italy, national or industry agreements determine bonus terms and amounts.
Countries within the European Union follow the European Working Time Directive which entitles workers to 20 days’ annual paid leave. Yet, many countries offer more generous benefits. As an example, France offers 36 days.
Additionally, many countries within the geographical boundaries of Europe aren’t members of the European Union. Albania, Belarus, Bosnia and Herzegovina, Kosovo, North Macedonia, Moldova, Norway, Russia, Serbia, Switzerland, and Ukraine follow their own labor laws. After Brexit, the United Kingdom will also follow their own laws.
Paid leave in these regions is often much longer than what the EU mandates. For instance, Russia offers up to 56 days paid leave and Bosnia and Herzegovina up to 41 days.
Old age, survivor, disability and survivor pensions, health insurance, unemployment insurance or savings for unemployment, and family allowances account for most employer costs in Europe.
Non-wage costs, including employers’ social contributions and employment taxes, average about 24% in the EU. However, they vary widely. They are just 6% in Malta and 33% in France.
In France, employers pay health, maternity, disability, and death contributions, an autonomy solidarity contribution, old-age insurance, accidents at work contribution, family benefits, unemployment, AGS (wage guarantee), and supplementary pensions.
According to a Deloitte survey, France, Slovakia, the Czech Republic, and Estonia have the highest employer contributions ratio to gross income.
Nonetheless, some countries offer excellent value and fantastic business expansion opportunities, especially in emerging European markets.
According to another Deloitte survey, the most expensive countries for employers when they dismiss employees (regardless of reason) are Italy, Sweden, Belgium, Ireland, Luxembourg, and France.
Dismissal regulations evolve too, usually due to court decisions. As an example, Belgium needed to change its dismissal legislation as differences between the treatment of blue- and white-collar workers were deemed discriminatory.
Without continually monitoring legislative changes, a multinational could find itself at risk unnecessarily.
On average, about 60% of European workers are covered by collective bargaining. Some regions are more union-oriented than others.
In France, Belgium, Austria, and Finland over 90 percent of employees are covered by a collective bargaining agreement. In countries such as Latvia, Estonia, and Bulgaria, fewer workers are unionized and those that are negotiated directly with the company, not on a national or industry level.
Collective bargaining agreements are very complex documents which directly impact business and worker rights and obligations. Fortunately, a skilled European expansion partner can help you reduce risk.
Blueback Global is your international business expansion expert. We offer European business expansion advice and services including business set up, EU payroll, IFRS accounting and reporting, statutory compliance, immigration support, recruitment and hiring, and more.
With a network of European professionals each with regional knowledge and local business savvy, we simplify hiring in Europe. We’re well-positioned, highly-experienced, and can help you overcome your multinational business challenges.
Contact us for a free consultation and cut through the complications of European expansion.