3.1.5. Employees’ benefits

Employees’ benefits are the payment to the company’s employees, not only their salary but also other expenses that are directly attributable to workers such as:

  • Social security.
  • Rewards and prizes.
  • Subsidies.
  • Workers insurances.
  • Other costs.

You should keep the distinction between:

  • Gross salary: nominal value of the paycheck, before tax deductions and individual social security.
  • Gross income: total income received by an employee, before individual tax withholdings and individual social security.
  • Net individual income: total income received by an employee, after individual tax withholdings and individual social security.
  • Total cost for the company: total expenses that the company has paid to a worker, plus company social security and other costs.

Individuals are usually concerned about their net individual income, meaning the amount that they are bringing home. Companies need always to look for the total cost of the individual.

Example – Calculation of employees’ benefits

To understand the full extent of the calculation of the employees’ benefits let’s take the following example: Kimi is an IT consultant. His company pays him a gross monthly paycheck of 3.500 EUR on a 12-month salary basis. On top of it, he also receives a trimestral prize of 1.500 EUR and a monthly traveling subsidy of 150 EUR. His company pays monthly 20 EUR of worker insurance on his behalf. Kimi also know the following tax and social security variables:

  • Individual income tax rate withholding: 20%.
  • Individual social security rate: 8%.
  • Company social security rate: 30%.
  • Income tax rate and social security are applicable to the gross salary and to prizes and rewards. Subsidies and other costs are not subject to it.

Yearly gross income:

3.500 x 12 + 1.500 x 4 + 150 x 12 = 42.500 + 6.000 + 1.800 = 50.300

Net yearly individual income:

( 3.500 x 12 + 1.500 x 4 ) x (1 – 0,20 – 0,08) + 150 x 12 = 48.500 x (0,72) + 1800 = 34.920 + 1.800 = 36.720

Total yearly cost for the company

( 3.500 x 12 + 1.500 x 4 ) x (1 + 0,30) + 150 x 12 + 20 x 12 = 38.150 + 1.800 + 240 = 40.190

The employees’ benefits only includes workers on contract. It does not include expenses of outsourced workers or of those that are on some sort of fees. Outsourced workers and workers by fees are commonly included as operating expenses.

Next Section: 3.1.6. Other gains