4. Social Security

Social security is system set up by governments that provides monetary assistance to people with an inadequate or no income. Independently of the governance of a social security system, these are funded through the contributions of the working force. There are as many different structures of social security as there are countries with an implemented social security system: the assistance and amounts provided can be quite variable. Examples of most common types of assistance provided through a social security system:

  • Retirement
  • Unemployment
  • Maternity
  • Sickness leave
  • Family
  • Disability
  • Contribution to the social security

Social security systems are funded by the working force, as most systems imply a contribution levied on employees and a contribution levied on companies. Both are based on a workers gross salary, but the rates that are applied for employees and employers are usually different.

The contribution made by the employee is retained by the company and thus may affect slightly the cash flows, however it does not correspond to a cost of the company. But the social security contribution payed by the company is a cost that needs to be added to the gross salary and other items of the workers’ income in order calculate the total cost that the company sustains with its employees.

Example – Contributions to social security

Take the following case:

Jenine has a gross salary of 3.000 EUR and a monthly bonus of 150 EUR. The social security contribution rate on employees is 13% and the rate charged to employers is 35%. In her country’s social security system the rates are applied both on the gross salary and on the bonus a worker earns. The retention rate of the  personal income tax  for a 3.000 EUR threshold is 18% (the personal income tax is not a part of Social Security nor is Social Security a part of the personal income tax).

What is Jenine’s net paycheck and how much is her company’s total cost?

First, lets identify Jenine’s net paycheck. Her gross salary and bonus are subject to employee social security contribution rate and to the personal income tax retention.

  • \(Social\ security\ contribution=\ \left(3.000+150\right)\times0,13=409,50\)
  • \(Personal\ income\ tax\ retention=\left(3.000+150\right)\times0,18=567\)
  • \(Net\ paycheck=3.150-409,50-567=2.173,50\)

Or alternatively:

\(Net\ paycheck=\left(3.000+150\right)\times\left(1-0,13-0,18\right)=2.173,50\)

As for the total cost of the company, the company needs to add its social security rate contribution on top of Jenine’s gross salary and monthly bonuses:

  • \(Company\ social\ security\ contribution=3.150\times0,35=1.102,50\)
  • \(Total\ cost=3.150+1.102,50=4.252,50\)

Or alternatively

  • \(Total\ cost=3.150\times(1+0,35)=4.252,50\)

Social security in CASFLO APP

In CASFLO APP you only need to state the social security rate upon companies, as this is the contribution that implies an increase of the total cost per employee.

The Corporate social security is setup on the project settings and is applied to every worker. It works independently of the employees’ benefits input method (by category or by employee).

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