REWARD
So far, we have looked at systems where the contribution liability is fairly balanced between employee and employer. But this won’t always be the case. Take the case of Sweden, where the employer contribution is an eye watering 31.42% of uncapped salary spread over seven different insurance funds. By contrast, the employee contribution is set at 7% earmarked for pension insurance and is capped to annual income of approximately £46,000. It doesn’t even make it onto the payslip as it’s automatically included in Swedish tax tables. A similar approach is taken in the Netherlands and Norway, with social security simply being part of an all-inclusive number featuring on the payslip as ‘tax’. Opting to opt out? In the UK, we don’t currently have the option to ‘opt out’ of NI as an employee, but that’s certainly an option in other countries. While we might be able to opt out of the state scheme though, we won’t be able to excuse ourselves from paying contributions all together. Take Germany as an example again. All employees who earn more than €64,350 (known as the JAEG threshold) have the choice of being publicly or privately insured. Around 85% of Germans choose to be publicly insured – but they must pick one insurance company from approximately 130 companies operating in the public sphere. Each is allowed to charge a small supplementary premium on top of the standard premium of 7.3%, with the average charge for employee of 0.65% – so this is often the differentiator. Many Germans choose public insurance even as high earners because it automatically includes family cover. But high earning young single professionals may well choose private insurance because premiums are matched to risk, and as this demographic doesn’t get sick as often as older workers, it could save them money. The private insurance option, however, involves the employee in some work. The employer is obliged to contribute a matching employer premium but capped to no more than what they would have paid in the public scheme. The administration is pushed onto the employee, with the employer paying the value of their contribution to the employee as a tax-free payment, and the employee then obliged to pass on the joint premium to the insurer. See how simple UK NI is in comparison – no need for employees to shop around for the best deal
or to have an intimate knowledge of all the different insurance options out there.
slip into bankruptcy leaving unpaid employees in its wake. Such schemes are provided by all our European neighbours and go a long way to helping with the unexpected stress of suddenly losing your job and livelihood. Another feature the government may be considering in the wake of the Covid pandemic is improving the savings ratio amongst employees. Many countries have mandatory savings schemes collected as part of the social security system, such as the Infonavit fund in Mexico, which requires a 5% employer contribution in a fund marked for home purchases. China has a similar fund which requires joint employee and employer contributions. Should funds not be used for a home purchase, the accrued amount may be paid out as a cash sum on retirement. Such funds aren’t always popular with employees though. The National Housing Fund in Nigeria mandates a compulsory 2.5% of basic salary and offers a statutory return rate of 4% per annum. The trouble is that inflation is currently running at 18% in Nigeria – so the compulsory savings immediately begin to lose value. And for that reason, many employers ignore the requirement to make the deductions, with the ensuing compliance risk that goes with this. Reporting requirements Finally, consider the position of reporting. In the UK, we wrap reporting of NI in with tax as one full payment submission (FPS). In many countries, reporting for social security purposes will be entirely separate from tax, and may be significantly more complex than the FPS. Consider the Platnik reporting requirements in Poland, which require comprehensive details of new hires and leavers to be filed within seven days of the event, plus details of many human resource management (HRM) events, such as sick and maternity leave. The Belgian system requires a quarterly report to be filed, which, in effect, creates the social security record, but must also include data on working time, to allow for monitoring of labour law compliance. We end back in Germany, where employers must produce a comprehensive report of pay, contributions and HRM data and file this two days before pay day. This is not one report, but a report to each of the 130 insurance companies your employees have selected. Now that is what I call challenging! n
Influencing employer behaviour with social security schemes The social security regime can also be used by countries to prod companies into certain behaviours. Consider the Nordic countries of Sweden and Norway. Both offer regional discounts to companies hiring employees in the north of their country. Life near the Arctic Circle can be tough, so to encourage employment, its cost is made much cheaper. Perhaps Belgium wins the competition for the most complex system of discounts and rebates when it comes to the employer’s share of contributions. There are targeted schemes aimed at encouraging the employment of young people, older employees, people from the disabled community, and many other targeted groups, with varying schemes between the federal regions of Belgium. There’s also a standard rebate scheme designed to favour small employers, which pays out six months after the end of the financial year. All of this makes an accurate estimate of employer social security contributions a challenge for financial planning. This year, we’ve seen the UK NI net expand with the introduction of the health and social care levy – a move Japan, Germany and Jersey had already implemented some years ago. But if our government is casting its eye around the globe for ideas, what else might it pick up on? One area of interest focuses on the concept of a targeted bankruptcy fund, designed to cover final salary, accrued holiday pay and missing pension contributions, should an employer suddenly In many countries, reporting for social security purposes will be entirely separate from tax, and may be significantly more complex than the full payment submission
| Professional in Payroll, Pensions and Reward | July - August 2022 | Issue 82 40
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