Compensating Employees in Europe (In a Fair and Compliant Manner)

Pay transparency in Europe has a significant impact on attracting and retaining the best and brightest employees. Due to the diversity of contexts, determining the appropriate compensation to attract and retain your European employees goes beyond the absolute numbers on the payslip. With budget constraints in mind, attracting top talent in Europe is not only about planning packages that employees will find hard to refuse but also doing that compliantly.  

While legal and common practices influence the cost of employment differently in different jurisdictions across Europe, the same is true for the take-home pay an employee receives. Let's take a look at the top elements that have an impact on the employee’s net benefit as well as the costs to the employer in Europe.

Contribution to social security

Social Security Contribution: In a compensation system, salary is generally the most important component that draws attention, as it is what current and potential employees use as a common point of comparison. Although the focus is on the amount stated as the employee's salary, other elements such as social security contributions significantly influence the cost of employment for the employer as well as the net income received by the employee in different parts of Europe.

In comparison, employers in some European countries are legally required to pay significant proportions of an employee's income towards social security. The social security component or payroll contributions comprises health insurance, pension, unemployment insurance, and many other legal deductions, which vary considerably from country to country and sometimes city to city in Europe.

For example, in France, Slovakia, Belarus, the Czech Republic, and Estonia, employers are required by working conditions law to contribute more than 30% of an employee's gross income to social security. In contrast, employers in Denmark, Switzerland, Iceland, Romania, and Lithuania pay less than 10 percent of an employee's gross income to social security. Similar to the differences between countries, some industries or cities within some European countries have different legal requirements for social security contributions. In Switzerland, for example, employers in Geneva pay approximately 9.463% of the employee's salary as social security tax, while employers in Zurich must pay between 8.07% and 23.40%. 

Learn more about the cost of employment in Europe and our PEO and EOR services available to help you navigate the nuances.

Net Income Received by the Employee

Just as it is essential to pay attention to the legal requirements that significantly influence the cost of employment, it is vital to examine the factors that determine the employee's take-home pay. In addition to the social security tax, which is usually paid by both the employer and the employee, the employee also pays income tax, which differs between European countries.

For example, in France, Greece, Denmark, Austria, and Belgium, employees pay a high proportion of their income in taxes. After social security taxes and personal income tax, employees in Luxembourg, Norway, Finland, and Sweden have among the highest net income of their gross annual salary compared to employees in other countries. Therefore, taking into account all other factors, such as the cost of living, it is essential to examine the legal aspects affecting the net income of employees.

Other Employment Benefits to the Employee

In addition to social security contributions and income tax, it is important to consider other benefits to which employees are entitled, either by law or by common practice in the country concerned. Conditions related to paid leave, maternity leave, and paternity leave have different legal requirements. For example, paternity leave is a legal right in some countries, such as the Netherlands, and is increasingly becoming common practice in most countries. However, others, such as Ukraine, do not have paternity leave but have certain provisions under which employees who are fathers can request paternity leave.

In addition, common practices in some countries have culturally endowed employees with certain benefits that are not explicitly mandatory in European labor law. The 13th salary is one example. For instance, in Belgium, employers pay their employees a 13th salary, which is considered an important benefit for employees, who can thus benefit from additional income during vacations, when expenses are high.

When hiring in Europe, it is critical for an employer to stay abreast of the nuances in order to effectively plan for the cost of employment and compensation packages that will attract and retain talent and, most importantly, avoid unnecessary compliance complications.

About EuroDev

EuroDev, established in 1996 with offices in The Netherlands, has a single, defined purpose to help mid-sized North American companies expand their business in Europe. We have created a proven, successful business development model and since our founding, have partnered with over 300 companies to help them define and meet their European business goals. Services provided include Sales Outsourcing, HR Outsourcing, and Digital Marketing.