How much does it really cost to employ your workforce around the world? One measure of this number is the payroll burden. And that burden comes down to a lot more than the dollar amount on the payroll check.
By getting a firm grasp on the payroll burden, you’ll be able to provide some of the most important insights your business needs for growth and profitability across borders.
What is payroll burden, exactly?
Payroll burden, also referred to as labor burden costs, is the total cost to the employer to pay an employee. This includes the employee’s wages, but it also covers all the payroll taxes and benefits your business must foot the bill for.
Employer contributions include mandatory taxes that fund things like social benefits, healthcare, unemployment and statutory holidays. The costs of employee benefits like additional paid time off, retirement contributions and bonuses are also rolled up into payroll burden.
Given these variables, payroll burden costs can vary widely depending on which countries you are paying employees in.
Why payroll burden matters to your business
Whether you are running a small business or a multinational company, there is no room for guesswork in finances. It’s hard to be profitable or competitive without understanding the true costs of doing business.
Understanding your total workforce spend in certain regions is critical to informing strategic decisions about where your company does business.
Cost of living data and typical wages provide some clues into how much you might spend to employ people in a specific country. But with such wide variations in social benefits and statutory pay requirements from one country to another, it is far more important to understand the true cost of payroll burden. It not only tells you how much you are spending on payroll expenses, but it paints a bigger picture of the true cost of labor and operations in each country.
What the numbers look like in different countries
Looking for a feel on what to expect for payroll burden in a certain locale?
In the U.S., this percentage includes the tax burden plus voluntary benefits (such as healthcare).
If Brazil’s number just made you do a double take, you aren't alone. But it’s important to remember that a high payroll burden percentage does not necessarily equate to bigger expenses.
The whole picture includes the cost of living, salary expectations, payroll burden and your company’s individual approach to voluntary benefits.
For example, China, which has one of the largest and most labor-intensive markets, has an average payroll burden of 36%. However, the cost of living and typical salary in China is much lower than in many developed countries. The average annual salary in China is ¥ 90,600 ($14,010 USD), while the average salary in the U.S. is $84,500.
Looking at it this way, a 29.8% payroll burden on an $85K U.S. salary is actually a much larger expense than 36% on a $14K Chinese salary.
Similarly, the payroll burden in Brazil can be almost three-quarters of the employees’ salary. But the average annual salary in Brazil is 183,846 BRL ($43,983 USD). These costs also go to cover a number of notable causes. For one, the Brazilian government is deeply invested in improving the quality of life for the lower class—a pretty big chunk of change goes to social welfare programs.
At the end of the day, these data points are useful, but it’s important to consider a country’s average payroll burden in context of these other factors.
Reduce payroll costs, improve profitability
You can use this data to reduce payroll costs—and improve profitability—for your business. But you’ll need both expertise and a well-oiled payroll system to forecast, calculate and optimize true payroll burden.
There’s an alternative to managing it all in-house, though.
International payroll partners collect comprehensive payroll data, offering you actionable information on payroll burden all around the world. Not sure if your next expansion should be France or India? A centralized payroll provider can reveal data insights to help your business make the best decisions.
The right international payroll provider also has the expertise and systems to crunch your business’ specific numbers any time you need them. Find a good payroll partner, and it will be a breeze to run payroll data up the ladder any time you get a request (no complex spreadsheets required).
How’s that for being a strategic HR executive?
Want to dive a little deeper? Check out our ebook: “Realizing strategic gains in finance and HR through efficient global payroll”