Total employer cost

What it means

Total employer cost is what an employee costs the company: gross pay plus employer contributions to the Social and health insurers. On an ordinary salary that is roughly 1.35 times gross.

The employee, meanwhile, sees net pay, about a quarter below gross. The gap between what the company pays and what lands in the account is therefore far wider than a salary conversation admits.

The ratio of total employer cost to gross pay is not the same at every salary. Employer contributions to the Social Insurance Agency are paid only up to the maximum assessment base, so on high salaries the gap between gross pay and total cost shrinks in percentage terms. Agreements outside employment have a different ratio again, as their contributions follow rules of their own.

How it works in practice

Hourly rates for jobs are costed on total employer cost, not on gross pay. On top go leave, public holidays, the meal contribution and the hours nobody bills.

In a pay negotiation it helps to put both numbers on the table. Employees rarely know that a hundred euros more in hand costs the company nearly twice that.

When a client weighs an employee against a self-employed contractor, we set total employer cost against the contractor’s invoice. The difference is not only contributions: an employee is entitled to leave, employer sick pay and a notice period, while a contractor bills for work delivered. The comparison must also survive the question of whether the arrangement is really dependent work.

What to watch out for

Budgets built on gross wages come out tens of percent short. The same error shows in estimates of severance and unused leave, where the contribution layer is forgotten again.

Employee benefits raise total employer cost more than it seems, because most of them are taxable income with contributions for the employee and only some are exempt up to a limit. Budgeting benefits at the price of the vouchers or services alone understates the cost, and the employee is left wondering why net pay went down.