When a self-employed or small company is going to take the step of hiring a worker, it must make a small economic study, since having an employee involves a cost that is greater than the salary.
Beyond the salary, there are a series of concepts and social charges that must be included in the payroll and paid to the Social Security and Treasury that make the cost 30% higher than the salary.
What is the labor cost of an employee?
The labor cost of an employee is what the company will actually pay, taking into account that there are other costs apart from the salary received by the employee.
In this sense, the labor cost is made up of the gross salary plus the social security contributions paid by the company.
The labor cost for the company should not be confused with the net salary, since this is the amount that the employee receives, after deducting both the income tax withholdings and the social security contributions that the employee has to pay, which are also deducted from the payroll.
Labor cost contribution rates
These contributions are calculated on the basis of the Social Security contribution rates, which are percentages applied to the gross salary. For the year 2023 the rates are as follows:
Contribution for contingencies
The contribution for common contingencies is made to cover illnesses or sick leave that are not directly caused by the employee’s work.
The contribution rate is 23.60% for the company and 4.70% for the employee, for a total of 28.30%.
In addition, there are also the professional contingencies for occupational accidents, whose contribution rate depends on the profession in question, ranging from 1.5% to 7.5%.
Overtime
For force majeure overtime, the contribution rate payable by the company is 12% and payable by the employee 2% of the workers, making a total of 14%.
For the rest of the overtime hours included in the payroll, which are the majority, the contribution is the same as for common contingencies: 23.60% corresponds to the company and 4.70% to the workers.
Intergenerational Equity Mechanism (IEM)
The Intergenerational Equity Mechanism (MEI) is an extra contribution that came into operation and is intended to enable the Social Security to collect something to compensate for the imbalance in the pension system,
In this case the contribution rate increases over the years, in this case the total for this year is 0.6%, of which 0.5% is paid by the company and 0.1% by the workers.
Unemployment contribution
The unemployment insurance contribution is different depending on the type of contract the employee has, and there are two possible cases:
- Unemployment for an indefinite-term contract, for which the contribution rate is 5.5% for the company and 1.55% for the workers, for a total of 7.05%.
- Unemployment for a fixed-term full or part-time contract, where the company pays 6.70% and the worker 1.60% of the workers, for a total of 8.30%.
FOGASA
This is the company’s contribution to the Wage Guarantee Fund, which is a common fund of the Social Security that is responsible for paying workers whose companies are insolvent and cannot assume the liquidation.
The contribution rate is 0.20% of the gross salary payable by the company.
Vocational training
There is a contribution rate for vocational training of 0.60% payable by the company and 0.10% by the employees, for a total of 0.70%.
Calculation of the labor cost of a worker
Having seen all the social charges that the company has and the percentages that are applied to each of them, let’s see with an example how to calculate the labor cost for the company.
The first thing to do is to know the worker’s gross salary, which comes from the collective bargaining agreement that applies or from applying the Minimum Interprofessional Wage (SMI). For the example, let’s assume a gross salary of 1,500 euros, which is an indefinite contract and whose professional contingencies are 3%.
The cost calculation would be:
- Common contingencies: 1,500 euros for 23.60%, which is 354 euros.
- Professional contingencies: 1,500 euros for 3%, which is 45 euros.
- Unemployment: 1,500 euros for 5.5%, which is 82.50 euros.
- FOGASA: 1,500 euros for 0.20%, which is 3 euros.
- Vocational training: 1,500 euros for 0.60%, which is 9 euros.
- MEI: 1,500 euros for 0.50%, which is 7.50 euros.
The company should pay the social security cost, apart from the salary, 501 euros, which makes a total of 2,001 euros.
Last but not least, you must take into account that both this contribution to the Social Security, either by the company or by the employee, has been increasing year after year.
To this must be added the various increases that have occurred in the Interprofessional Minimum Wage in recent years, so you must consider in the calculation whether you can bear the cost of the employee in a reasonable period of time.