Employee costs are significantly lower in Lithuania, Estonia and Slovenia, while they are at the highest in Germany, Denmark and Belgium according to an EU remuneration study by Deloitte Touche Tohmatsu.
Deloitte said the survey shows a wide divergence in average remuneration levels and socialsecurity costs in 24 of the 25 EU member states. The survey highlights that a wide gap still existsin the remuneration levels of EU member states that joined in May 2004 and the original 15 members, the consultancy stated.
An increasing number of processors have been shifting operations to Eastern European states that have recently joined the EU due to the lower cost of doing business there.
The annual Deloitte survey serves as a guide to processors and other manufacturers when deciding where to locating labour intensive operations in the expanded EU. Employee remuneration can add up to almost 50 per cent of manufacturers' operating costs.
The survey looked at the average remuneration costs of employees in enterprises with 10 or more staff. Remuneration costs take into account employee income after deductions, taxes, and the social contributions made by them and their employer.
The survey found Lithuania has the lowest remuneration costs, which average about €5,100. This is 10 times less than the remuneration costs paid in Germany, the EU member with the highest average.
Lithuania was followed by Estonia, where remuneration costs were €9,216 in 2006, compared to €7,466 in 2005. In Slovenia suchcosts added up to €9,264 in 2006, compared to €8,321 the previous year, indicating that sinceentry into the EU remuneration costs have been rising up as the new members become more aligned to the bloc's economy.
Germany, the most expensive place to hire an employee in the EU, had average remuneration costs of €50,417, of which take home pay was €27,878, employee tax was €4,971, employeeand employer social contributions were €8,784 each.
Germany was followed by Denmark at €49,168 and Belgium at €48,486. These were followed indecreasing order by Luxembourg (€47,507), France (€47,381), Italy (€45,256), Finland (€43,751),Sweden (€43,506), the UK (€37,844), Ireland (€36,852), Spain (€33,817), the Netherlands (€32,355),Austria (€30,346), Cyprus (€24,834), Portugal (€18,017), Malta (€14,073), Greece (€13,787),Czech Republic (€11,457), Lithuania (€11,133), Hungary (€9,949), Estonia (€9,264), Poland (€9,245),Slovakia (€9,216) and Latvia (€5,124).
However, the relative positions of the countries changes when one compares the employee tax and insurance costs as a proportion of the total remuneration paid. Ireland continues to have the lowest level at6.34 per cent, with Cyprus in second place at 8.77 per cent.
"This confirms Ireland as a low tax jurisdiction for employees," said Deloitte Touche.
When one compares the employer social insurance costs as a percentage of remuneration, Ireland is in fifth position. Denmark has the lowest percentage at1.36 per cent. Ireland at 9.71 per cent is behind Cyprus, Malta and the UK which have percentages ofabout 9.1 per cent.
When the combined costs of tax and employee and employer social insurance costs are compared as apercentage of the total cost of employment, Ireland also comes in as having the lowest. Since 2005 the gap between Ireland and Cyprus has increased to1.44 per cent. Malta and Luxembourg continue to be third and fourth respectively.
"The survey shows the continued commitment of the Irish government to keep the tax and social welfare costs down and hence keep the costs of employmentdown," said Pat Cullen, a tax partner with Deloitte. "However, Ireland continues to be exposed to pressures from eastern Europe where employment costs are still relatively low. As those economies gather pace and start to compete more effectively for international mobile investment, Ireland will be at a considerable disadvantage."
He added that Ireland can continue to compete effectively by emphasising its advantages of location, other taxation measures and experienced workforce.
In completing the survey the remuneration levels for enterprises with 10 or more employees was taken as the benchmark. Employee tax is based on a married couple, one earner with two children.