Aspects Influencing High Labour Costs in Relation to a Company’s Costs

Abstract

This study investigates the circumstances causing high labour costs in the Czech Republic, particularly in relation to levy obligations of employers and employees. In the Czech Republic, employers pay the state 34 % of employees’ gross wages, which increases labour costs. Employees pay a 15 % tax on so-called super-gross wages, social security and health insurance equalling 11 % of their gross wages. The supergross wage is the sum of the employee’s gross wages plus the social security and health insurance levied by the employer on the employee’s gross wages (34 %). It is a fictitious increase of the tax base for calculation of tax obligations. The total average levies affecting labour costs (including social security and health insurance paid from work income by both the employer and the employee, the implicit tax rate (ITR) on labour) amount to 39 % in the Czech Republic. In the European Union (EU), the ITR is 35.8 % (Eurostat, 2013). Therefore, the Czech Republic is the sixth costliest country (after Belgium, Italy, Austria, Finland and Sweden). The employer’s high levy obligation leads to an increase in wage costs and raises the cost of labour. The employer then tries to get the employee’s gross wages reduced. If the state burdens the employer with a high levy obligation, companies’ interest in creating new jobs declines, or companies resort to illegal forms of employment relationships and some wages are paid to employees “under the table” so that the employer can avoid levy obligations. For this investigation, the labour price has been quantified by the effective tax rate (ETR). It takes into account the statutory income tax rates, the amount of social security and health insurance and tax base construction, including possible tax deductions. The mathematical models are constructed from two points of view, when the calculation of tax burden involves taking into consideration: Int Adv Econ Res (2015) 21:127–128 DOI 10.1007/s11294-014-9498-4