TPA Group Study: Labour Costs in CEE

21. December 2021 | Reading Time: 4 Min

According to the latest report prepared by TPA Group together with the HR consulting firm Kienbaum, entitled “Personnel costs as factor when choosing a location”, Austria is the country with the highest level of employment costs. At the opposite extreme there is Albania, which has the lowest costs.

Do you deploy employers abroad? Check the labor costs

The report analyzes the situation in Albania, Austria, Bulgaria, Croatia, Czech Republic, Montenegro, Poland, Romania, Serbia, Slovakia, Slovenia and Hungary. Gross remuneration paid in these countries was used a basis to determine the total costs incurred by the employer and the net amounts received by the respective employee (at the end of the month).

The experts focuses on four groups of people: managers, executives, white-collar and blue-collar workers.

Austria ranks first in terms of total costs, thus having the highest personnel costs in all groups of persons This is followed by Slovenia, the Czech Republic and Slovakia for all groups of persons, all three being direct neighbors of Austria. Poland, Croatia and Hungary are in the middle of the pack in terms of total costs. Montenegro, Romania, Serbia and Bulgaria have low total costs (their ranking varies depending on the group of persons). Albania, which consistently has the lowest total costs for all groups of persons, closes the ranking.

EU membership matters

Looking at the conclusions of the report, one can easily see a correlation between the level of employment costs and the presence of a given country in the European Union. It is plain to see that personnel costs in the non-EU countries are comparatively low. Furthermore, countries that joined the EU earlier (Slovenia, Czech Republic, Slovakia, Poland, Hungary) have higher costs than those that joined the EU later (Romania, Bulgaria).

The conclusion is simple: personnel costs are lower in South Eastern Europe It must be remembered that other criteria (e.g. levels of training and qualification, restrictions due to labor law provisions, etc.) must also be taken into account when deciding on locations.

Leading sectors: IT and manufacturing

It is only natural that the amount of employment costs will vary depending on the industry. Central and South Eastern European countries are popular outsourcing locations for the IT sector and the manufacturing industry.

According to the TPA Group and Kienbaum’s study, white-collar worker costs in the IT sector are above average in all countries. On the other hand, blue-collar worker costs in the manufacturing industry are consistently lower than the sector average – in Croatia, for example, by as much as 21%.

Net remuneration

The experts have looked further at the net remuneration that employees receive. Here as well, Austria is on the top of the ranking. The country has the highest net amounts despite high taxes and social insurance contributions.

The different tax systems (flat tax/progressive tax rate; social insurance with/without maximum contribution base) mean that the picture is different depending on the group of persons.

In Austria and Slovenia the ratio of net income to total costs increases as remuneration decreases (in particular due to the progressive tax system and high maximum social insurance contribution bases), the trend is an opposite one in Albania, Bulgaria and Serbia (due to flat tax rates and low maximum social insurance contribution bases). The trend is opposite in Albania, Bulgaria and Serbia (due to flat tax rates and low maximum social insurance contribution bases). In the latter countries, this leads to the socio-politically interesting result that the high earners not only earn more in absolute terms but also in relation to total costs.

To illustrate this, a comparison between Bulgaria and Austria is made. In Bulgaria, a manager receives 85% of his total personnel costs as net salary, while a low-paid blue-collar worker receives only 65% net. The situation in Austria is exactly the opposite.  The manager’s net salary is only 49% of the total costs, whereas for the blue-collar worker it is 60%. This completely contradictory development is due on the one hand to a different tax system (flat tax of 10% in Bulgaria, progressive taxation with a marginal tax rate of 55% in Austria) and, on the other hand, to the fact that high earners in Bulgaria benefit from the low maximum social insurance contribution base of EUR 18,000 per year (in Austria it is EUR 77,700 per year).

Salary vs. cost of living

It is important to remember that in order to fully determine the cost of labor, it is also necessary to consider the cost of living, which sometimes varies greatly from country to country.

The ratio between the total personnel costs of the employer on the one hand and the net amounts of the employees on the other hand, however, indicates how much the state collects proportionally in taxes and social insurance contributions and uses them, among other things, to fund its infrastructure, the various social insurance systems and other important public goods and services.

The pandemic has taken its toll on the job market

COVID-19 exacerbated and accelerated the trend of changing workplace. Due to remote work it no longer matters what location tasks are performed from. What matters, however, is the cost of personnel costs in a given country. They can be the deciding factor when relocating employees or transferring them to another country.

We encourage you to read our study carefully, especially those entrepreneurs who plan to post employees or are considering opening a new location.

Read the full report: “Labour Costs in CEE”

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