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The point made about payroll taxes is a little overstated. This government, and previous governments over the years, have lowered the employer's share on more moderate salaries so that it is now - if you're in catering as Berenice is, and so hiring low-to-moderate salary people - around 30%. These are (along with around 20% paid by the employee) contributions to the social safety net and health insurance systems, so not really taxes at all (in that they are paid into specific funds and give rise to specific rights).

However, the businessperson - the legal head of the company - has personal social contributions to make, and, in the case of a start-up, the first year may be exonerated. These contributions kick in in the second year, therefore, and, if provision hasn't been made, may come as a shock. They will run to perhaps 40%-45% of salary.

If we add that to whatever income tax Berenice has to pay (a separate matter), we could very well find those 68% of income. Or rather, of her salary.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Mar 20th, 2007 at 04:04:22 PM EST
I am advised by a person living in the Real World that social contributions on the businessperson's salary may well reach 60+%. So presumably this is what is meant in the article (neither payroll taxes relative to her personnel, nor her personal income tax).

But it's optional to put yourself on the books as an employee of your own company. What you may gain by it is unemployment insurance - if your company fails, you'll be well covered for some time afterwards. What you lose is that the total rate of social contributions is high. A non-salaried businessperson pays lower rates on the same sum considered as non-salaried "remuneration". Berenice could halve her 68% by doing this.

However, win some, lose some: lower costs => higher company margin => higher company tax...

Up to about €38,000 profit, company tax is at 15%; thereover, at 33.33%. A small start-up like Berenice's might well wish to stay in the low bracket at first.

It's a question of jungling with these parameters.

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Mar 21st, 2007 at 04:03:23 AM EST
[ Parent ]
Thanks for this afew.  Comparing your data and the article:
social contributions on the businessperson's salary may well reach 60+%
versus
A French company must pay about 40 percent of an employee's salary in labor taxes, one of the highest rates among OECD countries, he said.
These two comments are consistent, obviously, if the rate is either higher for the highly paid, or higher for the lower paid.  Do you happen to know, does the rate go up for higher paid employees, or (as in the US with social security where it is only taxed up to a certain level--I believe 6.25% up to something like $90,000) does the rate effectively go down as it relates to the social contribution for higher paid employees?

I guess I'm trying to get a feel for the entrepreneur thinking of adding a lower paying employee, say who earns 20,000 euros.  From the standpoint of managing his expenses, he's either taking on 28,000 or 32,000 of expenses.  For startup companies with, say 500,000 of turnover and say a 10% pretax profit margin, this is quite a decision.  Particularly if it is hard to let someone go if business falls off--which I understand per the article it is not now,,,,but perhaps was in the past.

by wchurchill on Wed Mar 21st, 2007 at 02:35:34 PM EST
[ Parent ]
There's a distinction made between the employees and payroll taxes on their salaries, on the one hand, and the employer (businessperson, boss, entrepreneur) on the other.

The businessperson can opt to be a salaried employee of the company. In that case the rate applied to her salary may reach somewhere above 60% for a salary of around &euro32K (though this percentage falls as the salary rises). If she opts to be non-salaried, (the company remunerates her work, but she's not on the payroll as an employee), the rate will be about half that. (However, she will forgo some advantages like unemployment insurance.)

As for hired employees, the lower salaries (€15K - 19K) cost about 33% in payroll tax. More than half of salaries paid in France are in that bracket (I don't have a recent figure for the median salary to hand, but I think it's €16K-17K). From €20K the rate rises to 40%. There are ceilings that bring it down again on higher salaries.

The system looks scary, but in fact it's been in operation for so long everyone has adapted to it - meaning an employer looks at (or should look at) the total an employee costs as a single salary mass (so, &euro28K rather than €20K). Meanwhile take-home pay is relatively moderate. That means more salary going into redistributive and social safety-net mechanisms, and less available for immediate consumption.

It does, however, also have the appearance of, and is often understood as, a tax on labour, and I think it's one of the reasons for structural unemployment in France, since taxing something tends to discourage its use. There has already been a partial transfer of these costs to a social contribution (CSG) based on all incomes, not just salaries, and I think this movement should be amplified.

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Mar 21st, 2007 at 04:23:43 PM EST
[ Parent ]

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