Romania, among highest social security costs in Europe

net average earnings

Romania has the 7th highest social security contributions cost among the 27 states members of the European Economic Space after the maximum ceiling used for calculus was eliminated, according to an analysis of Deloitte Romania. Until January of this year, the social security contribution was capped to five average wages.

This is an 11 positions climb for the country, which ranked 18th in Europe in the audit firm’s January 2017 Comparative Social Security Benefits Study.

Romania is due to eliminate 4 of the current 6 social security contributions in 2018, transfer their payment requirement to the employee and reduce their combined rate from 39.25% to 35% of the gross wage, according to the governing program.

With the new measures, the labor cost would drop from the current 75% to 70% of the revenue.

“The concept of completely transferring the contributions from the employer to the employee is welcome because the employer now has duties but without benefits. The employees will become more aware of the cost of labor they are paid for. They now know the gross salary, which includes their own contributions but not the total cost of their salary, which also means the contributions of the employee,” Raluca Bontaș, a partner with Deloitte Romania, explained.

On the other hand, a possible obligation for employers to increase the gross salary so that the current value of the net salary is maintained is legally debatable, the partner argued.

“Probably, most employers will increase the gross salary. There are however the risks of disturbing the labor market because the payment grids are established according to a coefficient related to the value of the minimum wage. Wage inequities could occur within companies because the difference between salaries will be lower,” Bontaș said.

Romania would be the second country in South East Europe to transfer the contributions from employer to employee, besides the United Kingdom.

“Lowering the contributions by 4.25 percentage points seemingly lowers the costs for employers but the total salaries fund could be higher than in the previous period, when the maximum ceiling was applied. The reason for this is that the savings from the lower wages will be outweighed by the additional sums owed for the higher wages,” Monica Țariuc, a manager with Deloitte Romania, said.

The analysis was carried out taking into account a gross yearly wage of EUR 75,000. Even though it can be a very high amount taking into account the level of local salaries, it was the advised one for a comparison at an EU, European Economic Space, Switzerland comparison.

“We notice that the countries with the highest costs are also those that do not have a maximum ceiling. Even if the taxation rates are similar, the sums increase considerably where there is no ceiling. Romania is imposing contributions similar to those in Germany and Belgium, without offering comparable benefits to the employees. Another remark would be that most countries allow an alternative healthcare insurance in the private sector, an option which is missing in Romania although more and more employees are turning strictly to this type of medical services,” Țariuc commented.

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