New Study: Labour Costs in CEE

1. December 2021 | Reading Time: 4 Min

TPA, together with the HR consulting firm Kienbaum, has published a study surveying labour costs in twelve selected countries in Southern and Central Europe. The study entitled “Personnel costs as a factor when choosing a location” focuses on four groups of people:

  • Managers,
  • executives,
  • white-collar and
  • blue-collar workers.

Personnel costs as a factor when choosing a location

“Many of our clients operate internationally and deploy their workers across country borders. This led us to take a closer look at the issue of labour costs in comparison with many relevant Central and Eastern European countries,” says Klaus Bauer-Mitterlehner, Partner at TPA. The tax advisor is responsible for the study together with Thomas Haneder, also a partner at TPA, and Wolfgang Höfle, TPA’s expert for wage and social insurance. Wolfgang Höfle: “It pays for companies to take a close look, especially if they are posting employees or considering opening a new location.” Thomas Haneder adds: “Nearshoring is the buzzword of the day – personnel costs play a decisive role here, along with other factors.”

What underpins the study: gross remuneration paid in Albania, Austria, Bulgaria, Croatia, the Czech Republic, Hungary, Montenegro, Poland, Romania, Serbia, Slovakia, and Slovenia 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).

Highlights of the new study: Personnel costs in CEE

Here are some highlights as regards personnel costs for employers:

  • Austria always ranks first by a wide margin 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 neighbours 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 consistently has the lowest total costs for all groups of persons.

Differences between EU and non-EU countries

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).

This means that personnel costs are lower in South Eastern Europe. It must be remembered that, when considering the figures and calculations, other criteria (e.g. levels of training and qualification, restrictions due to labour law provisions, etc.) must also be taken into account when deciding on locations.

Personnel costs in the IT sector

Specific industry observations Central and South Eastern European countries are popular outsourcing locations for the IT sector and the manufacturing industry. A detailed examination of these two sectors enables the following points to be summarised:

  • Individual country rankings do not change to any noticeable extent.
  • White-collar worker costs in the IT sector are above average in all countries.
  • Blue-collar worker costs in the manufacturing industry are consistently lower than the sector average – in Croatia, for example, by as much as 21%.

What does the employee receive net?

The study is based on different gross amounts depending on the country, so in individual cases high net amounts may result despite high taxes and social insurance contributions.

  • In this respect, due to having the highest gross amounts by far, it is again not surprising that Austria 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.

Comparison of the ratio of net income to total costs

While 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). 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.

Salary comparison betwwen Bulgaria & Austria

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).

The cost of living 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.

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