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ith an increasingly competitive job market, setting salaries for future employees is not an easy task. After all, companies have to consider the average salary of this professional activity in question, not only according to the candidate's professional experience, but also taking into account the final cost that they represent.
But before submitting a salary proposal, companies must identify the cost of all the components inherent to an employment contract. That is, in addition to the annual salary, it is essential to assess the costs of meal allowance, Social Security contributions, workers' compensation insurance, compensation fund, among other additional charges. Only at the end of this breakdown will they be able to conclude whether or not they can bear the real cost of a new employee.
To help with this, we present the calculations that companies must make, using as an example an employee who earns 1,000 euros of base salary.
Setting the base salary
As a rule, the process of hiring new employees consists of several stages, which are in the hands of the human resources department of a company.
Although procedures vary from company to company, defining a new employee's base salary is one of the main stages in all recruitment processes. Thus, companies should calmly reflect on the base salary they will propose in the recruitment process. Why? Because it is on this amount that taxes, Social Security contributions and other expenses on the side of the company will be applied.
If companies offer a salary of 1,000 euros, they will have to multiply this amount by 14 to calculate the annual gross salary cost. And why is it multiplied by 14 and not by 12? Because in Portugal, in addition to the 12 months of work, the holiday allowance and the Christmas allowance are included in this calculation.
Thus, an employee who earns a gross salary of 1,000 euros represents an annual cost of 14,000 euros. To determine the average monthly cost, simply divide the 14,000 euros by 12. That is, if an employee earns 1,000 euros of base salary, this remuneration represents an average monthly cost for the company of 1,166.6 euros.
But this amount only concerns the base salary. There is more math to be done to get to the total cost of an employee.
Meal allowance
Although not required by law, nor included in the Portuguese Labour Code, the meal allowance is a benefit that is paid by most companies (except in situations where there is a collective bargaining agreement where the meal allowance is identified as a obligation). The cost of this allowance will depend on the amount the company decides to pay, and also on the payment method.
This is because, when the meal allowance is paid together with the employee's remuneration, it is exempt from discounts for the IRS and Social Security up to 5.20 euros per day.
But if the option is to pay the meal allowance using a meal card or voucher, the exempt amount rises to 8.32 euros per day. Whenever companies choose to offer an amount for meal allowance that's above the mentioned established amounts, the surplus is subject to taxes.
When a company pays the maximum amount that's exempt from this allowance together with the salary, it has a monthly charge of 104.94 euros. When the choice is to pay in a meal card or voucher, the monthly cost is 167.86 euros.
The weight of TSU (Social Security contribution on the side of the company)
The Single Social Tax, TSU (or Social Security tax) has a very significant weight in the final cost of an employee. Therefore, before proposing a salary, companies must simulate how much they will pay in Social Security contributions for each employee.
The TSU corresponds to 34.75% of the base salary. However, 23.75% is borne by the employer, and the remaining 11% is deducted from the employee's salary.
In a base salary of 1,000 euros, the company additionally pays 237.50 euros of Social Security contributions. In other words, in this case, the annual cost of the TSU would translate into 3,325 euros, taking into account the 14-month salary.
However, in some cases, there is the possibility for companies to benefit from the reduction or exemption of TSU.
For example, if companies sign open-ended contracts with young people looking for their first job, they benefit from a 50% TSU reduction up to five years. And the same applies for three years, in the case of open-ended contracts with long-term unemployed people, as long as they have been registered with the Portuguese employment center (IEFP) for at least one year. In the case of contracts with unemployed people that are at least 45 years old and registered in the IEFP for more than two years, companies can benefit from the total exemption from TSU for up to three years.
It's important to note that the request for partial or total exemption from TSU must be done by the company through the Portuguese Direct Social Security online service.
Workers' compensation insurance and compensation fund
Workers' compensation insurance is a right all employees have. Therefore, all companies must offer this type of insurance to their employees.
Although the fee amount varies depending on the professional activity carried out, a workers' compensation insurance covers 1% of the employee's income. Thus, if an employee earns a base salary of 1,000 euros, the monthly workers' compensation insurance amount will be around 10 euros (1,000 x 1% = 10). But to calculate the annual cost, it is necessary to multiply the monthly amount by the 14 months of salary, which in this case would represent an annual amount of 140 euros.
After determining the amount of the workers' compensation insurance, companies must also account for the charges with the Work compensation fund and the Work compensation guarantee fund.
If you are not aware of these two funds, they are mandatory and serve to ensure that an employee receives up to 50% of their compensation in the event of termination of the employment contract.
However, these funds are only activated in very specific situations, such as, for example, in cases of company insolvency or when companies face economic crises that do not allow the payment of compensation in the event of collective redundancies.
As a rule, these two funds represent a charge of around 1% of the employee's income. In other words, the company would have to pay an additional 140 euros per year for an employee with a base salary of 1,000 euros.
How much does an employee actually cost in the end?
Taking the example of an employee with a base salary of 1,000 euros, this would represent an annual cost of 18,759.34 euros (considering the meal allowance would be paid together with the salary) or 19,451.46 euros (considering the meal allowance would be paid in a meal card or voucher). These amounts include base salary, meal allowance, TSU, workers' compensation insurance and compensation and guarantee funds.
However, companies have other mandatory charges with employees that must be analysed, such as occupational medicine, professional training and hygiene and safety audits.
In addition, if companies want to assign flexible benefits to their employees, such as childcare vouchers, transport card, health insurance or life insurance, among others, they must add these expenses to the total amount they will pay per employee.
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