How much do things like PAYE, Holiday pay, ACC levies and sick leave actually cost your business? A lot. Are these things taxes? Yes.
We're about to move into our busy season and this morning I was looking at hiring new staff. I would prefer to hire local because it's easier to manage and it also supports my local community. However, I also have to take into account the cost and liabilities for my business. I can pay an overseas software developer just $20 per hour and not have to worry about sick leave, PAYE, contracts, etc.
So, I decided to evaluate how much of what I pay a local employee is actually tax and not related to my business production. Here's what I came up with for an employee that I pay $20 an hour ($800 p/w):
- Paye (M SL): $132.75
- Student Loan: $40.00
- Kiwi Saver: $64.00
- Kiwi Saver (Employer Contribution): $64.00
TOTAL: $300.74 per week
Additional leave taxes accumulated by the employer every week:
- Annual Leave: $66.66
- Sick Leave: $15.38
- Public Holidays (12 days): $36.92
- Bereavement Leave (4 days): $12.30
TOTAL: $131.26 per week
So, the actual cost each week is $931.26 but the employee only gets $563.25 of that and the rest as other things like PAYE, holiday pay or paying off their student loan. In this example the total amount of tax is actually $432.00 ($46.38%) per week.
I'm still likely to hire a web designer that is local and can interact with my clients but for software developers I'm more likely to hire offshore. Not an ideal solution but as you can see our tax system over taxes and burdens employers. I'm not blaming present or past Governments, just wanting to show the real cost to an employer.