Behind every great man is a great accountant. Louis XIV was able to become
the most extravagant ruler the French have ever had – obviously against very stiff
competition – because he employed the brilliant Jean-Baptiste Colbert
as his Minister of Finance.
It was Colbert who said that taxation was like plucking a
goose: you want to end up with the maximum amount of feathers for the minimum
amount of hissing.
Politicians and bureaucrats have followed this dictum ever
since – all too often jumping to the wrong conclusion that it meant killing the
Colbert would have loved payroll taxes – or “employers’
national insurance contributions” to use the British euphemism. They are, in
every respect, income taxes, but, since the employee is not the one who signs
the cheques, he is unaware of how much is being taken. Employers know, because
we do sign the cheques, but who cares what we say? What matters is that there
are fewer employers than employees, so there is less hissing.
Yet there is still a price to be paid. There always is.
Increased costs of employment have exactly the same economic effect whether
they come in the form of salary or payroll tax: some posts become unviable.
In calculating whether a post is viable, an employer has to
factor in much more than the salary. There are usually payroll taxes, and
possibly compulsory pension contributions, health benefits, and pension funds
as well. Then there are the costs of recruitment, selection, training, health
and safety, insurance, maternity – and now paternity – leave, and additional
administration and supervision, as well as the possible costs of redundancy and
litigation. This is to say nothing of providing a desk and computer, or other workplace
essentials, once said employee actually starts doing some work.
One recent article
implies that the true cost of each employee in the USA is 140% of his salary.
This is almost certainly an under-estimate. Wise management consultants should
work on the basis of a rule of thumb of 150%.
It may be even more. It all depends what is
counted and how. Perhaps you need a Colbert to work out exactly what you really
pay when you employ someone.