What is the Cost of the Minimum Wage to the Employer?

You are about to hire an employee and are building your budget based on the net salary. This is the most common way to underestimate personnel costs.

There is a significant difference between the money that lands in the employee's pocket and the money that leaves yours. Knowing where this difference comes from changes both your hiring decisions and your pricing.

There are three different figures, and all three are called "salary"

This is the source of the confusion. Three different numbers float around for the same employee:

• Net salary. The amount deposited into the employee's bank account. This is usually what people mean in conversation.
• Gross salary. The net salary plus the employee's share of SSI (Social Security Institution) premiums, unemployment insurance premiums, income tax, and stamp tax.
• Total cost to the employer. The gross salary plus the employer's own share of premiums. This is the actual expense for the business.

On the path from net to total cost, the amount grows by roughly one-third. The exact rate varies depending on the income tax bracket during the year and the incentives you benefit from.

Components of the cost

The first four items are deducted from the employee's gross salary—meaning they do not increase your costs, but rather decrease the employee's net. The last two items come directly out of your pocket and are added on top of the gross.

The total of employer share premiums varies depending on the hazard class and applicable discounts. Therefore, the cost of the same gross salary can turn out differently for two separate businesses.

Incentives drive costs down

The government has several mechanisms that reduce the employer's share of premiums. The most common is the five-point premium discount applied for employers who meet the criteria.

Aside from this, there are headings such as minimum wage support, incentives for youth and female employment, and disabled employee incentives. Each has its own conditions and duration.

The practical takeaway here is: most incentives are not applied automatically. Declarations must be made with the correct code, and debt restructuring conditions must be met. It is worth asking your financial advisor explicitly, "Which incentives do we benefit from?"—most businesses only realize they were entitled to a discount they weren't using when they ask.

Salary is not the full cost

When discussing an employee's annual cost, simply adding up the 12-month salary falls short. There are additional items stacked on top:

• Commuting and meals. If provided regularly, they are fixed monthly expenses; they are also factored into severance calculations.
• Accrued severance liability. Every year worked accumulates an amount to be paid in the future.
• Unused leave. A receivable that turns into cash upon departure.
• Hiring and training. Job postings, probation period inefficiencies, and training time.

A realistic annual personnel budget includes these items as well. We covered these two items separately in our articles on severance pay and annual leave balance.

This figure determines your pricing

If you are a service-based business, your hourly cost stems directly from here. If you calculate personnel costs based on net salary and price accordingly, you end up covering the difference on every sale.

The correct method: take the total employer cost, divide it by the annual workable days (subtracting leaves and public holidays), and add your overhead share on top. The resulting figure is your true cost. We explained overhead distribution in our cost calculation article.

Frequently asked questions

Why didn't you write the minimum wage amount?

Amounts and premium rates change periodically. Putting a figure here would make the article outdated within a few months. For current amounts, check SSI announcements and your financial advisor; the logic remains the same.

Does the income tax bracket increase the cost during the year?

If you are making net-to-gross payments, your cost remains fixed while the employee's net decreases. If you agreed on a net salary, you need to increase the gross as the tax bracket rises—meaning your cost increases during the year. This is why the figure upon which the agreement is made matters.

Is the cost proportional for part-time employees?

It is calculated based on the number of premium days, but missing day declarations have their own rules. Making accurate declarations for part-time work is important.

How should I track these expenses in pre-accounting?

Record net payments, SSI, and tax payments as separate items. Writing "salary" on a single line prevents you from seeing which payment is due when.

In summary: the amount you pay an employee and the business's expenses are different things. Building your budget on the correct figure puts both your hiring decisions and pricing on solid ground.

By opening a free account on Qolay.App, you can track your personnel expenses together with cash and bank transactions.

This article is for general informational purposes. Minimum wage, premium rates, and incentive conditions change periodically; consult your financial advisor for your specific situation.