Non-wage employment costs are about one fifth higher than they were when the number of jobs on the island peaked in 2008.
Soaring health insurance and payroll tax contributions are the main reason for the increase, while social insurance and pension contributions add to employers’ mandatory burden.
After the payroll tax increase that took effect on April 1 this year, estimated non-wage costs make up a minimum of 21.2 per cent on top of a typical salary, compared to 17.5 per cent in 2008.
That means to employ a staff member earning the median gross annual income of $63,657, an employer would have to fork out an annual minimum of $13,504, up from $11,139 in 2008.
In practice, many employers will pay more than this, since our figures are based on employers paying half of the Standard Health Benefit, the value of the absolute minimum required health insurance coverage. Some employers also pay more than their share of the payroll tax.
In 2008, the annual employment survey found there were 40,213 jobs in Bermuda. That number has declined by 17 per cent to 33,375 jobs in 2016. Last year was the island’s first year of employment growth after seven successive years of net job losses.
Even as the economy has started to grow after a six-year recession, job growth has proved elusive.
Rising non-wage employment costs make it less attractive for businesses to hire and provide an incentive for them to outsource and not replace staff who leave. Pay increases also become more difficult for an employer to justify.
In many countries, the tax burden for businesses is based heavily on the profits they earn. But the burden of employment-based taxes is the same whether profits rise or fall, sometimes giving managers difficult decisions to make on human resources and pricing of products and services.
In February, after Bob Richards, the Minister of Finance, announced an increase in the employer’s share of payroll tax and a decrease in the rate levied on most employees, the Bermuda Chamber of Commerce voiced its views on the impact on jobs.
“One issue that was not addressed in this Budget, and which is critical to Chamber members, is the need for a national discussion on how to create more jobs in Bermuda, the need to adopt laws that make it more attractive to start or bring business on island,” John Wight, the Chamber’s president, said.
“We are concerned about facing a growing tax burden with limited prospect of real growth for many Chamber members, which can only come if there are more people in Bermuda to whom they can sell our products and services and the current residents have greater disposable income.”
Payroll tax has become government’s favourite tool for increasing revenues — and is by far the largest single contributor to the public coffers. In 2017-18, the Ministry of Finance projects payroll tax will generate $439 million, or 42 per cent of total revenue.
The employer’s share of payroll tax — for those with a total annual payroll of more than $1 million — has risen to a rate of 10.25 per cent, up from 8.25 per cent in 2008, representing a rate increase of more than 24 per cent for employers over that period.
The Chamber has voiced support for a more progressive tax system in which higher earners pay a higher rate of taxation and backs the government’s goal of eliminating the government deficit by 2019.
But it believes the burden continues to fall too heavily on employers.
“The Chamber is disappointed that 2016-2017 Budget objectives to broaden the tax base, such as adopting a Goods and Services Tax and addressing the self-employed $40,000 notional tax base, were not addressed during the past year and were only introduced in the 2017-2018 budget,” Mr Wight said.
“In addition, Chamber members would find their sacrifice more palatable if the Government were seen to have done more to share in this sacrifice, by reducing the cost of the civil service.”
The Fiscal Responsibility Panel’s second annual assessment, published in December last year also warned of the impact of an over-reliance on payroll tax to generate more revenue, stating that “there are clearly limits to how much additional revenue can be raised from this source without doing damage to Bermuda’s businesses and employment”.
Health insurance costs have been the sharpest-rising of the non-wage employment costs, having rocketed by 78 per cent since 2008, based on the Standard Health Benefit. There are signs that efforts by the Bermuda Health Council and the Government to curb healthcare cost increases are bearing fruit.
Last year, the Standard Health Benefit was held unchanged and this year, the cost was reduced slightly. Paying half of this minimum requirement would amount to just over $2,000 a year at the 2017 rate, compared to just over $1,120 in 2008.
However, in reality most employers pay considerably more, given that they buy plans with broader coverage than the minimum required.
The mandatory Social Insurance levy of $68.94 per week — of which the employer’s share is $34.47 — has risen by about 13 per cent since 2008.
Employers also make contributions to employees’ pension plans worth 5 per cent of salary, matching the 5 per cent that is deducted from the employee’s pay packet. That rate has remained unchanged since 2008, but the dollar amount paid will rise in line with salary increases.
The Bermuda Employers Council did not respond to a request for comment by press time.