For employers evaluating international hiring opportunities, salary is often the first number examined. But according to a new study comparing employment costs in major U.S. and European markets, salary may be only part of the equation.
Research conducted by Payoneer Workforce Management found that employer-side obligations such as payroll taxes, social security contributions, pension funding requirements, healthcare-related payments, and other statutory costs can substantially alter the total cost of employment depending on where a worker is located. The study examined six U.S. cities and six European cities using both a standardized salary benchmark and local-market compensation data.
In a discussion with Checkpoint News, Dee Coakley, Head of Workforce Management Europe at Payoneer, said employers frequently underestimate how dramatically employment costs can vary from one jurisdiction to another. She said organizations considering international expansion should focus on total cost of employment rather than salary alone.
Key takeaways
- Salary often represents only a portion of the employer’s actual labor cost.
- At a $75,000 salary benchmark, average employer costs in the European cities studied were roughly 2.5 times higher than in the U.S. cities studied.
- Employer contributions and employee take-home pay do not necessarily move together.
- Employment costs vary significantly from one European country to another.
- Employers should model costs using specific countries and salary levels rather than broad assumptions.
Employer contributions can dramatically increase hiring costs
To isolate differences between payroll systems, the study first applied a uniform annual salary of $75,000 across all cities analyzed.
Under that scenario, average employer costs in the European cities totaled approximately $22,629, compared with $8,881 across the U.S. cities. European employer-side costs were about 2.5 times higher than those in the United States.
Paris generated the highest employer costs in the study. At the $75,000 salary level, employer contributions added $34,753, bringing total employment costs to $109,753. By comparison, total employment costs in San Francisco were $83,383 on the same salary.
The report found that employer costs in the United States were relatively consistent across cities because federal payroll taxes account for much of the employer burden. In Europe, however, costs varied significantly by country because each jurisdiction operates its own contribution structure with different rates, wage bases, and mandatory charges.
Coakley said it can be difficult to determine how many organizations make inaccurate hiring-cost projections, but she noted that less experienced finance and people leaders may apply a standard percentage increase to salaries without accounting for country-specific obligations.
“Smaller organizations or less experienced Finance or People leaders may make the mistake of estimating all projected hires as having the same percentage uplift on base salary in employer costs that the company sees in their HQ country,” Coakley said.
She added that forecasting can become even more complicated when hiring locations have not yet been identified.
“And of course it is very difficult to produce accurate estimates when the exact location of future hires is not yet known,” she said.
Europe’s costs vary widely by country
One of the study’s central findings is that Europe cannot be viewed as a single employment-cost environment.
The analysis found a spread of more than $23,000 between the lowest- and highest-cost European cities studied. Dublin’s employer contribution rate was significantly closer to U.S. levels than those found in Paris, Amsterdam, Madrid, or Berlin.
The report noted that Ireland’s employer contribution rate of approximately 14.8% placed it much closer to the U.S. profile than most European jurisdictions examined.
According to Coakley, employers often assume that healthcare and retirement contributions represent the primary costs of employing workers outside the United States. In practice, she said, employer obligations can be much broader.
“Many employers assume there will be costs for some form of healthcare and for pension,” Coakley said. “But, in reality, some countries have a long list of items that employers need to contribute towards.”
Because contribution structures vary so significantly, she said employers should evaluate each jurisdiction individually.
“Every country is very different, so it is always worth looking into the details for any country/ies that you may be considering hiring in,” she said.
France is one country that frequently surprises organizations evaluating international expansion opportunities.
“We regularly speak with leaders who are very surprised when they see a breakdown of costs for prospective employees in France,” Coakley said. “While other popular countries such as the Netherlands, Spain, and Italy have similarly high statutory employer payments, France seems to be the country where people are most frequently blindsided.”
The study reached a similar conclusion, identifying Paris as the highest-cost city in the analysis because of extensive employer social contribution requirements.
Employer costs and employee pay are not the same thing
The study also found that higher employer costs do not necessarily result in greater employee take-home pay.
At the $75,000 benchmark salary, Amsterdam generated total employment costs of $104,970, while Madrid cost $99,403. Yet employees in those cities received nearly identical net pay — $47,621 and $47,104, respectively. According to the report, the difference was absorbed by statutory employer contributions rather than paid directly to employees.
Similarly, every U.S. city in the study delivered higher employee take-home pay than every European city at the benchmark salary level.
The report observed that what employers spend and what employees ultimately receive are often influenced by different elements of each country’s tax and contribution system.
Coakley said compensation strategies must account for local market realities rather than simply applying standardized global assumptions.
“Approaching multi-country hiring with a ‘standard cost’ is often not practical,” she said.
She added that employers competing for skilled talent must remain mindful of local labor markets.
“Employers that are seeking strong talent will always need to offer compensation rates that are competitive locally in the home country of the workers they’re seeking to hire,” Coakley said.
In some countries, she noted, employers may need to provide higher gross pay because employee taxes or cost-of-living pressures reduce the value workers ultimately take home.
Local salaries can change the picture
While Europe appeared more expensive under the fixed-salary comparison, the results changed when researchers incorporated local-market compensation.
The study found that mid-level marketing managers earned an average salary of $91,833 in the U.S. cities studied, compared with $66,375 in the European cities analyzed — a difference of 38%.
Once local salaries were considered, four of the six European cities cost less than Nashville, Tennessee, the least-expensive U.S. city in the study. Madrid, London, Berlin, and Dublin all generated lower total employment costs. Paris remained an exception because employer contributions were high enough to offset lower salary levels.
According to Coakley, these results illustrate why broad assumptions about employment costs can be misleading.
“When you look at how countries rank relative to each other for total employment costs at this salary level, and then look at the same list of countries for higher and lower salary levels, it becomes very apparent that how progressive or regressive a country’s tax regime is has a huge bearing on what the percentage rate of employer cost is at different gross salary levels,” she said.
Workforce planning implications
For payroll, tax, finance, and HR professionals, the study reinforces the need for detailed cost modeling before making hiring decisions.
Coakley cautioned that employer costs can vary dramatically from one market to another, creating significant financial risk when assumptions are wrong.
“With statutory employer costs in some countries teetering around 50% of gross salary, and others running as low as 5%, the margin of difference can be as much as 10x from one country to another,” she said.
She said underestimated costs can materially affect business planning.
“Underestimated costs, or unplanned pivots to alternative countries for hiring can have the kind of impact on a financial plan that can take an entire project — or worse, the overall business — from profitable to catastrophically loss-making,” Coakley said.
To develop more accurate projections, she recommended evaluating the full cost of employment, including salary, statutory employer contributions, pension obligations, healthcare-related costs, and any voluntary benefits offered by the employer.
As international hiring becomes increasingly common, the study suggests payroll professionals are playing a growing role in helping organizations understand the relationship between salary, statutory obligations, and total employment cost.
International hiring compliance checklist
Before hiring workers in another country, employers should:
- Calculate total employment cost, not salary alone.
- Identify all statutory employer taxes and social contributions.
- Model employee net pay separately from employer cost.
- Review country-specific pension, healthcare, and social-insurance requirements.
- Evaluate whether an Employer of Record or local entity structure is appropriate.
- Include voluntary benefits when calculating employment costs.
- Validate assumptions at the specific salary level and hiring location being considered.
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