How much does it cost to raise a salary.

 

The final gain for the employee

The final gain for the employee

The study launched by INSEE on marginal effective tax rates for wage increases shows that they are rather high. This is the share reserved for the tax system as well as the social system when the employee benefits from an increase in his income. It includes on the one hand the increase of taxes, taxes and social security contributions, on the other hand the reduction of social benefits such as family allowances or housing subsidies. The study reveals that for a salary increase of 100 euros, the employee will in fact only 43 euros, the remaining 57 euros being allocated to the state. This median marginal rate concerns more than half of the population, but it varies according to the situation. Marital status, number of children, household income, legal status of employment are factors that have an impact. When the employee is remunerated at the Smic, the marginal rate can vary from 45% to 82%.

System anomalies

System anomalies

The INSEE has put on the finger on some quite astonishing points. In fact 1.5% of the people raised have a marginal rate of 100%, that is to say that at the end they receive zero euro. All their share of salary goes to taxes and is lost in the payment of welfare benefits which are reduced. On the other hand, 0.2% of employees have a negative marginal rate , which means they will pay less tax and receive more social benefits.

A salary increase is not necessarily productive and employees may think twice before embarking on a promotion or an increase in working time. If moreover the budget of the home is invaded by too many credits, a financial solution of regrouping could be welcome. This is to bring all loans still outstanding into a single credit at a lower rate. The increase in the repayment term is offset by a decrease  in the monthly payment, even if the credit is more expensive for the purpose.

 

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