It is often the case that you have to calculate fair compensation for self-employed workers in relation to the pay package as an employee. Too often the wage cost is assumed, which is simply not a correct starting point. Only net income, in both the short and long term, is a correct starting point.
It frequently occurs that one must calculate fair compensation for the self-employed in relation to a wage package as an employee.
Too often, this is based on the wage cost. This is not a correct starting point for numerous reasons. Only net income, both in the short and long term, is a correct starting point. To calculate fair compensation for the self-employed, one must therefore take into account net income in the short term, net pension income (both statutory and supplementary pension) and net income in hypothetical situations (incapacity for work, unemployment, etc.).
These calculations are complex because of the large number of variables that affect each other, and therefore require an advanced mathematical algorithm.
It is a frequent occurrence to have to calculate a fee for a self-employed person equivalent to an employee's pay package.
There are a whole host of use cases for this:
One often gets no further than dividing the wage cost of the comparable employee by the number of working days per year. Starting point: a self-employed person may cost as much to the company as an employee. This premise seems fair, but in essence it is not.
A freelance fee is not equal to an employee's salary cost divided by the number of working days.
In this blog post, you'll discover what makes payroll cost not a good starting point and how you can correctly compare the two statutes.
The social status of the self-employed is nothing, absolutely nothing, comparable to the social status of an employee. It is comparing apples to oranges: taxation, pension, guaranteed income, ... So why take the wage cost, which is a proxy of the gross wage, as the starting point?
The argument for using wage cost as a starting point is because it is only fair that a self-employed person be allowed to cost as much to the business as an employee. There is indeed something to be said for that. Only the reasoning is flawed.
Employees first and foremost do not care about the cost to the company. Moreover, most employees generally have no (good) idea of the wage cost. What ultimately matters is net. We'll come back to that further.
Second, the concept of labor cost is ambiguous. Do you go by the gross wage cost or the net wage cost? If you were to extend the principle of equity, you would end up having to assume the gross wage cost rather than the effective wage cost. That means the cost to the company would increase, whereas any company that ventures into this exercise would want to pursue wage cost neutrality.
The gross salary cost is equal to an employee's total gross salary, including fringe benefits and benefits in kind, plus employer social security contributions.
The net or effective wage cost is equal to the gross wage cost, minus the (para)fiscal wage subsidies, such as: target group reductions for first employees, exemption from payment of withholding taxes for R&D, structural reductions for social security, ...
Companies always want to assume the net labor cost. This is right, because otherwise it would lead to an increase in costs for the company. Only, when you assume a net wage cost, the freelancer/self-employed person is penalized for the wage subsidies received by the company. An employee for whom the company can apply a pass-through BV exemption would therefore receive a lower per diem. That's not really fair.
So if you want to pursue equity as a business, you would have to assume a (hypothetical) gross wage cost. And that creates an increase in cost, which a business never goes along with.
Of course, the cost perspective should not be lost sight of. It applies as a ceiling to the final solution. Because we must be able to benchmark whether the final daily fee of the freelancer/self-employed person on an annual basis does not exceed the cost for the employee.
In doing so, it's important that you don't use the cost of wages for the ceiling, but more broadly the cost of employing the worker.
Thus, we must also consider other indirect costs linked to the employment of an employee, such as:
An important prerequisite here is that you cannot include these items twice. If you include the cost of an office for the calculation of the freelance fee and the rent of the office is not invoiced, then the freelancer passes the cash register twice. This is not the intention. So which employment costs should all be included depends on the policy of the company in question.
The employment cost is a ceiling, a precondition. Nothing more.
The correct starting point for comparing the social status of employee to the social status of a self-employed person is the net income the individual takes home.
The net income to be matched falls into three parts:
Short- and long-term net income is the most correct and the most equitable starting point. On the other hand, this principle is not easy to put into practice. After all, you have to take into account as many as 7,000 parameters that all influence each other.
In essence, we need to see three calculations:
Well, calculations 1 and 3 can be performed by a multidisciplinary team of experts.
Calculation 2, on the other hand, requires a sophisticated mathematical algorithm, since you have to take into account more than 7,000 parameters that all impact each other and consequently calculate millions of scenarios to distill the optimum from them.
In short, with hukaroi, we are the only player in Belgium (and beyond) with all the expertise to bring all these calculations to a successful conclusion.
As a professional advisor, do you want to do the same for your clients? You can! We also offer such expert tools on the basis of a SaaS model 😎
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