If you earn good money and decide to work part-time, then you will often get proportionally less money (before taxes) – and you will cost your employer more per hour.
Why is that so?
The reason for this is the social insurance threshold value . Currently (2011), the upper limit for old-age and unemployment insurance in May is 5,500.00 (€ 66,000 each year) in West Germany. In East Germany, it is lower: 4,800.00 per month (57,600.00 for the entire year). I wonder why that is so.
However, this is not what this article is about.
Someone earning these montly 5,500 € (66,000 € per year) is exactly on the threshold value. What has to be paid into old-age and unemployment funds for him is exactly as high as if he earned 25 % more. That would be a monthly 6,875 € (or a yearly 82,500). You can do the arithmetic with 25 %, can’t you? For top earners with multiple qualities, an income of around 80,000 € is absolutely realistic.
Now let us assume that a consultant earns 82,500 each year (before taxes) and works five days a week with 40 hours. Let us then assume he wants to reduce and work four days instead of five. That would be 32 hours instead of 40 hours. Mathematically, his income (before taxes) would then have to be 4/5 of what he earned formerly before taxes (at least that is how we at InterFace calculate it).
Now he earns 1/5th less and still has to pay exactly the same amount in social insurance fees as before, when he still earned more. In other words: his due for the 32 weekly hours he works is the same as when he worked 40 hours – and consequently his income after insurance fees per hour is now lower.
On the other hand, his empoyer has exactly the same problem. He now has to calculate with 1/32 per hour of the same share he used to pay formerly for 40 hours. If you are the employer, you actually have to pay one quarter more per hour due to social fees.
In addition, it is quite possible that using a part-time consultant is a lot more complicated than using a “normal” full-time employee. Besides, the absolute number of hours spent for social and administrative participation at the enterprise will probably not get less just because someone now works less hours per week. And then you must not forget the rising costs per hour. All this with marges getting thinner and thinner.
That does not make sense.
After all, our legislators justifiably want to promote part-time jobs. That is why laws have been introduced forcing employers to accept an employee’s wish to work part-time. Wouldn’t it, then, be reasonable to think about making the threshold values of social insurance fees dependent on the number of hours worked per week (based on 40, half for 20,…)?
I used to believe that all this is due to technological mistakes inside a complicated system. Now, however, I believe there are two reasons for this grotesque situation: firstly, the state wants it (why forego the chance of getting more from the citizens?) and secondly mistrust, because there is the danger of fraud. After all, people could come up with the idea of labelling full-time contracts as part-time contracts if the social insurance fees for part-time employees are reduced in proportion to the hours worked per week.
Here is another example of how probably (treacherous) state greed has done serious damage. In the early days of the Federal Republic of Germany, we had a not-too-bad tax legislation with a simple progression regulation. Unfortunately, one basic rule was violated, namely linking the tax threshold values with the inflation. This caused a tax rise through currency devaluation, the so-called “cold progression“.
Well, wouldn’t it have been the easiest thing in the world to just modify the progression rate as the inflation rate went up or down? But no, that would have been too easy – and neither would there have been a (supposed) control.
RMD
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