Wages are not everything – national insurance costs important to posting of workers

But he or she most often will not be able to keep as much of the money as a locally employed colleague on the same pay. Because the Lithuanian worker must normally pay part of the statutory national insurance contribution in his or her native country.

That is one of the conclusions drawn by four Swedish researchers – including myself – in a new book called "Likabehandlingspincipens olika ansikten" (The different faces of the principle of equal treatment). 

In addition to the fact that the posted worker is usually paid less per hour than the locally employed worker, the company posting the worker gains a further competitive advantage over Swedish companies as a result, because the latter must pay national insurance costs for their employees.

This is but one example of how the competition in the borderless labour and service market is not influenced solely by lower wages. National insurance rules and taxation rules also play a part.

What does the employee end up with?

The purpose of the book is to look at how labour law, tax law and social insurance law work together when people from other countries come to Sweden to work. How do labour, tax and social insurance legislation taken together influence the cost of having a job done, and how much are those performing the job left with after tax and national social insurance contributions?

In order to find out, we created three typical situations where workers came from Poland, Lithuania or Germany to work on a Stockholm construction site – either directly employed by the Swedish construction company, as workers posted by a foreign company or as self-employed workers.

The two first groups’ salaries and other conditions were in line with Swedish collective agreements, while we presumed the self-employed wanted to have the same amount per hour, before tax, as a posted worker. It has been necessary to simplify the calculations, but they still serve to illustrate the effects resulting from the rules.

Posted workers most beneficial 

The by far most economically beneficial option for those who commission the work is to hire posted workers, especially if the posting lasts less than 24 months. That is the limit for how long workers can remain in the home country’s social security system, and hence have to pay some of the statutory national insurance contributions themselves (this applied to all of the three countries). 

For the three examples, this resulted in savings of around 100 kronor per hour when hiring posted workers compared to if the Swedish construction company employed the foreign workers directly. 

Hiring a Polish, Lithuanian or German self-employed worker who wants to be paid the same as a posted fellow citizen would turn out to be more expensive than using a posted worker. One reason is that self-employed workers must pay all of the statutory national insurance contributions themselves. Still, it would be cheaper still to hire a Lithuanian or German self-employed worker than to employ these people directly.

However, it is important to remember that some of them would probably be employees according to Swedish law – and be entitled to enjoy the same conditions as if they were employed by the Swedish construction company. 

Best to be directly employed 

For the construction worker him or herself it is, perhaps not surprisingly, most profitable to be directly hired by the Swedish company. According to calculations made for the book, in 2018 he or she could earn up to 58 kronor per hour more after tax than a posted worker.

This was partly because the locally hired construction workers are paid considerably more than the minimum wage which posted workers must accept according to the rules that still apply, and partly because they do not need to spend any of this pay on national insurance contributions. 

As we know, from 30 July next year changes to the EU’s posting of workers directive should be implemented, which mean that posted workers no longer have to be content with “the minimum rate of pay”, but must be given “all the mandatory elements of remuneration” in the country where they work.

Exactly what this entails is still unclear, but even if the difference in pay between local and posted workers is reduced or disappears, the rules surrounding social security remain. Posted workers from countries where the responsibility for paying national insurance is shared between employers and employees will therefore still have to pay national insurance contributions in their home country. This represents an obstacle to the posting of workers directive’s aim to guarantee posted workers the same rate of pay that is normal in their host country, and the devaluation of collective agreement wages for these workers.