Key terms related to labour costs are defined by the International Labour Organization. Those definitions are also a basis for the work of national statistical offices of individual countries.
Labour cost according to the International Labour Organization’s definition is:
‘[…] the cost incurred by the employer in the employment of labour.’
It comprises ‘[…] remuneration for work performed, payments in respect of time paid for but not worked, bonuses and gratuities, the cost of food, drink and other payments in kind, cost of workers’ housing borne by employers, employers’ social security expenditures, cost to the employer for vocational training, welfare services and miscellaneous items, such as transport of workers, work clothes and recruitment, together with taxes regarded as labour cost.’
The concept of (gross) earnings according to ILO’s definition relates to:
‘[…] remuneration in cash and in kind paid to employees, as a rule at regular intervals, for time worked or work done together with remuneration for time not worked, such as for annual vacation, other paid leave or holidays. Earnings exclude employers’ contributions in respect of their employees paid to social security and pension schemes and also the benefits received by employees under these schemes. Earnings also exclude severance and termination pay.
Statistics of earnings should relate to employees’ gross remuneration, i.e. the total before any deductions are made by the employer in respect of taxes, contributions of employees to social security and pension schemes, life insurance premiums, union dues and other obligations of employees.
Earnings should include: direct wages and salaries, remuneration for time not worked (excluding severance and termination pay), bonuses and gratuities and housing and family allowances paid by the employer directly to this employee.’
Net earnings are gross earnings less employees’ social security contributions and personal income tax.
Total labour costs comprise the following components:
Gross earnings (wages and salaries), which include
Social security contributions and personal income tax deducted from employee’s remuneration
Employer’s social security contributions and other labour related taxes
Other labour costs including cost of vocational training, welfare services and other items.
Obligatory social security contributions are partly paid by the employee (deducted from wages) and partly by the employer (on top of wages) in all countries in the report except for Russia. In practice the employer is obliged to withhold all contributions.
Social payments made by the employee are included in the official statistics as part of gross earnings. Since the proportion of those payments varies considerably from country to country (from 0% to 22% of gross earnings for countries in the report), average gross earnings as quoted by different statistical organizations consist of different levels of social contributions and hence the results of comparisons of labour costs based solely on them should be treated with caution.