How wages are calculated in Europe: the main scenarios
Net wages in Europe can be very different from gross wages. The amount of a professional’s final income depends on many factors.
There are four main ways of calculating net pay in Europe. It depends on the employee’s marital status, the presence of children and other variables. Most EU countries also apply progressive tax rates.
Scenarios for net pay
Gross income is the key factor in forming net wages. From this, social security contributions and income tax are deducted. For households with children, family allowances are added. Other features also affect the calculation of net income.
In general, there are four basic scenarios:
1. Single person without children. The ratio of net to gross income varies from country to country. For example, it is over 60% in Belgium and almost 90% in Cyprus. The EU average is 68.8%. Switzerland (81.4%), Estonia (81%) and the Czech Republic (80%) have high net income ratios. In Germany, Romania, Denmark and Lithuania, net income is less than 65% of gross income.
2. Married couple without children. Net income, in this case, is close to the first option, but there are some differences. On average, in European countries, couples receive 69% of their gross income from taxes and social contributions.
3. A family with a working spouse and two children. The amount of net income increases compared to the scenario without children. It does not matter whether the household consists of a single person or a couple. The minimum ratio is 70.4% in Romania, and the maximum is 109.3% in Slovakia. The EU average is 82.7%. Denmark, Norway and Finland are among the countries with the lowest net income, which is less than 76% of gross income.
4. Working couple with two children. In this scenario, the lowest net income is recorded in Belgium (65.7%). The highest income for households with two children is in Slovakia (89.5%). The regional average is 73.8%.
According to the statistics, couples with children earn higher wages. This is especially true if there is only one working adult. In many countries, this figure is as high as 80% of the gross amount. This trend indicates more favourable conditions for families with children.
Countries with the highest net wages
The average gross annual income in the European Union is €41 004, with a net income of €28 217. The lowest net salary is in Bulgaria – € 9 355. The highest after deductions is in Luxembourg – €49 035. The average net income of a family with children and one breadwinner in the EU countries is €33 940. The difference between the income of a single person and a family with children is due to two factors. A couple receives around €1 846 in family benefits. They also pay 3 764 less in income tax.
