Payroll taxes and related expenses

We share with you the formulas on how to easily calculate the company's total salary expense and related taxes:

1.     When the company states in the labor contract the amount to be collected (net);

2.     When the salary of the company is written in the labor contract, the amount to be collected is 2% including the pension;

3.     When the salary is written including taxes in the company's labor contract.

What taxes do we pay on an employee's salary if the employee is included in the pension scheme?

1.     For example, we have given information on the amount of 1,000 GEL to be paid according to the labor contract. We pay 1,000 GEL as salary every month. On the employee's wages and other benefits, the company has to pay 20% income tax and 4% pension contribution (of which 2% is the company's cost and 2% is the employee's own share). As a result, the company's total salary expense, including taxes, is calculated by the following formula:

·       Total salary expense

1,000/98%/80%*102% = 1,301.02

·       income tax

1000/80%*20%

·       Pension contribution (employee's share)

1000/80%/98%*2%

·       Pension contribution (company share)

1000/80%/98%*2%

That is, in the case when the employee is included in the pension scheme and the company pays 1,000 GEL, the company has to pay a total of 301 GEL and 2 Tetris in the form of income tax and pension contributions. Out of this 301.02 GEL, 250 GEL is income and 51.02 GEL is pension.

The excel file salary calculation.xlsx

2.     Often the salary, which includes 2% of the pension, is known based on the employment contract.

For example, we have given information when the employee's salary is 1,020.40 (1,000/98%) GEL, which includes 2% pension. We pay 1,000 GEL as salary every month. On the employee's wages and other benefits, the company has to pay 20% income tax and 4% pension contribution (of which 2% is the company's cost and 2% is the employee's own share). As a result, the company's total salary expense, including taxes, is calculated by the following formula:

·       Total salary expense

1020.408/80%*102% = 1,301.02

·       income tax

(1020.408/80%-1020.408/80%*2%)*20%

·       Pension contribution (employee's share)

1020.408/80%*2%

·       Pension contribution (company share)

1020.408/80%*2%

That is, in the case when the employee is included in the pension scheme and the company pays

1,000 GEL, additionally the company has to pay a total of 301 GEL and 2 Tetris as income tax.

in the form of tax and pension contributions. Out of this 301.02 GEL, 250 GEL represents

of income and 51.02 GEL represents pension.

The excel file salary calculation.xlsx

3.     When the salary is written including taxes in the company's labor contract.

For example, we have given information when the employee's salary is 1,275.51 (1,000/80%/98%) GEL including taxes. We pay 1,000 GEL as salary every month. On the employee's wages and other benefits, the company has to pay 20% income tax and 4% pension contribution (of which 2% is the company's cost and 2% is the employee's own share). As a result, the company's total salary expense, including taxes, is calculated by the following formula:

·       Total salary expense

1,275.51*102% = 1,301.02

·       income tax

(1,275.51-1,275.51*2%)*20%

·       Pension contribution (employee's share)

1,275.51*2%

·       Pension contribution (company share)

1,275.51*2%

The excel file salary calculation.xlsx

What taxes do we pay on an employee's salary or an employee's pension scheme?

not turned on?

When an employee is not included in a pension scheme, the company only has to pay income tax on his salary and other benefits and does not have to make pension contributions.

For salaries paid to persons not covered by the pension scheme, the total salary expense including taxes is calculated using the following simple formula:

1,000/80% = 1,250

That is, if the employee is not included in the pension scheme and the company pays 1,000 GEL, the company has to pay an additional 250 GEL as income tax.

Prepared by Ketevan Kervalishvili.

Ketevan Kervalishvili, AACC invited trainer: professional, certified accountant with 15+ years of experience in accounting and finance.