Hiring Your First Employee: What a Payroll Really Costs the Company

Hiring your first employee is one of the steps that raises the most questions among freelancers and small business owners: the question that comes up again and again is “what is this really going to cost me?” The answer is never simply the salary agreed with the person — it’s a noticeably higher figure. Understanding the difference between gross salary, net salary, and total employer cost is the first step to avoiding a nasty surprise when the first social security bill arrives.

Gross, net, and employer cost: three different figures

The gross salary is the one that appears in the contract: it’s the reference point negotiated with the candidate. The net salary is what the employee actually receives in their bank account, once their share of social security contributions (paid by the employee) and income tax withholding — which varies depending on personal and family circumstances — have been deducted. The employer cost, on the other hand, is what the company pays in total for that position: the gross salary plus the employer’s share of social security contributions. It’s common for the employer cost to exceed the agreed gross salary by more than 30%, so it’s worth calculating from day one to avoid throwing off your cash flow projections.

For example, if a monthly gross salary of €1,500 is agreed, the employee might take home around €1,250-1,300 net, while the company pays out close to €1,950-2,000 once its share of social security is included. These are only reference figures: the exact percentage depends on the collective agreement, the type of business activity, and the employee’s personal situation.

Employer social security contributions: the percentage almost no one explains

The share of social security that the employer pays for each employee under the general scheme covers several items: common contingencies (the largest chunk), unemployment, vocational training, FOGASA (the Wage Guarantee Fund), and workplace accident and occupational disease coverage, the latter varying by business activity. Added together, these typically run around 30-31% of gross salary, though the exact figure varies depending on the type of contract and the accident-risk classification. This is the percentage that’s almost always overlooked when working out whether a business can afford a new hire — which is exactly why you should always ask for the full employer cost before signing anything, not just the gross salary.

Incentives and obligations when registering your first employee

Hiring your first employee can come with reductions in the employer’s social security contributions, particularly for permanent contracts or when the employee belongs to a group covered by specific incentives (young people, workers over 45, women, people with disabilities, among others). These reductions can add up to meaningful savings during the first year or two, but the requirements and percentages change fairly often, so it’s worth checking what actually applies to each specific case before factoring that saving into your cost projections.

Beyond registering with social security and notifying the contract to the employment office (SEPE), hiring brings recurring tax obligations that don’t go away as long as there’s a payroll to run: the company must declare and pay quarterly the income tax withheld from the employee via Form 111, and file Form 190 every January, the annual summary of those withholdings that identifies each recipient. On top of that come registering as a withholding agent with the tax authorities if not already done, daily working-time record keeping, and, depending on the business activity, a workplace risk assessment. None of these obligations is optional or can be put off: filing deadlines are fixed, and mistakes or omissions trigger surcharges.

At Zythos Business we support freelancers and small businesses at exactly this key moment: we calculate the real employer cost before you hire, review which incentives apply to your specific case, and make sure payroll, social security contributions, and Forms 111 and 190 are filed on time and error-free — so you can focus on your business, not the paperwork.