In the IT outsourcing and consulting world, the allure of a high-paying job often comes with a heavy price tag. Do you wonder who truly benefits the most from your salary? Is it truly you? Let’s peel back the layers, examine the reality behind your paycheck, and unveil the true cost of your salary.

The hidden costs: Government taxes and company margins

As an IT professional, you might be surprised to learn just how much of your hard-earned salary goes straight into the government coffers. Let’s take, for instance, a Portuguese worker earning €5000 gross per month. Sounds substantial, right? But when we dissect the numbers, the reality is eye-opening.

The outsourcing company incurs a total cost of approximately €6200 per month to employ them. The government swoops in, claiming a staggering 64% in taxes, including Social Security and IRS contributions. After taxes and deductions, their net salary shrinks to around €2992 per month. On the flip side, your company sells your services to clients with a 30% margin on top of your actual cost, amounting to around €8,060 per month.

So, from that initial €5000 gross salary:

A: The employee takes home €2992

B: The company pockets a profit of €1860

C: The government collects €3208 in taxes

Yes, you read that right. The government emerges as the winner, pocketing a significant chunk of your hard-earned income. And if you’re hoping for a raise, here’s the math. For every €1 increase in salary, a mere 36 cents find their way into your bank account, while the remaining 64 cents vanish into the abyss of government coffers. It’s a reminder that the true cost of your salary goes far beyond what meets the eye.

Being a freelancer: a path to greater financial freedom in some countries

As you reflect on the true cost of your salary, it’s essential to consider the bigger picture beyond your paycheck. Government taxes and company margins can significantly impact your take-home pay, prompting many IT professionals to explore alternative avenues like freelancing.

Countries like Belgium, Poland, and Romania, known for their high taxation rates, have encouraged a growing trend toward freelance work. By establishing their own companies or working as independent contractors, IT professionals can mitigate taxes and retain a larger portion of their income. It’s a strategic move that offers better financial freedom and flexibility. By understanding the intricacies of taxation and compensation, you can make informed decisions that prioritize your financial well-being and empower you to take control of your earnings.

If you have a question, feel free to contact our founder Marco Pincho directly on LinkedIn.