Employment taxation in OECD countries
The Organisation for Economic Co-operation and Development (OECD) brings together governments from advanced and emerging economies to promote policies that improve economic growth, living standards and financial stability. It’s known for its research, comparative statistics and policy recommendations that shape national reforms and international cooperation.
The OECD has recently released its comprehensive ‘Taxing Wages 2026’ report that collates information about average wages and the tax and social security payable on them in each of its 38 member countries.
Understanding the tax wedge
The key indicator used in the report is the tax wedge – the difference between total labour costs to the employer (ie employee remuneration plus employer social security) and the employee’s net pay. It’s worth noting that the report doesn’t include non-tax compulsory payments, such as employer pension contributions.
Rising tax wedges across many OECD countries
In 2025, the OECD average tax wedge for a single worker without children at average earnings was 35.1%. This meant that just over one third of employer labour costs were absorbed by taxes and social security contributions. However, the tax wedges vary markedly across countries. Belgium recorded the highest tax wedge at 52.5%, while Colombia recorded the lowest at 0%, reflecting fundamental differences in income tax and social security structures.
Between 2024 and 2025, the tax wedge rose in 24 OECD countries, while it fell in 11 and stayed the same in three. The main drivers of rising tax wedges were fiscal drag (where wages rose faster than tax thresholds), higher personal income tax liabilities, and increases in social security rates. The United Kingdom, Germany, Estonia and Israel all saw notable increases. In the UK, fiscal drag and higher employer National Insurance contributions drove an increase of 2.45%. By contrast, countries including Australia, Italy and Latvia saw significant reductions, largely due to income tax reforms, higher allowances or lower tax rates.
Income tax vs social security
The report also highlights how the balance between income tax and social security varies significantly by country. Denmark, for example, has higher taxes but low social security, while in France the employer’s social security alone adds around a third on top of the employee’s pay. The table below, drawn from the report, shows these variations for a single earner across a selection of countries.
Household type comparisons and family support
The report highlights strong differences in tax treatment between household types. On average, one earner married couples with two children faced a substantially lower tax wedge (26.2%) than single workers (35.1%) in 2025, reflecting tax reliefs and child related cash benefits.
The fiscal advantage for families was largest in countries such as Poland, Belgium, Luxembourg and Lithuania, where tax savings exceeded 15–20% of labour costs relative to single workers. However, this family advantage narrowed slightly in 2025 as tax wedges for families rose faster than those for single workers in many countries.
How tax wedges have changed since 2000
The report shows that tax wedges have generally declined since 2000 but have risen again since 2021. Tax wedges fell to their lowest levels during periods of economic stress, notably the global financial crisis (2009) and the COVID 19 pandemic (2020–21), when governments implemented tax reductions.
By 2025, however, tax wedges had all increased relative to their pandemic lows, reflecting policy reversals, inflation related fiscal drag and the scaling back of temporary support measures.
Implications for global mobility and remote working
The report makes clear that countries vary considerably in how they split the tax burden between income tax and social security. When you’re assigning employees – and their families – to a different country, or allowing remote working across borders, you need local advice to understand the full cost to both the employee and the employer. Unexpected tax or social security liabilities can quickly sour a working relationship. It’s essential to understand the local position before agreeing to cross-border working arrangements.
For more information, please get in touch with Jo Webber, Ian Jones or your usual RSM contact.