Payroll tax break: What it means in real terms

Companies have welcomed the rollback in payroll tax from 16 per cent to 14 per cent with several saying it never should have been raised in the first place.
The reduction to 2009 tax levels was announced in Friday’s Budget.
The move is seen by Government as a way to help stimulate the economy.
BELCo President Andrew Parsons said: “We are grateful for the rollback, as all companies are, and it will certainly help in these difficult economic times.”
The company has 340 employees but declined to say how much money it would recoup with the rollback.
For large companies in Bermuda, which employ hundreds of employees, the savings will run into the hundreds of thousands of dollars.
For medium-sized and smaller companies, the gains aren’t as large, but they are still seen significant.
We took a look at two companies to see what the payroll tax reduction means to them.

Firm will save $40,000

Burrows Lightbourn
Employees: 50
Savings: $40,000

Richard Hartley, managing director for Burrows Lightbourn, said the company has shed about six jobs over the past year as it moved to be more efficient in these tough times.

“People get confused when they talk about the drop (in payroll tax). The drop from 16 per cent to 14 per cent is a reduction of 12.5 per cent.

“When it went up, a lot of people said ‘it’s only two per cent’.

“The increase from 14 per cent to 16 per cent is actually a 14.28 per cent increase.

“That was quite a substantial increase. We’re reckoning the increase caused us to pay an extra $35,000 last year.”

Mr. Hartley said Burrows Lightbourn has been looking at all of its costs for the past two years “with a view to becoming more efficient and looking at the productivity of each department. Where there has been an opportunity to lose somebody, we’ve done it. We haven’t actually gone out and made a lot of people redundant.

“We’ve quietly shrunk our workforce by about six people over the last 18 months.

“It’s been done fairly painlessly by folks retiring. They’ve been putting it off and putting it off, but now they’re in their 70s. At some point they have to call it a day, especially when it’s all manual work.

“The payroll tax rollback is obviously helpful as it puts about $50 million back into the economy.

“The argument that it shouldn’t have been done in the first place is very valid.

“It came at a time when people were trying to make savings.”

Mr. Hartley said the doubling of foreign currency purchase tax last year from 0.25 per cent to 0.50 per cent was also significant.

“That affected everybody because every single thing that is brought into this island is bought with foreign currency whether it be U.S. dollars, Euros or Sterling.”

“We like most companies, import everything we sell.”

Savings might delay further layoffs

Owner Craig Clark said: “I’m relieved they made this reduction. I don’t think they should have ever made an increase in the first place. I thought that was quite a big mistake. I think a lot of jobs have been shed as a result of it.

“We’ve had a pay freeze here for some time and this is not going to change it, but it may delay further layoffs and other measures.

“We shed some jobs but it was before last year. We’ve lost four jobs here since our peak period four years ago.”