Payroll Taxes
Mandatory contributions imposed on wages by governments to fund social programs like healthcare, pensions, and unemployment insurance.
What is Payroll Taxes?
Payroll taxes are mandatory contributions imposed on wages by governments to fund social programs like healthcare, pensions, and unemployment insurance. Both employers and employees may be responsible for different parts of these taxes, depending on the country.
How it works
- Payroll taxes are typically split into two categories:
- Employer Contributions: Social security (e.g. INSS in Brazil, NIC in the UK), Health insurance, Workers' compensation, Unemployment insurance
- Employee Withholdings: Income tax (e.g. IRS in the U.S., SAT in Mexico), Pension or retirement deductions, National contributions (e.g. NSSF in Kenya)
- These are calculated per payroll cycle and vary widely by location, worker classification, and even salary level.
- Global payroll platforms like Sigma calculate and file these taxes in-country - helping avoid fines, audits, and payment delays.
Why it matters
- Understanding and managing payroll taxes is crucial to:
- Stay compliant with local labor and tax laws
- Prevent fines, penalties, or legal exposure
- Provide accurate payslips for employees and contractors
- Build trust with international workers
- Avoid permanent establishment risk through compliant classification
Example
A U.S.-based NGO pays full-time employees in Argentina and part-time contractors in the Philippines. Sigma applies the right tax rates, files contributions on the NGO's behalf, and ensures the organization is not exposed to tax fraud or regulatory penalties.
