Editorial note: This is a guest post by Andor Jakab from Hungary. In fact, this is a cross post from his blog. The post outlines well many of the challenges early stage entrepreneurs face. Even though things aren't quite as bad here in the Nordics and Baltics, it's good to understand the realities. Towards the end, we also talked to Jakab about the recent laws and changes in the country regarding its future. It's a chilling read and a reminder to us all.
I could hire 12 people with €760 net salary, but I don't. I tell you why. You could work for my service provider company in a nice office. It's not telemarketing, it's not a scam. You would do serious work that requires high skills, 8 hours daily, only weekdays. I would employ you legally, I would pay your taxes and social security. I could give such a job to a dozen people, but I will not, and here I explain why.
I wouldn't hire a woman.
The reason is very simple: women give birth to children. I don't have the right to ask if she still wanted to. If I had the right, and she would answer, she could deceive me deliberately or she could change her mind.
Don't get me wrong, I don't have any problem with women giving birth to children. That's how I was born and that's how my child was born. I wouldn't hire a woman because when she gets pregnant, she goes for a 3 years maternity leave, during which I can't fire her. If she wants two children, the vacation is 6 years long.
Of course, work has to be done, so I would have to hire somebody who works instead of her while she is spending her long holiday years. But not only I couldn't fire her while she's away, I couldn't fire her when she comes back either. So I would have to fire the one who's been working instead of her for the whole time. When a woman would come back from the maternity leave I would be legally forced to increase her salary to the present level in her position, and also, give out her normal vacation days, that she has collected during the maternity leave. When she would come back to work, she would start with 2-4 months of fully paid vacation.
I wouldn't hire people over 50 either.
Not that I have any problem with the most experienced professionals. I wouldn't hire them, because they are soon in the protected age. And then I would be trapped with them, similar to the trap with employing women. You can't fire people in the protected age, so I would have to pay the salary and its total cost even if he or she doesn't work well or at least up to acceptable standards. I couldn't fire the protected employee, but someone would have to do the job right, so I would have to hire another person. It's all right with me if they're protected, but then I won't hire them.
I would only hire 25-50 years old men.
They're also risky to hire, because I don't have the right to fire them either, if for any reason (I don't have enough income, or I don't like how they work) I want to. There's a high risk that they will go to court, and there's a high chance they will win. But this risk I would be prepared to handle.
You would cost me €1572.
|Your Net Salary:||Your Gross Salary:||My Total Cost:||State markup:|
|€ 185||€ 238||€ 306||165%|
|€ 227||€ 306||€ 393||173%|
|€ 322||€ 458||€ 589||183%|
|€ 408||€ 612||€ 786||193%|
|€ 479||€ 765||€ 982||205%|
|€ 570||€ 917||€ 1178||207%|
| € 760 ||€ 1223||€ 1572||207%|
|€ 950||€ 1529||€ 1965||207%|
This is actual 2011 data from the www.nettober.com salary calculator. As you can see, your €760 salary would cost my company €1572. This 2x state multiplier could only be lower, if I would pay less salary. But I wouldn't hire you for less money, because I think if you made less then €760, you couldn't make a decent living. You would become depressed, destroy your own life, my company and even me. So, I am not willing to hire anybody for less than this.
It's only Hungary that is so messed up:
This chart is from a Deloitte study. As you can see, the state doesn't take away more than half of your salary anywhere else. It's annoying that I pay you more than €1500, but you only receive less than half of it. Especially, because you will not get any better medical care than anybody registered with a minimum wage.
I would also have to take into consideration, that a 35 years old person is entitled 25 days of vacation per year. That means 1 extra month of working days. If I needed 12 persons' work, I would have to employ 13 to account for the one who's on vacation.
But I would still give you a job despite all of the above.
I am a braveheart entrepreneur. I would sell my apartment, and I would move to a rented flat. I would hope, that the €90,000 that I would make this way will be enough. I would launch my business bravely, and if I didn't succeed (that is quite likely with startups) I wouldn't be a crybaby.
My company would provide an excellent service, and it's impossible to provide without decent working conditions. I would employ 13 people. I would constantly need 12 persons' work, plus the one who works instead of the one on vacation. 14 people including me would work in the 158 sqm nicely furbished, comfortable office. This would cost 10 €/sqm/month rent, and 3,5 €/sqm/month utility fees, a total of 2133 €/month.
These would be my monthly expenses:
Office: € 2,133
Wages: 13 x €1572 = € 20,436
Other expenses (accounting, marketing, etc.): € 3,058
Total: € 25,627
Pretty scary for monthly bills isn't it? This is how much I would have to pay out every month, regardless of my income. In the good months, and the bad months too. In the summer low season, and before Christmas when we do much less work.
This company couldn't possibly sell more than 1000 hours / month of billable service in the average month. This means, that to break even, in order to make enough income to cover my costs, I would need to set my pricing €25,627 / 1000 = €25 / hour. But breaking even isn't enough, I would also need some profit.
I am not greedy, the market is tough too, I would markup my prices with 20% profit. This would increase my hourly rate to €30, that is pronounced as thirty Euros plus VAT, €37,5. I would round this sum (down), so our customers would pay €37 / hour for our service.
Out of this €37, 7 would go directly to the state, 30 would be company income. I am an optimist person. Our marketing would kick ass, my plans would work perfectly, indeed we would succeed selling an average of 1000 hours of service monthly. Business would fly, I would be lucky with all my employees, everybody would work like a charm.
This would generate 1000 x €30 = €30,000 company income.
€4,373 would be profit. I could pay €2,446 gross salary to myself, that would cost my company €3,144. Out of that, €1,521 would be my net salary, almost the double of what my employees make, and the company would make €948 profit before taxation. Out of this, I would pay €95 corporate tax, and the local business tax, that is 2% of company income, that is €587. At the end, the company would have €266 left, this is how much my company's capital could grow per month.
So I would make €1,521 per month, but don't forget, that I sold my €90,000 apartment, and I invested it in the company. So I would have to rent a flat for at least €300, otherwise I would become homeless. I would live a modest life, wouldn't spend a lot, my wife would also make money, I wouldn't even have the time to spend a lot, because unlike my employees, I would work 12 hours even on the weekends.
This way I could save €900 per month, so my €90,000 investment would return in 100 months. It would take 9 years to recover the money that I invested in the company, so I could buy myself an apartment again. From them on I wouldn't have to live on a tight budget, I wouldn't have to pay rents, and wouldn't have to save either. I would live like a European.
Under these circumstances - I hope it's understandable - I don't feel strongly urged to sell my apartment and invest the money into a new company. But for 4 reasons I will definitely not do it.
- The competition sells the same service, but illegally, under really crappy circumstances, charging €9 per hour. They simply pocket the money, without even issuing an invoice, it doesn't even include the VAT. They don't have to take any responsibility, there are no warranties, they officially don't even do anything, there's not even an official, legal trace of their existence. They don't have to rent an office, hire an accountant. By doing this 5 hours a day, they can easily make €1,000. They would point their middle fingers to my €760 job offer, where they wouldn't be allowed to do crappy work, but show up in time every day and meet very high professional standards in their work, they wouldn't be allowed to defraud the customers, and if they did, they would be fired.
- The competition would do smear campaigns against my company. I would have to face anti-capitalist propaganda, I would be seen as a greedy asshole who charges €37 for what they charge €9, I would be an enemy of the nice Hungarian people, while others work honestly for the fraction of that money.
- Many of my employees would only come to work for me to learn my business secrets and to steal my clients. They would lure them by lying that they will get the same value and quality of service, but at the fraction of the price. After they stole enough clients, they would deliberately cause a lot of harm to my company to get themselves fired. They would then go to court, stating that I fired them illegally, and they would win the case. In the meantime, they would of course work happily for the stolen clientele, that has cost me a fortune to build up. And of course they would be offended. They would trumpet on all kind of forums, that they have worked for my company, they know what they're talking about. Not only it is very expensive, but the service is a piece of crap too.
- Complaining about all this wouldn't help, no one would give a flying fuck.
So this is why I don't give a job. And I think a lot of other entrepreneurs who have experienced it, will also not give a job because of this. And this is why more and more people are jobless, who buy less and less things, so they pay less and less VAT. And this is why there are less and less decent companies, who hire less and less employees, who pay less and less taxes, so there's less and less state money for social aids, and this is why social aid is about to come in the form of concentration camps.
I will only give a job if:
- I can fire you, if I want to.
- If VAT goes down to at least 20%, better yet 15%.
- If the state takes away "only" 30% of your money.
- If higher income is not exponentially punished.
- If the state punishes corruption instead of decent companies.
Until these things don't change, hell I don't give a job. Until the state promotes corruption in every possible aspect, I don't start a business, and I don't give a job.
This is my translation of the original Hungarian post, "Tőlem ezért nem kapsz munkát" posted on the 27th of July, 2011. Although it rocked the Hungarian blogosphere - generated more than 90,000 Facebook likes - nothing has changed for the better. On the contrary. It's a whole lot worse now. To all of you international readers, here €760 net sounds like a dream salary for most people. Even medical doctors make less than half of this, at the beginning of their career. Prices on the other hand are the same as everywhere else.
Editorial note: We talked to Andor Jakab and asked him what he thinks of the recent changes in legislation in Hungary if that will help entrepreneurs. Below is his answer - a great reminder to all on how easily governments can turn around.
I wrote this post half a year ago, and things have changed a lot since then. For the worse. VAT has been increased to 27%. But this is not among the important issues. Not any more. It wasn't the important message in this post either. I am not against social security, hell I'm not against women, I am soon an elderly. High taxes are not the problem. High taxes and the lack of soundness, effectiveness in goverments promote corruption.
Decent entrepreneurs simply don't have a choice, but playing the tricks. Otherwise it's impossible to compete with the trickster competition. Corruption becomes so deeply embedded in the society, that there's hardly any decent work ethics left. The state - more often than not - destroys the life of whoever it's stating to protect.
Our present goverment has declared a war. A war on EU, a war on IMF, a war on multinational companies, a war against banks. People are leaving Hungary. People are changing their Forints to Euros and save it in Austrian banks. And you don't even have to read between the lines any more. They run an openly nationalist, racist, undemocractic propaganda. Our money is becoming toilet paper.
I hear voices from all over Europe, and the whole world really, that corporations control the goverment, globalisation is bad, capitalism is dead, etc. Come here, and study the alternative. What anti-capitalism is like, when nobody controls the goverment. When totally incompetent, inefficient, unintelligent people control your life, and laugh at your face. When your goverment nationalizes pension funds, and punishes your banks with extra taxes that are impossible to pay, so they have no choice, but to close shop.
About the new laws. Our constitution is unconstitutional as it's perfectly summarized in the title of a late New York Times article. They have hard-coded their present taxation system in the constitution. They have changed the name of the constitution to "base law" (alaptörvény). They are fighting a war against EU, someting we are part of. We live in fear. In fear, that we are going to be thrown out of the EU if our goverment continues on this path. We fear, we will loose our European citizenship, and live behind an iron curtain again, with our toy national money, with our national socialist "goverment".
If I told you one or two details, it wouldn't sound very scary. So what if the tax system is hardcoded in the constitution? So what if they have changed the constitution? So what if a goverment directly controls the media? As for the tax issue for example, I'm personaly in favour of a flat tax system, that is now hardcoded. But I'm a democrat. I think such thing has no place in a constitution. I think future goverments must also have the right to define a tax system that reflects the will of people who elect them.
So if you see - or better yet, experience - the big picture, you must realise, that this situation is very similar to that of 1930. Intelligent people must act, before it's too late.
After the tipping point - there will be no way back.