RC/TM/2026/OP.1 — A view on the cost of a first hire

To the members of the Team Council

RC/TM/2026/OP.1
Opinion — view
20 October 2026

Who I am and what happened

I write as Chair of the Team Council, from Leipzig, Germany. I am a small-business owner, but this opinion is not a profile of my business. I will not name it or describe its activity. The question before us is broader than any one founder’s account: what does it take for a small employer to make a first hire formally, and what should a fair response require?

The Team Council opened this work with a call for evidence on 10 February. Since then, members have submitted reports, held conversations and brought forward proposals concerning the costs and administration of hiring. Our process requires us to test whether a reported problem is sufficiently widespread and consistent before we recommend a fix. The interim pattern review, issued on 13 October, records that two of the five tests have been met. That is a reason to continue careful work, not to claim that every question has been settled.

This opinion is written while the evidence is still developing. It is therefore a view on the direction and minimum safeguards of a future standard, not a claim that a complete design has already been established. The issue is concrete: when a small business is considering its first employee, the expected total cost and the effort required to comply can determine whether the job is created formally, delayed or not created at all. A policy response should make the formal choice more feasible, while preserving the worker’s rights and the public purposes of social contributions.

What the evidence shows

As of 20 October 2026, the Team Council had 121 members from 39 countries and had received 172 reports from 43 countries. The median amount at stake in those reports was approximately US$4,199. The reports concern hiring costs. Among participating businesses, 42% reported teams of two to nine people, 16% teams of 10 to 49, 3% teams of 50 to 249, and 38% reported that they were just one person. Twenty-four reports had been filed in the preceding 30 days. These are the Council’s reported figures; they are not a census of small employers or a measure of national employment.¹

Across Reseated, 1,745 members in 49 countries had filed 5,344 reports from 50 countries. The Team Council’s 172 reports sit alongside 1,961 in Platform, 1,351 in Cashflow, 687 in Fair Play, 520 in Trade, 353 in Resilience and 300 in Red Tape. The cross-council total gives context to the Assembly’s work, but it does not by itself establish that every council faces the same problem or needs the same remedy.

The Team Council’s figures point to a question that is easy to miss when policy is discussed only in terms of established employers. A large share of the people reporting are either working alone or leading a very small team. A first hire is not simply a smaller version of a large employer’s next hire. It is a threshold decision: the owner must understand the cost, register correctly, arrange payroll and meet ongoing duties, often without a dedicated human-resources or compliance function. That observation is a practical inference from the composition of our membership, not a measured finding that any single administrative step caused a particular hiring decision.

We should also keep the limits of these figures in view. Reseated reports are evidence of member experience, not a representative survey of all businesses. The amount at stake is a median reported amount, not a verified average social contribution or a universal cost per hire. The Council’s interim review says two of the five pattern tests are met; the remaining tests and the final review are still to be

completed. We should neither understate the reports nor turn them into proof of more than they show.

The wider context is significant but must be used carefully. The United Nations estimates that micro, small and medium-sized enterprises account for about 90% of businesses, 60–70% of employment and around 50% of GDP worldwide.² The ILO reports that MSMEs account for about 70% of employment worldwide and that about 80% operate in the informal economy.³ These global figures explain why the conditions for small employers matter. They do not show that hiring costs alone cause informality, and they do not justify any particular exemption or subsidy.

How the law in my country and elsewhere handles it

A comparison of first-hire rules must account for country-specific eligibility conditions, contribution schedules and administrative procedures. No single national design can be assumed to apply across jurisdictions, and the standard should not presume that German law offers no relief or that any one national system has adopted the right design.

The relevant comparative measure is the OECD tax wedge. For 2025, the OECD average was 35.1%. The reported country figures are Germany 49.3%, France 47.2%, Italy 45.8%, Spain 41.4%, Sweden 41.1%, the Netherlands 35.9% and New Zealand 20.8%.⁴ Germany’s figure makes the issue immediate for me, but it should not be mistaken for a calculation of the additional cost of a first hire in Germany. Nor does a comparison of tax-wedge figures tell us, on its own, which legal provisions produce the differences or how they apply to a particular small employer.

Those limits matter to the design of our recommendation. Tax and social-contribution systems finance public goods and protections. A high comparative figure is not proof that the whole amount is avoidable, unfair or properly removed from the employer’s obligations. Equally, the fact that a contribution has a public purpose does not answer whether the timing, thresholds or administrative process place a disproportionate obstacle before a business making its first formal hire. Our proposal should identify

that distinction and ask governments to assess it with country-specific legal and fiscal evidence.

The ILO’s estimate that around 80% of MSMEs operate in the informal economy is a further reason to focus on formalisation, but it is not evidence that a particular contribution rate causes informality.³ A credible standard must therefore encourage formal employment without presenting a temporary reduction in contributions as a complete solution to informality. It must also recognize that social insurance should not be financed by leaving workers outside protection.

The strongest argument against my view and my answer

The strongest argument against phased social contributions for the first ten hires is that any discount can shift costs away from a new employer and onto workers, other employers or public budgets. It may encourage firms to remain artificially small, divide one business into multiple entities, replace existing workers with subsidised hires or delay growth until a new eligibility period begins. A poorly designed threshold can create a cliff: the next hire becomes suddenly more expensive, or a business loses support just when it begins to grow. There is also a fairness concern. Employers who have already made early hires may ask why a later entrant should receive relief that they did not receive.

That is a serious objection. The answer is not to wave it away with an appeal to small-business difficulty. Relief should be temporary, limited, transparent and evaluated. It should attach to genuine additional employment rather than a change of corporate form. It should not reduce the worker’s legal status, wage entitlement, access to protection or contribution record. Where a contribution reduction affects benefits or public revenue, the responsible public authority should identify how the shortfall is funded and how the worker’s entitlement is preserved. A scheme should include anti-avoidance rules and a review of whether jobs were additional, durable and formal.

But the risks of a badly designed intervention do not prove that no intervention is warranted. If the decision to hire formally is sensitive to the cost and complexity of the first employment relationship, a carefully bounded transition could help bring a job into the formal system. Our evidence is not yet sufficient to claim the size of that effect. It is sufficient to justify developing a proposal that is testable, with safeguards and measurable outcomes, rather than assuming that the existing arrangements are already simple and proportionate for a very small employer.

Nor should “first ten” be treated as a magic number established by the current evidence. It is the scope of the Team Council’s agenda item, not a finding that every country should use the same threshold. A future standard should set a common objective and design principles, while allowing governments to calibrate eligibility, duration and the pace of any phase-out to their own legal and fiscal systems. That flexibility must not become a licence to make the support inaccessible or unpredictable.

My position clause by clause

Clause 1 — A defined first-hire transition. The future fix should establish a clear, time-limited transition for a small employer’s first ten hires. Its purpose should be to make formal employment more feasible at the point when a business begins to build a team. The ten-hire scope should be a ceiling for the standard’s framework, not an assertion that every national scheme must provide identical relief for each hire.

Clause 2 — Phased social contributions. I support phased social contributions where a country’s assessment shows that this is an appropriate way to reduce the initial cost of formal hiring. The phase should be published in advance, easy to calculate and gradually reduced rather than ending at a sudden cliff. It must preserve the worker’s statutory rights and make explicit how contribution records and entitlements are protected. The proposal should not imply that contributions are an improper charge; it should ask whether a measured transition can support formal job creation without undermining the system those contributions sustain.

Clause 3 — One-stop payroll registration. A first-time employer should be able to complete the essential registration and payroll steps through a clear, coordinated route. A one-stop process should tell the employer what information is needed, which obligations follow and when each step must be completed. It should avoid requiring the same information to be supplied repeatedly where authorities can lawfully coordinate. The Council should not prescribe a specific technology or provider: the standard should describe the outcome and require accessible alternatives for employers who cannot use a digital-only route.

Clause 4 — Predictable rules and plain cost information. Before hiring, an employer should be able to obtain a reliable estimate of the full employment cost and understand which elements may change. Governments should publish rules in plain language, give reasonable notice of material changes and provide cases that distinguish recurring costs from one-time registration steps. Predictability is not a promise that costs will never change. It is a commitment that small employers can see the rules, understand how they apply and plan without relying on informal guesses.

Clause 5 — Protection against avoidance and harm. Eligibility should be tied to genuine employment and should guard against artificial splitting, replacement of existing jobs, repeated entry into a subsidised status and other foreseeable forms of abuse. At the same time, safeguards should be proportionate; compliance with them must not recreate the very administrative burden the measure is meant to reduce. The worker’s status, pay, workplace protections and access to the applicable social-insurance system must not be weakened by the employer’s eligibility for relief.

Clause 6 — Evidence, review and fiscal transparency. A scheme should collect proportionate information on take-up, additional formal hires, job duration, employer size and fiscal cost. It should be reviewed against published objectives and revised or ended if it fails to deliver. The authorities responsible should explain how any reduced contribution is financed and report whether workers’ protections and entitlements have been maintained.

Evaluation should distinguish new employment from jobs that would have existed without the measure.

These clauses describe the substance I believe a future fix must contain. They do not pre-judge the final pattern review, public consultation or Assembly ballot. We should seek further evidence on which costs are most decisive, how rules differ between jurisdictions, whether the first-ten threshold is workable, and what safeguards can prevent displacement or avoidance. A consultation should invite employers, workers, payroll specialists and public authorities to test the proposal, not merely endorse a settled answer.

What I ask

I ask Team Council members to support a future standard built around phased, carefully targeted relief for the first ten hires, paired with one-stop registration and predictable rules. I ask that we describe the evidence with precision: 121 members from 39 countries; 172 Team Council reports from 43 countries; a median reported amount at stake of approximately US$4,199; and two of five pattern tests met in the interim review. Those facts are meaningful, but they are not a substitute for the remaining tests or for consultation.

I also ask members to resist two easy conclusions. The first is that the reported burden is simply the unavoidable price of employing people formally. The second is that any reduction in employer cost must be beneficial, whatever its effect on workers, public revenue or fair competition. The work of this Council is to make the problem legible and propose a remedy that can be judged against evidence and safeguards.

Notes and sources

Sources

1. UN — Micro-, Small and Medium-sized Enterprises Day
2. ILO — Micro, small and medium-sized enterprises
3. OECD — Taxing Wages 2026, Germany country note