The labor costs represent a significant percentage of costs in the overall operations of a company. The labor costs consist of employee net salaries and compulsory charges to the state and non-state institutions. The compulsory charges are calculated from and out of the gross salaries of the employees. The charges from the gross salary are charged to the employee, while the charges out of the gross salary are charged to the employer, and additionally to the overall labor costs. The compulsory charges are contributions to social securities, income tax on gainful employment, and surtax on tax, and together they constitute the tax burden on salaries. The most common way of following the tax burden on salaries is the OECD methodology which starts by measuring the tax burden on average gross salaries from sector of activities B to N by the so-called tax wedge and compulsory payments wedge. The tax wedge represents a percentage share of compulsory tax charges in the overall labors costs, which are paid exclusively for the benefit of the state, while the compulsory payments wedge represents a percentage share of all compulsory charges in the overall labor costs, regardless of whether they are paid for the benefit of the state or to the non-state funds. The level of tax burden on gross salaries is determined by the rates of contributions to social securities and rates of value added tax, which are progressive in most countries, while only in some counties they are proportional. The comparison of equal absolute amounts of gross salaries in Croatia and neighboring countries shows the differences in tax burden on gross salaries. In Italy, the tax burden grows progressively with the gross salary, while in Hungary the gross salary does not affect the level of tax burden. The tax burden on gross salaries in Hungary is proportional, which means that in the overall labor costs the growth of gross salaries reduces the tax burden. The tax burden on average gross salary in Croatia in 2016 was 35.6%, which is the lowest tax burden when compared to the neighboring European Union countries – Slovenia, Hungary and Italy. The overall tax burden on average gross on average gross salary in Croatia in 2016 was 40.1%, which is still the lowest percentage in comparison to other countries. From the standpoint of overall labor costs, among the observed countries the lowest labor costs are in Slovenia, followed by Croatia, Hungary, and Italy, as the country with the highest labor costs.