Tax Remuneration or salary in kind is any compensation received by the employee in products or services related to their work instead of in money. It can be a car, a house, or it can also be restaurant tickets, daycare tickets, transportation tickets, medical insurance, etc. As you are receiving part of your salary in money and part in kind, this is what allows us to speak of a flexible remuneration for the employee. Within this scope, current taxation allows the employee to allocate a maximum of 30% of their annual gross salary to certain services, such as a restaurant, a nursery, etc. being exempt from personal income tax.
DIFFERENCES BETWEEN SOCIAL BENEFITS AND FLEXIBLE REMUNERATION
Social benefits are goods or services that the company (assuming all its cost) offers the employee as remuneration or payment in kind, in addition to his salary in money. The social benefits of each company usually depend on the collective agreement to which it is ascribed, salary policies, internal human resources policies, talent management policies, etc.
With flexible remuneration, on the other hand, the company offers each employee the possibility of choosing what part of their salary they want to continue receiving as monetary salary (money) and what part they want to receive in-kind (products or services). The reason behind this possibility is that (up to a maximum of 30% of the employee’s gross annual salary) the amount earmarked for flexible remuneration is exempt from personal income taxrelief on services such as restaurants, nurseries, transportation, etc. In this way, by allocating part of his salary, the employee ends up increasing his net salary.
The company has the option of choosing which services (restaurant vouchers, nursery vouchers, transport cards, medical insurance…) it offers its employees as a social benefit and which services it offers as flexible remuneration, or even opt for a mixed model.
ADVANTAGES OF FLEXIBLE REMUNERATION
Flexible remuneration or salary sacrifice offers a multitude of benefits both to the company or person that offers it to its workers and to the employees or people who contract these services and dedicate part of their salary to them.
- Attract and retain talent: Especially in some sectors, offering flexible compensation to workers can be a decisive point when it comes to negotiating and choosing a company. And for employees who are already working, launching a flexible compensation plan helps them feel more cared for and that the company cares about their personal needs.
- It increases the purchasing power of the worker without implying a salary increase for the company: with flexible remuneration, employees can access services with tax advantages, which allow them to receive a higher net salary at the end of the month. By being able to allocate up to 30% of their gross salary, they can achieve significant savings as these services are exempt from personal income tax.
- This makes them more committed and involved with the company as they feel more valued.
- Increase productivity and reduce absenteeism: Happy and motivated employees will reduce absenteeism and reduce turnover. This motivation and commitment will also result in greater efficiency and productivity in the processes.
Compensation for employees:
- Freedom of choice regarding their remuneration: flexible remuneration allows the employee to choose what part of their salary they want to allocate to income-exempt products and services, which help them in their daily lives and adapt to their needs. This makes the worker feel more responsible and capable of improving his purchasing power.
- Voluntary – Not all workers are required to join the flexible compensation plan. Each one of them, completely voluntarily, chooses what amount (respecting the maximum limits) they want or need to allocate to the interested services.
- Double savings for the employee: the salary allocated to flexible remuneration, being exempt from income tax, is deducted from the gross salary, which means a reduction in the taxable base used to calculate the payment of income tax to the Treasury. On the other hand, this reduction usually incurs a reduction in the income tax bracket, so not only does the income tax percentage drop, but the amount to which that percentage is applied is also reduced.
- Aid for family conciliation: Workers can take their children to daycare, benefiting from the tax advantages of the daycare check.
- Improvement of their quality of life: By enjoying the advantages of a flexible remuneration plan, the worker sees essential services covered (food, child care, transport, medical insurance, training…). If, in addition, the employee feels more motivated and committed by perceiving that they value and care about him, his quality of life will improve and he will be happier.
Advantages of flexible
As we can see, the advantages of flexible remuneration exist for both the company and the employee. With regard to the first, it can increase the worker’s purchasing power (being able to save up to three months on childcare expenses, two months on transportation, and one month on their daily food) without increasing salary costs; expands your negotiating capacity with each employee and improves your brand image. This is a very important element when it comes to attracting and retaining talent: conveying to the employee the company’s interest in him, so that he feels more valued, thus increasing his loyalty, commitment, and productivity and improving his well-being and quality of life.