- What are fringe benefits?
- Why are fringe benefits more interesting than a raise?
- Which wage optimisations are best for your SME?
- Is the cafeteria plan something for your employees?
1. What are extralegal benefits?
"Those things you get on top of your pay." Almost, but not quite. Fringe benefits are an important part of your pay package
and salary calculation. It's those extra's that optimize your gross pay and are not expressed financially. That's why they are sometimes called wage optimisations
or alternative remuneration
The fringe benefits that are used to remunerate employees can vary greatly from SME to SME and from sector to sector. Both in nature and in quantity. But in all cases, fringe benefits are an attractive alternative to a raise
We already touched on this in our Payroll
guide, but here we take a closer look at the following questions: Why are fringe benefits so interesting? How broad is the spectrum of optimisations? What is the most popular type of benefits? What are the limits? And which wage optimisations are best for your SME?
2. Why are fringe benefits more interesting than a raise?
In short, extra-legal benefits
are cheaper than a raise, both for the employer and the employee. Why is it that alternative remuneration is more advantageous? Because they are less taxed. In most cases, they contribute to either the productivity and health of employees or a value endorsed by the state. For example, a bicycle allowance ensures fit workers, and eco-vouchers stimulate more sustainable purchasing power. But let's go into more detail: What exactly is the situation with regard to social contributions and withholding taxes on extra-legal benefits? And to what extent does it really differ from a raise
If, for example, you want to optimise your employees' pay by offering them something extra to buy their meals, then, as an employer, you have two options: meal vouchers or extra pay. The smartest approach? Meal vouchers. Why? Meal vouchers of e.g. 7 euros per day (6 euros by the employer, 1 euro by the employee) lead to a monthly amount of 140 euros for shopping. Nothing is deducted from this. If you want to give your employees that 140 euros gross, then you as an employer will have to pay 560 (25% social security). Moreover, social (13.07%) and fiscal contributions will also be deducted for the employee.
The difference between the total salary cost and the net salary quickly increases due to social and fiscal deductions: for the employer the salary cost is too high in relation to the net salary increase, for the employee the net salary is too low in relation to the gross salary increase. It is from this perspective that non-statutory benefits
are an attractive alternative to a traditional bonus. This next benefits:
- Full tax and social security exemption
- A partial tax and social security exemption
- A reduced lump sum as a basis for calculating social security contributions and taxes
3. Which wage optimisations are best for your SME?
One of the most popular extra-legal benefits is a contribution to commuting. After all, employees have to get to their workplace and that brings transportation costs with it (in most cases). As an employer, it is a nice gesture to reimburse these costs. The optimisations in the field of mobility can vary according to the distance and desired method of transport. Find out what works best for whom. Below you will find the most common options.
3.1.1 Company bicycle
The company bicycle was the most popular fringe benefit in 2018, and not without reason. Let's outline why: If you, as an employer, give a salary increase of 100 euros, the employee will receive 45.92 euros after the tax benefit has been offset. A company bicycle of the same value (cf. 100 Euros) can provide the employee with a net benefit of 178,23 Euros.
The advantage of a company bicycle?
- Cycling is fiscally sound. A company bicycle is not considered a taxable benefit, which means it is exempt from tax contributions. The only condition? The employee must do at least 20% of his/her commute to work by bike. The bicycle may also be used for private purposes.
- The bicycle allowance is not taxed either, as long as it is less than 0.24 euros per kilometre. Is your bicycle compensation higher? Then only what's above the 0.24 euros is taxed.
- Extra benefit: employees who cycle are fitter, which makes them more productive, less stressed and less likely to be off sick.
3.1.2 Public transport
Do your employees travel to work by public transport? Then you can reimburse these costs in part or in full via season tickets.
The advantage of these season tickets?
- Bus season tickets, metro season tickets and train season tickets are tax exempt.
Note: if employees charge their actual costs, the reimbursement does become taxable. This is because the employee chooses to deduct their actual costs and they must be able to prove that they paid for those themselves.
3.1.3 Company car
The company car, possibly supplemented with a fuel card, is and remains popular. The company car means a considerable saving for your employees: the only cost they have is the tax on the benefit in kind if the car can also be used privately. A company car makes you lot more attractive as an employer: you meet a real need of your employees.
The advantage of a company car?
- As an employer, you pay a solidarity contribution for the company car: this solidarity contribution is fully tax deductible.
- The car costs are partly tax deductible.
- If you purchase the company car yourself, you can deduct the depreciation from your profit.
3.1.4 Mobility Budget
If you give your employees a mobility budget
, they can divide the sum of money corresponding to a company car between different means of transport themselves. This way, they can come to work more quickly and in a more environmentally aware way. The mobility budget is perfectly suited to combining means of transport when commuting to work. For example, your employees can park their car on the edge of town and use a shared bicycle.
As an employer, you are, under certain conditions
, free to decide for whom and when to apply this system.
The advantage of a mobility budget?
- If you choose to offer your employees a mobility budget instead of a company car, it will cost you nothing extra.
Note: It also doesn't cost you anything less. The introduction of the mobility budget is therefore a budget-neutral operation.
3.1.5 Mobility Allowance
In 2020, the Constitutional Court annulled the legislation on the mobility allowance (also known as cash-for-car). It is no longer possible to offer this as an fringe benefit.
Assets are a popular alternative reward for both employers and employees. That's quite logical because since it leads to a win-win situation: the better equipped employees are for their job, the better they can perform.
This varies from necessary material assets to conduct the job, such as laptops, mobile phones, screens, office chairs, etc. to an obligatory allowance for the costs incurred by employees in relation to the job. These are also referred to as "Employer Costs" (KEW). KEW can be paid in two ways: either by a reimbursement of the actual costs (e.g. expenses), or by a fixed amount that is accepted by the NSSO and the tax authorities (e.g. a home-working allowance).
The advantage of assets?
- KEW are fully exempt from social security contributions and taxes.
- Moreover, it can even lead to an advantage: the accepted lump sums can be higher than the actual costs.
3.3 Group insurance
Group insurance, also known as pension savings, is one of the most important fringe benefits in Belgium. With this insurance, the employer saves, based on premiums, for the supplementary pension of his employees. Group insurance can, as the name suggests, only be taken out for a group of employees. This group can consist of one or more employees, but everyone within the same group must be affiliated to the group insurance.
The advantage of group insurance or pension savings?
- Group insurance is exempt from social security contributions and taxes for both employers and employees.
- The premiums paid are also deductible as professional expenses for employers under certain conditions.
3.4 Hospiltalisation insurance
Hospitalization insurance reimburses certain medical costs of a hospitalization due to illness, accident or childbirth. Hospitalization insurance offers an extra guarantee and can be extended according to the employer's wishes. In addition, it is often the case that an employee can add family members to this insurance at a more favourable rate than when taking out insurance individually.
The advantage of hospitalization insurance?
- Thanks to the third-party payment system, employees do not have to pay their hospital bills themselves and there are no additional social or fiscal costs.
- Hospitalization insurance premiums are taxed at a lower rate for tax and social security purposes, making the benefit relatively cheaper than normal coverage.
3.5 Meal vouchers
Meal vouchers were created to provide employees with lunch. Nowadays, meal vouchers are used in a broader context but the principle remains the same. With meal vouchers your employees can make purchases in supermarkets (note: since September 2020, you can only use them to pay for food products) and certain eateries.
The advantage of meal vouchers?
- Meal vouchers are exempt from social security contributions and taxes.
- The cost of meal vouchers is partially deductible for employers.
- Employers can determine the value and allocation of the meal vouchers individually, provided that this choice is based on objective criteria.
- Extra advantage: meal vouchers are only earned by actual days worked. In this way, absenteeism can be prevented.
Eco-vouchers encourage employees to make sustainable choices. With these vouchers they can buy products that have less impact on the planet, be it products made from recycled materials or electrical appliances that are environmentally friendly to use. In practice, this provides purchasing power.
The advantage of eco-vouchers?
- Eco-vouchers are exempt from social security contributions and taxes for both employers and employees.
Warrants are stock option. They can be bought by employers and afterwards offered to employees for free or at a reduced price. As an employer, you can also decide to grant the warrants individually. This ensures greater flexibility. Moreover, once the warrants are allocated by to the employee, they can immediately be sold again. This limits the stock market's risks.
The advantage of warrants?
- Warrants are exempt from social security contributions for both employers and employees.
- The purchase price of the warrants is tax deductible for employers.
Note: The tax regime depends on whether the shares are listed or not.
3.8 Wage bonus
The wage bonus, or non-recurring result-related benefits, is a bonus that is awarded for the collective achievement of results. The bonus can only be obtained if either the company, or a part of the company, or a defined group of employees (on the basis of objective criteria) achieves the set target. This must be clearly defined and delineated, and must also be transparent for everyone.
The advantage of the wage bonus?
- The bonus is tax-exempt for employees.
- The bonus and the associated social security contributions are tax deductible for employers.
- Extra benefit: it provides a stimulating effect on employees to achieve the goals of your company. It is a driving force for engagement.
- Culture vouchers
- Sport vouchers
- Consumption vouchers
- Profit premiums
- Seniority premiums
- Child benefit supplement
- Remuneration through copyrights
4. Is the cafeteria plan something for your employees?
The cafeteria plan is one of the most flexible extralegal benefits on the market. Because employees can choose from a wide range of options - just like in a cafeteria - they can tailor their benefits to their individual needs. Last year's De Tijd headline stated that the number of employees composing their salary via the cafeteria plan had increased by half. However, our survey shows that 84% of those surveyed have only just come into contact with the flexible wage package. That is a pity, because the cafeteria plan creates a win-win situation.
On the one hand, the cafeteria plan focuses on the employee's freedom of choice. They are encouraged to choose the fringe benefits that best suit their personal circumstances.
On the other hand, the introduction of a cafeteria plan is the final element in a modern wage policy for the employer, who can present himself as someone who is conscious of the real needs of his employees. Employees are compensated individually and will feel more involved, which in turn leads to a greater commitment to your company.
So how does the cafeteria plan work in practice? Starting a cafeteria plan consists of four parts:
- The creation of a budget by the employer. Employers and employees agree to exchange a portion of the traditional salary package for (a mix of) fringe benefits. Being transparent about this as an employer helps in this process. Therefore, as an employer, clearly state that you wish to optimize wages via a cafeteria plan, why you have chosen for the cafeteria plan and what is possible.
- Determining what can be done with this budget. Employers have the upper hand here. They determine what alternative remunerations they offer in the cafeteria plan. If they add a company car to the plan, employees can opt for this. If they decide not to include a company car in the plan, employees cannot include this in their salary package via the cafeteria plan.
- The distribution of that budget by the employee. The employee decides which fringe benefits he/she wants in exchange for his/her normal salary package. Again, only the fringe benefits offered by the employer can be chosen.
- Putting all this in legal order.