How is flexible remuneration taxed?

Flexible pay reduces the gross that the employee pays to personal income tax, since contracting services within this package, the cost invested in the corresponding products will be automatically deducted from your gross salary. And, in addition, the same will happen with the total that is taken into account to calculate the Tax on the Personal Income.

In this way, part of the personal income tax that affects the employee’s gross salary is reduced, resulting in the latter ultimately having to pay less taxes.

These actions contribute to increase the annual net salary. Specifically, the savings produced by the personal income tax exemption allow employees to optimize their net salary by up to 10%.

With flexible remuneration, the worker can allocate up to a maximum of 30% of his gross annual salary to this type of product. This savings measure allows you to deduct daily expenses such as lunch, nursery school or public transport, which, when paid for by this system, are exempt from personal income tax. In this way, he gets more out of his salary.

Also visit here: How Hard is it to Negotiate with the IRS?

Subsidiary service providers

Although many changes are mandatory for employer and employee, in favor of the worker, regarding security, stability and labor rights; there is an increasingly growing current within these relationships where employers become a kind of subsidiary service provider, as Iberley points out.

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For example, if a company decides that in order to improve the conciliation of its workers it is going to hire a couple of graduates in early childhood education and make an office room available to the workers so that they can leave their children under the care and supervision of the graduates. This circumstance will allow them to fulfill their workday thus avoiding expenses derived from the care of their children that indirectly and negatively affect the company.

This, if the provision of the service is deducted from the worker’s payroll, is what is known as a “flexible remuneration plan” and which will be made up, as we saw in the example, of three key points:

  1. It’s a service provided or contracted directly by the employer.
  2. It supposes a cost for the worker of equal amount to the market value.
  3. It must be voluntarily received by the worker.

Although this last requirement was hidden within the expression «made available» since this does not imply obligation but only and exclusively possibility.

However, this type of remuneration to staff does not remain only in the example given of the childcare service, in this way we can find, among others, the following flexible remuneration options: training in the professional field (courses, postgraduate courses, languages, etc.), food tickets, car rental, property rental (especially homes), accident insurance, life insurance, on the house, the car…

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