Since last year, there has been a practical regrouping of corporate benefits in connection with the global pandemic.
Benefits such as the so-called "home office" have shifted from the sought-after benefit to an unpopular forced state, where one or two days of the "home office" per month have been replaced by a permanent preferred way of work performance.
The Institute of Employee Benefits is nothing new for the Czech work environment. Tomáš Baťa was a pioneer in the field of employee benefits in our country, offering employees corporate accommodation, education, but also contributions towards medical supplies. Today we have a wider range of benefits, but some are more convenient and desired. The conditions for providing employee benefits should be the same for all employees and regulated by an internal directive.
Benefits can be an important factor in choosing a particular employer. Well-established employee benefits can motivate employees, strengthen their loyalty to the company, contribute to their overall satisfaction, increase stability and productivity, strengthen the corporate culture and prevent employee fluctuation. In order to achieve a high efficiency of the benefit system, the company should make sure to reflect the needs of its employees. The organization should take into account the ages, life stage and interests of its employees, which are closely related to their needs. Their analysis is best used to identify employee needs. The employer should carry out the analysis regularly, as the needs of employees change in connection with their age, life stage, company structure, etc. If the benefits system is set according to employee needs, the investment will return to the company in the form of more satisfied, motivated and productive employees appreciating the interest, concern and appreciation of their employer.
Below we will focus on the benefits from the point of view of payroll accounting and thus also taxes.
Here is an overview of the most used, including their tax implications, both on the side of the employer and the employee.
Additional holiday / Sick days
The legal annual entitlement to leave is 4 weeks. A popular benefit is increasing this entitlement, for example, 5 or 6 weeks. The increase in leave should be linked to the prior use of a legal entitlement. However, if an employee does not take leave, it can have a negative impact. In some companies, they have even introduced unlimited holidays. Sick days are more advantageous for employers as those are not subject to the Labor Code regulations and the unsused days expire
Home office / Flexible working hours
Working at home and being able to choose whether to work early in the morning or late at night can suit the employees. Let us not forget, however, that the home workplace must also pass a work safety inspection. According to the Labor Code, every employee must also keep records of working hours and observe breaks at work. The performance of work at a home office abroad (often in our country, for example in Slovakia) has a special regime. Here it is necessary to focus on the tax implications for both employees and employers.
Meal vouchers / Company catering / Refreshments at the workplace
Since 2021, a tax-advantaged meal allowance has been introduced as a simple and cheap alternative to meal vouchers. Employers can now provide an untaxed meal allowance in cash. According to the new wording of the law, the cash contribution provided by the employer to employees for meals is considered as exempt income up to 70% of the upper limit of the meal allowance, which can be provided to employees with a salary during a business trip lasting 5 to 12 hours. For the year 2021, the amount is CZK 75.60 per day. If the employer has the space to operate its own catering facility, either on its own or through other entities, all operating costs (eg energy, depreciation of the facility, wages of employees, etc.) of this facility can be applied to tax costs. On the contrary, the value of food is always a non-tax deductible expense. In both cases, it is a tax-exempt income for employees.
Mineral waters, juices, fruit or sweets will certainly please the employee at the workplace, for them they are non-monetary transactions exempt from tax, but for employers these costs are completely non-deductible for tax purposes.
Language courses / Training
Further education of employees is desired by both employers and employees themselves. However, the deepening of education should go hand in hand with the main business plan of the organization. If the company contributes towards it for example, language courses and knowledge of the language is not necessary for the employee's work, it may be the employer's tax expense under certain conditions, but it is taxable income on the part of the employee, as well as connected social and health insurance contribution.
Books / Cultural and sports activities / Multisport card / Gift vouchers
Gift certificates and other non-monetary benefits for various cultural, sports or educational activities or for the use of medical facilities are already a part of a well-established practice of many employers. Employees can now also be rewarded with book vouchers. Thus, the books, together with cultural and sports activities, are among the benefits exempt from taxation on the part of the employee. You can also include contributions to medical supplies in the same category, such as prescription glasses, or various vaccinations or tests. It must be emphasized that this is always a non-deductible expense for employers.
Housing allowance / Transport
Employers may also contribute to transport to work or provide temporary accommodation close to the workplace. For employers, it is a tax deductible expense if this claim is regulated in the employer's internal directive or in the employment contract. This is a taxable income for employees. An exception exists for the value of temporary accommodation, if the municipality of temporary residence is not the same as the municipalities of residence of employees, up to a maximum of CZK 3,500 / month, which is exempt from taxation for the employee.
Company car for use for private purposes
If the employee has a company car and by mutual agreement is allowed to use the car for private purposes, the value of 1% of the purchase price of the car including VAT is a subject to tax, social and health contributions for each month in which he uses the car and for private use. Let us not forget that the journey to and from work is considered a private journey.
The costs of consumed private fuel can be deducted from the salary of the employee upon agreement, or it can be considered as a non-monetary advantage. In such case i tis employee´s taxable income. The employer may consider the tax costs if the right to provide them is agreed in the internal directive or employment contract.
Pension and life insurance contributions
Employees who have a pension or life insurance contract can also arrange a contribution from their employer. This contribution is exempt from personal income taxes up to CZK 50,000 per year. For employers, this benefit is a tax deductible expense.
Part of the benefit pension and life insurance may be, for example, the fact that the employer organizes a favorable contract from its contractual insurance company.
Benefits card / dining room
Some of the above benefits can be used through benefit cards or a comprehensive online system of employee benefits. The established term "Cafeteria" has been used for this type of benefit. Within this programm you can choose from a number of benefit events provided by the benefit programm. The great advantage of this system is the possibility for each employee to choose activity or equipment as per their own preferences. The tax regime is then assessed according to the type of benefit chosen. However, it most of those belong into the category of cultural, sports, health and similar benefits.
Gifts for employees
Gifts for employees are also a fairly widespread benefit, especially during the Christmas period (eg Christmas collections, sports equipment, etc.). We should be, however, aware in terms of those gifts. Not only is the provision of a gift to an employee a non-tax deductible expense, but it also represents a taxable income for the employee. This is a very disadvantageous employee benefit. The only exceptions are advertising and promotional items with a value of up to CZK 500 and gifts in accordance with the purpose stated in the Cultural and Social Needs Fund (eg significant jubilees, first retirement, etc.).
In conclusion, we would like to point out the fact that non-tax deductible costs resulting from the use of employee benefits are not always a disadvantage for the company. Although the company pays a corporate income tax of 19%, the cost on employee side is a higher cost for the company. If the employee benefit is taxed, ie. is its taxable income, for the company this income represents extra 33.8% on social security and health insurance contributions, as well as in the case of net payments. Employee benefits, which are a non-tax expense on the part of the employer, but are also exempt from income on the part of the employee, are thus tax advantageous for both parties.