Thepayment in kindis aThe practice is becoming more and more widespread among companies in our country,But despite this, it is a method of remuneration that is unknown to most workers. Thepayment in kindincludes asmeans of payment securities as goods and servicesand its purpose is toto cancel work and services provided by third parties.
The employer, after agreement with his employee, pays a part of his remuneration in money and the other part in goods or a service of use to the employee, both these goods and these services are considered “in kind”.
This type of payment involvesadvantages and disadvantages for both the employer and the employeeand is becoming increasingly popular, especially in small and medium-sized enterprises.
What is wages in kind?
Asalary in kind, also referred to as remuneration in kind or payment in kind, is a way in whichthe company pays and that the worker is paid in goods or servicesoffered by the company and thatthe worker can enjoy at no cost to himself or at a low price compared to the market price.
This type of remuneration represents a value for the person receiving it, even if it does not generate any cost for the company issuing the payment.It is up to the employee to decide whether or not to accept payment in kind.at the same time asyou will be able to choose between different payment in kind options.
Legal limitations on remuneration in kind
- Only the following may be received in kind 30% of perceptions wages of the worker
- Thepayment in kind must be declared for personal income tax purposes(although there are exempted items) and should be reflectedin the payroll on an itemised basis, indicating the value of each good or service received by the employee as part of his or her salary, so that it can be calculated in order to calculate possible severance payments, holiday pay and other obligations. For this reason, the company is obliged to make the corresponding IRPF withholdings and the worker must declare the amount relating to this payment in kind.
- Wages in kind cannot reduce the amount of the Minimum Interprofessional Wage (SMI), which must be paid in full in cash. However, any remuneration in excess of this minimum may be paid in cash or in kind, subject to the limit of 30%. For the year 2024, the SMI is set at €1,134 gross per month in 14 payments, which is equivalent to €1,323 gross per month if distributed in 12 payments.
- Thepayment in kind is not to be confused with non-wage remuneration, which does not count for severance, holiday or social security calculations. Nor does it require justification of the expense, so it is not reflected in the payroll.
Two modalities for providing remuneration in kind
There are two main ways in which wages in kind can be offered: by means of a plan for flexible remuneration or through social benefits:
Flexible Compensation
- The employee voluntarily decides how to distribute part of his or her salary.The company is therefore adapted to the personal and family needs of the worker at any given time.
- The company offers a selection of products and services such as restaurant vouchers, transport vouchers, childcare vouchers, training or health insurance.
- It translates into a higher take-home pay and more savings for the employee.
Social Benefits
- These are goods or services that the company offers to the worker. in addition to the salary.
- They do not require the worker to give up part of their salary: they receive them. without changing the way they are charged.
- They can be established through a collective agreement or individual agreement with the worker.
- It is the company that decides to offer these benefits, either by internal regulation or by agreed obligation.
- The benefits no direct cost to the employee.
- They are a form of additional compensation that enhances the well-being of the team.
Hybrid model
Companies can combine payment in kind and payment in kind in the mixed model. A common example is the health insuranceThe company can cover it as social benefit (at no cost to the employee, in addition to the salary) and, at the same time, allow the employee to include his or her beneficiaries through flexible remuneration (deducted from gross salary).
Thus, both concepts can coexist on the payroll. The same applies to other services such as tickets food, childcare or transport, which may be offered in either form, at the discretion of the company.
Advantages of wages in kind
Payment in kind The benefits for both the employee and the company are significant, The following are some of the most significant:
Advantages for the worker
- It allows you to access goods and services for free or at a lower market price.
- Many of the payments in kind are fully or partially exempt from personal income tax, which is an important tax advantage for the employee.
- It allows you to meet certain needs that you might not be able to otherwise.
Advantages for the company
- Some of the expenses incurred for payment in kind, e.g. health insurance, childcare vouchers, etc., are exempt from taxation.
- It is a way of paying for work more economically than the traditional way.
- It motivates the employee and helps to generate a sense of belonging to the organisation, which results in increased productivity and increased business profitability.
- Making in-kind payments to employees does not affect the company's current assets.
- It uses property or assets that it owns (e.g. a vehicle or a house).
- Most of the services it offers are profitable, as through commercial agreements and volume discounts, it obtains significant reductions when contracting them.
All of this means a how to remunerate employees that the company finds it much more economical than with the conventional system.
How are the most common payments in kind taxed?
As mentioned above, payments in kind have to be declared for personal income tax purposes.. Wages in kind must be included in the worker's payroll. That is to say, each concept must be recorded separately and the economic value of each of the benefits in kind received by the worker as a form of payment must be assigned. All the values recorded in the payroll imply the corresponding Social Security contribution and the obligatory IRPF deductions.
For this reason, the company is obliged to make the respective personal income tax withholdings.. At the same time, the employee is obliged to declare in its annual incomel in respect of what is received in kind as part of his or her salary. However, although both the employee and the employer are obliged to declare the payment in kind that is made, there are certain payments in kind which are exempt from taxation.
Payments in kind exempt from income tax
According to the Article 42 of the Personal Income Tax Act the following income from work in kind is not taxable:
- Restaurant tickets: Income tax exemption up to €11/day. Perfect for daily meals, either in restaurants or with home delivery - ideal for both office and home-based workers. Fully digital, no need for physical cards or paperwork.
- Childcare tickets: There is no exemption limit as long as the general limit of 30% is respected and the children are under 3 years old, the total quota will be applied, regardless of the amount. Compatible with the aid for childcare provided by the Autonomous Community and the State.
- Transport ticket: Exempt from personal income tax up to a limit of €1,500 per year. Valid for transport passes, single tickets, 10-trip tickets, bus, Renfe and more. Compatible with transport subsidies offered by the Autonomous Community and the State.
- Health insurance for the purpose of covering illnesses of the employee, his or her spouse and children, provided that the contributions do not exceed €500 per year for each of them.
- Company sharesShares or holdings in the company are exempt from taxation up to a limit of €12,000. There are three conditions to qualify for this exemption, namely that it must be on the same terms for all employees, that the shares must be held for three years and that the amount of 5% per share must not be exceeded.
- Training for workers. Investments made by the company to train its employees for the better development and performance of the employee within the company will be exempt from taxation.
- Education services for the children of employees, at all levels in approved educational establishments, either free of charge or below the normal market price.
- The use of goods intended for social and cultural services of the employee.
- The travel costs by public or private transport 0.19 per kilometre plus tolls.
Payments in kind not exempt from income tax
But there are also a number of payments in kind that are not exempt and are subject to personal income taxation such as, for example:
- Corporate housing.
- The use of a vehicle owned by the company for private or professional use.
- Loans at an interest rate below the legally established interest rate.
- Living and accommodation expenses.
- Contributions to pension plans and group insurance schemes.
- The curricula.
- Personal insurance.
- Group and dependency insurance.
In short, the employee may waive the right to receive more money on the payroll, which translates into a savings through payment in kind. However, this may only be done when the goods and services offered by the undertaking are of interest to the worker, are optional and are not imposed by the organisation.
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