La flexible compensation reduce the personal income tax retention on the payslip because amounts allocated to exempt products (food, transport, childcare, training, health insurance) are deducted from gross salary before to calculate the retention. As the monthly taxable base decreases, the retention also lowers, and the employee receives a higher net salary without the company increasing payroll costs.
real savings depend on two factors IRPF marginal rate the employee’s income (between 19% and 47% depending on earnings) and the products selected under the scheme, each with its own exemption limit. In this article, we explain what income tax on payslips is, which tax brackets apply in 2026, and how flexible remuneration affects this deduction. You can also check How flexible remuneration is taxed on the income tax return to see the impact at an annual level.
IRPF on a payslip is the percentage of gross salary deducted monthly by the company from the employee's salary to be paid directly to the tax authorities. This retention acts as an advance payment of income tax, which is settled annually on the tax return.
The amount withheld will depend on various factors and at the end of the fiscal year, the taxpayer may receive a refund if more than they were due has been withheld, or they may have to pay the difference if the withholding has been insufficient.
IRPF deductions on a payslip depend on:
The Spanish Personal Income Tax (IRPF) withholding system is progressive, which means that the percentage applied increases as the annual gross income is higher. This means that not all income is taxed at the same rate, but is divided into different brackets, each with a corresponding percentage.
Here is the IRPF withholding tax table for the year 2026, where you can see the different income ranges and the percentages applied to each one:
| Personal income tax brackets | Type of retention |
| Up to €12,450 | 19% |
| £12,450 – £20,200 | 24% |
| £20,200 – £35,200 | 30% |
| £35,200 – £60,000 | 37% |
| £60,000 – £300,000 | 45% |
| Over €300,000 | 47% |
There are certain annual income limits below which workers are exempt from income tax withholding. These limits vary depending on the worker's personal and family circumstances:
| Personal situation | Annual income limit |
| Single, widowed, divorced or separated | |
| Childless | Up to €15,947 |
| With a son | Up to €17,100 |
| With two or more children | Up to €17,100 |
| With spouse earning <€1,500 per year | |
| Childless | Up to €15,456 |
| With a son | Up to €16,481 |
| With two or more children | Up to €17,634 |
Although the income tax brackets are calculated on an annual basis, withholding is applied month by month on the gross salary for the period. The company estimates the employee's annual income at the beginning of the year, calculates the withholding percentage that would correspond to that basis, and applies that percentage each month. If circumstances change during the year – salary increase, change in family situation, or adherence to a Flexible remuneration plan the company will regularise the deduction in the following payrolls to adjust it to the new base.
La Flexible remuneration is an option that allows employees to allocate part of their salary to products or services exempt from income tax, which reduce the tax base and, consequently, the payroll withholding.
Some of the most common products that can be included in flexible remuneration are:
When opting for flexible remuneration, the employee can optimise their net salary, as a portion of their income will not be subject to income tax (IRPF) withholding. It is worth remembering that these benefits have a maximum exempt limit per product and that the overall plan cannot exceed 30% of gross annual salary established by Article 42 of Law 35/2006 on Personal Income Tax.
Let us look at a simplified case to understand the mechanism. An employee with an annual gross salary of £35,000 decide to allocate to the flexible remuneration plan:
Total allocated to the plan: €4,100/year, all within the exemption limits and well below the 30% ceiling of the gross salary (€10,500).
Without flexible remuneration, the employee would be taxed on the full €35,000. Under the scheme, their taxable income is reduced to €30,900 (€35,000 − €4,100). As personal income tax is progressive and the €4,100 exemption falls within the marginal tax bracket of 30% (which applies to income between €20,200 and €35,200), the approximate annual tax saving is:
€4,100 × 30% = €1,230 in income tax savings per year
In other words, the employee keeps the same services (food, transport, medical insurance) but receives €1,230 more net salary per year, without the company increasing salary costs.
To see how this saving translates to the monthly payroll, item by item, please see our Example payslip with flexible benefits with a real case broken down.
Note: The calculation is a didactic approximation. Actual payroll deductions are also dependent on personal and family minimums, the autonomous community's situation, and other employee circumstances. For a personalised calculation, consult our savings calculator.
I am an expert in employee benefits, specialising in strategic communication and consulting. I currently work at Edenred Spain as a Customer Success Manager, where I support organisations in the effective implementation of their compensation and benefits plans. My goal is to maximise the perceived value of these solutions as a key lever for talent attraction and retention.
