What is a benefit in kind?
Onesalary in kind, also referred to as payment in kind, is a way ofthe company pays and that the worker is paid in goods or servicesoffered by the company and thatthe worker can enjoy it at no cost to them or at a low price compared to the market rate.
This type of remuneration represents value for the person receiving it, even if it doesn't generate any cost for the company making the payment.It shall be at the worker's discretion whether or not to accept payment in kind.at the same time asYou will be able to choose from different payment in kind options.
Legal limitations on benefits in kind
- Only the following may be received in kind 30% of perceptions wages of the worker
- ThePayment in kind must be declared in income tax(although exempt transactions exist) and must be reflectedon the payslip, broken down, indicating the value of each good or service perceived by the worker as part of their salary, so that its calculation allows for the determination of possible dismissal compensation, holiday pay, and other obligations. For this reason, the company is obliged to make the corresponding income tax withholdings, and the worker must declare the amount relating to this payment in kind.
- Benefits in kind cannot be used to reduce the amount of the national minimum wage, which must be paid in full in cash. However, Any remuneration exceeding this minimum may be paid in cash or in kind, always respecting the%limit. For 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 over 12 payments.
- ThePayment in kind should not be confused with fringe benefits, which does not count towards compensation calculations, holidays or social security. It also does not require justification of the expense, so it is not reflected in the payroll.
Two ways to offer benefits 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 remuneration
- The employee voluntarily decides how to distribute part of their salaryThe company is therefore adapted to the personal and family needs of the worker at any given time.
- The company offers a Product and service selection such as meal vouchers, travel vouchers, nursery vouchers, training, or health insurance.
- It translates into a Higher net salary 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.
- can be established through a collective agreement or individual agreement with the worker.
- The company decides to offer these benefits, either due to internal regulations or a agreed obligation.
- The benefits no direct cost to the employee.
- They are a form of additional compensation that improves the team's well-being.
Hybrid Model
Companies can combine payment in kind and payment in kind in the mixed model. A common example is that of Health insuranceThe company can cover it as social benefit (at no cost to the employee, added to salary) and, at the same time, allow the worker to include their beneficiaries by Flexible remuneration (deducted from gross salary).
Thus, both concepts can coexist on the payslip. The same applies to other services such as tickets food, nursery or transport, which can be offered in either form, as the company decides.
Advantages of wages in kind
Payment in kind The benefits for both the employee and the company are significant, Let's look at some of the most significant ones next:
Advantages for the worker
- It allows you to access goods and services for free or at a lower market price.
- Many benefits in kind are wholly or partially exempt from income tax, which represents a significant tax advantage for the employee.
- It allows you to satisfy certain needs that would possibly be impossible for you otherwise.
Advantages for the company
- Some of the expenses incurred for benefit in kind payments, such as medical insurance or nursery vouchers, among others, are tax-exempt.
- It is a way of rewarding work more economically than the traditional method.
- Motivates the worker and helps 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.
- Use assets or property that you own (such as a vehicle or a home).
- Most of the services it offers are profitable, as through commercial agreements and volume discounts, it achieves significant reductions when contracting them.
All of this means a how to remunerate employees that the company finds it considerably cheaper 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.. Benefits in kind must be included on the employee's payslip. This means that each item must be recorded separately, and the economic value of each benefit in kind received by the employee as a form of payment must be assigned. All values registered on the payslip imply the corresponding social security contributions and the required income tax withholdings.
For this reason, The company is obliged to carry out the respective withholding taxes for income tax purposes.. At the same time, the worker is obliged to declare in its annual incomethe corresponding amount for what was received in kind as part of their salary. However, although both the worker and the company are obliged to declare payments in kind that are made, There are certain benefits in kind that are exempt from taxation.
Payments in kind exempt from income tax
According to the Income Tax Act, its Article 42 the following income from work in kind is not taxable:
- Restaurant tickets: Income tax exemption up to €11/day. Perfect for daily meals, whether in restaurants or with home delivery — ideal for both those working in the office and from home. Fully digital, no need for physical cards or paperwork.
- Nursery 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 full fee will apply, regardless of its amount. Compatible with regional and state nursery aid.
- Transport ticket: Exempt from income tax up to a limit of €1,500 per year. Valid for season tickets, single tickets, 10-journey tickets, buses, Renfe, and more. Compatible with transport subsidies offered by the Autonomous Community and the State.
- Health insurance in order to cover illnesses for the worker, their spouse, and their children, provided that the contributions do not exceed €500 annually for each of them.
- Company sharesCompany shares or holdings are exempt from taxation up to a limit of €12,000. There are three conditions to qualify for this exemption: the same conditions must apply to all employees, the shares must be held for three years, and the limit of 5% per share must not be exceeded.
- Worker training. Investments made by the company to train its employees for better development and performance 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.
- La use of assets intended for social and cultural services of the employee.
- The travel expenses on public or private transport 0.19 per kilometre plus tolls.
Payments in kind not exempt from income tax
But there is also a series of benefits in kind which are not exempt and must be taxed under income tax such as, for example:
- Corporate housing.
- The use of a company-owned vehicle for private or business purposes.
- Loans at an interest rate below the legally established rate.
- Living and accommodation expenses.
- Contributions to pension schemes and collective insurance.
- 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 can only be done when the goods and services offered by the company are of interest to the worker, are optional and are not imposed on behalf of the organisation.
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