Advantages of Flexible Remuneration for Employees and Companies

What is flexible remuneration and how does it work?

Flexible remuneration is a pay scheme that allows employees to allocate up to 30% of their gross annual salary towards the payment of goods or services that are fully or partially exempt from income tax, thereby increasing their take-home pay without the company having to increase its wage bill. The company determines the available options, and each employee voluntarily decides which ones to use and how much to allocate.

If you want to delve into how it works, its legal limits, and how to implement it, consult our A complete guide to flexible remuneration.

What are the advantages of flexible remuneration for employees?

For the employee, flexible remuneration increases their salary's purchasing power without changing their gross salary. The three main advantages are:

• Greater purchasing power. Amounts allocated to exempt products (food, transport, childcare, health insurance, training) are not taxed under income tax, meaning the employee pays less tax and has more net income each month for expenses they already incurred.
• It does not affect the Social Security contribution base. Unlike a pay rise, flexible remuneration does not change the employee's contribution base, so their future rights (pension, unemployment benefit, disability) remain intact.
• Customisation according to the needs of each moment. Each employee chooses the products that suit them best and can change their choices over time: childcare when children are young, transport or other products later on.

What are the advantages of flexible remuneration for a company?

For the company, flexible remuneration improves the employee value proposition without increasing salary costs. Its main advantages are:

• Zero additional salary cost. The amounts come from the gross salary that the employee was already receiving, so the company improves the team's effective compensation without increasing its expenditure.
• Talent retention and employer branding. A more competitive remuneration package reduces staff turnover and strengthens the company's image as an employer that caters to the real needs of its workforce.
• Greater motivation and productivity. A team that feels the company cares about their well-being tends to show greater commitment, which impacts productivity.
• Deductible for Corporation Tax. The amounts allocated to the plan are deductible as personnel expenses, just like the rest of the salary.

Disadvantages and limitations of flexible remuneration

Flexible remuneration is advantageous for both employees and companies, but it's advisable to be aware of its limitations before implementing a plan:

• There is a legal limit of 30%. Only up to 30% of the annual gross salary may be allocated to flexible remuneration (Section 42 of the Personal Income Tax Act 35/2006). Any amount exceeding this limit is taxed as ordinary salary.
• Not all products fit all profiles. Real savings depend on the employee using products that fit their actual expenses. An employee without children, for instance, won't benefit from a childcare voucher. That's why it's important to offer a varied catalogue of products.
• Requires a salary renegotiation. For the tax exemption to be valid, the company and employee must sign a deed of novation that modifies the composition of the salary. It is a simple, but essential, procedure.
• Savings depend on the income tax bracket. The higher the employee's marginal tax bracket, the greater the savings. For very low salaries (exempt or almost exempt from income tax), the tax benefit is lower or non-existent.
• It requires administrative management. The company must set up the payroll concepts and maintain documentation. This burden is significantly reduced when managing the plan through a specialised platform such as Edenred Flex, which automates operations and documentation.

In practice, these limitations are managed with good plan design and the choice of a provider that simplifies operations. When well-structured, flexible remuneration offers more advantages than disadvantages for both the employee and the company.

How to implement a flexible benefits plan?

Implementing a flexible remuneration plan does not involve additional salary costs for the company, but it does require good design to work: informing the workforce well, offering a catalogue of products that meets the real needs of each profile, and choosing a provider that simplifies management and guarantees tax compliance.

The complete step-by-step process is explained in our guide on How to implement a flexible benefits plan, from initial analysis to the first payroll with the plan applied.

Examples of flexible remuneration

These are the most common products that companies include in a flexible benefits plan:

• Ticket Restaurant: Vouchers or cards for paying for meals in restaurants and food establishments, exempt from personal income tax up to €11 per working day.
• Edenred Mobility: allows part of the salary to be allocated to public transport, exempt up to €136.36/month (€1,500/year).
• Edenred Guardería: assistance with the costs of childcare and early years education for children; 100% is tax-exempt and there is no limit on the amount.
• Health Insurance: Private medical insurance for the employee, exempt up to €500 per year per beneficiary (€1,500 in case of disability, extendable to spouse and children).
• TrainingJob-related training, exempt with no limit on amount.

These products can be offered through both flexible remuneration and employee benefits. If you want to know which is the best fit for your company, consult the Differences between employee benefits and flexible remuneration.

Implement flexible remuneration in your company with Edenred

Flexible remuneration is one of the most efficient ways to improve your team's compensation without increasing salary costs: the employee gains purchasing power, the company gains talent retention, and both benefit from tax advantages. The key is to design the plan well and choose a provider that simplifies management.

Do you want to know how much you could save? Estimate the return with the Business savings calculator or the Employee savings simulator.

Request a demo of Edenred Flex y diseñamos contigo un plan de retribución flexible a medida para tu empresa, sin compromiso.