In their quest to increase their employees’ take-home pay, companies may implement in-kind payments by offering non-cash compensation, such as meal vouchers, use of company cars, housing benefits, health and life insurance, and pension plans.
In-kind payments refer to a form of remuneration where goods or services are provided in lieu of cash, adding substantial value for employees through possible tax exemptions and better overall compensation. Let’s see what this is all about in more depth here at QualityConta.
Main types of in-kind payments and tax-exempt benefits
Among the non-cash rewards available, several options include tax exemptions, allowing companies to improve employees’ take-home pay without increasing taxable income. Some notable types are listed below:
- Private health insurance: if the company pays for the health insurance premiums of employees, their spouses, or children, there is a tax advantage. The premiums are not taxed as long as they do not exceed €500 per year for each family member (€1,500 in the case of people with disabilities).
- Meal vouchers: These vouchers are tax-free when provided to employees for a maximum of €9 per day, offering a way to support meal expenses without tax impact on the employee’s income.
- Childcare vouchers: These are valuable social benefits for employees with young children (0-3 years), which allow tax-free payments for childcare fees, alleviating the financial burden of childcare costs.
- Transport tickets: Employees can benefit from in-kind payments for public transport expenses, which are tax-free up to €1,500 per year, incentivizing sustainable transport choices.
- Professional Training: Employee job-related courses, including new skills and technological equipment such as computers or tablets, are tax-exempt, providing employees with a professional advantage and reducing costs.
By incorporating these benefits into employee compensation, companies not only support their employees financially, but also take advantage of tax-advantage din-kind payment structures.
Important limits to in-kind payments
It is important to note that payments in kind cannot exceed 30% of the employee’s total cash salary, as set out in the Workers’ Statute. Payments in kind are still subject to income tax rules, as is monetary remuneration. Other common payments in kind are housing benefits, company cars, pension plans and shares in the company’s capital.
Key considerations for payments in kind related to company cars
Where the company makes a vehicle available for personal and business use, there are specific tax considerations. If the vehicle is owned by the company, the rate is calculated at 20% of the acquisition cost, covering the expenses and taxes associated with the vehicle.
The National Court ruling of 13 April 2009 provides a framework for calculating payments in kind for mixed use, setting the usage at 25% for sales staff and 50% for other professionals, depending on the nature of their duties.
Advantages of in-kind payments for employers and employees
Opting for payments in kind has many advantages:
- Tax benefits: by offering tax-free options, companies improve employee remuneration without increasing taxable income. Employees, in turn, receive a higher take-home pay.
- Flexibility of cashless payments: In-kind payments, such as meal vouchers and health insurance, provide employees with direct benefits that might otherwise represent substantial expenses.
- Long-term value: In-kind payments, especially in areas such as health and transportation, improve employees’ quality of life, which can increase job satisfaction and retention.
- Cost-effective compensation structure: For companies, in-kind payments offer a tax-optimized approach to rewarding employees, supporting both liquidity and employee satisfaction.
Pay-in-kind vouchers and how they work
A payment-in-kind bond is a type of debt where interest or dividends are not paid in cash, but in the form of additional bonds or securities. In a payment-in-kind bond, interest accrues but is not paid immediately, allowing the issuing company to delay cash outflows.
At the end of the term, the principal and accrued interest are paid in cash. This model benefits cash-strapped companies by reducing immediate cash needs while allowing investors to accumulate additional capital or securities.
Frequently asked questions on payment in kind
What does ‘payment in kind’ mean?
Payment in kind’ means providing goods, services, or other non-cash forms of compensation in lieu of cash. In business, it often refers to benefits such as health insurance or meal vouchers.
How does a payment-in-kind bond work?
A payment-in-kind bond allows the issuer to delay the payment of interest in cash by issuing additional securities as interest, with full repayment in cash at maturity of the bond.
What are the tax advantages of in-kind payments?
In-kind payments, such as food and transport vouchers, health insurance and childcare, are generally tax-exempt up to certain limits, increasing the net salary of employees without additional taxation.
Are there limits on payments in kind?
Yes, payments in kind cannot exceed 30% of an employee’s cash salary. In addition, tax-free benefits have their own annual limits depending on the type.
What benefits are commonly offered as payments in kind?
The most common payments in kind include health and life insurance, meal and childcare vouchers, transport vouchers and vocational training. These offer direct financial benefits to employees.
How does the payment in kind process help cash-strapped companies?
Payment in kind, such as offering shares instead of cash, can help companies better manage cash flow by deferring immediate payments and generating long-term commitments.
Why are payment-in-kind bonds popular with private equity firms?
They allow private equity firms to maximize leverage by delaying cash repayments, freeing up funds for other investments without immediate cash outflows.
How does payment in kind benefit employees in terms of take-home pay?
Payments in kind can be tax-exempt, meaning that employees receive valuable benefits that increase their take-home pay without paying additional tax.
What are the employer’s responsibilities when offering in-kind payments?
Employers must ensure compliance with tax rules, keep in-kind payment benefits within the 30% salary limit, and provide accurate valuations for presentation.
How does payment in kind compare to traditional cash bonuses?
Payments in kind can provide tax advantages and long-term value that cash bonuses cannot, allowing for more strategic and cost-effective employee benefits.
