Why Salary Extras?
You want to motivate your employees. You want to pay competitive wages to retain your best staff. Or you want to reward exceptional performance with a one-off payment.
The problem is the high burden of payroll tax (Lohnsteuer) and social security contributions.
Example: An employee earns 4,000 euros per month, tax class I. You pay the employee 100 euros more. What does the employee actually receive? 44 euros! What does it cost your company? 100 euros + 20% social security contributions = 120 euros. In other words: you must pay 2.7 times the amount the employee receives (120 euros : 44 euros = 2.7).
Optimising salary extras means using remuneration components that do not count as wages, that are tax-exempt or only subject to flat-rate taxation, and that are free of social security contributions.
Digitalisation helps here: it makes the application of individual building blocks simpler. It also makes it easier to implement those building blocks in a legally compliant manner and to make the benefits of tax-optimised remuneration visible to the employee.
1. Vouchers within the so-called 44 Euro threshold
This means the company gives each employee a voucher worth 44 euros per month. Cost to the company: 44 euros (plus administrative costs) The employee also receives 44 euros in value.
Requirements:
- 44 euros per month per employee must not be exceeded. Showing a monetary amount on the voucher was previously not permitted, but this has changed - it is now allowed and no longer an issue. You must demonstrate that the 44 euro limit is not exceeded.
- You require a contractual basis in the employment contract.
- The voucher must not be redeemable for cash.
You must either record the 44 euros in the payroll accounting, or you apply to the tax authority for record-keeping relief and explain how you ensure compliance with the requirements - in which case you may dispense with recording it in the wage account.
How can you implement this in practice?
Examples:
- Fuel voucher/fuel card - Disadvantage: this can no longer be combined with allowances for travel between home and workplace.
- Vouchers for online shops, e.g. an Amazon voucher - The benefit-in-kind is deemed received upon handing over the voucher. This means the employee does not have to spend exactly 44 euros each month, but may accumulate the vouchers.
In addition to the 44 euros per month, a further 60 euros may be paid by voucher on a special occasion, e.g. a birthday, wedding, birth of a child, etc. 100% of your contribution reaches the employee.
2. Provision of computers, phones, etc.
The company purchases a smartphone and makes it available to the employee. The company bears the acquisition costs and the ongoing telephone charges - both are tax-free. The extent of private use is irrelevant; the exemption applies even where private use is 100%, including where the devices are kept at the employee's home. The benefits are not only tax-free but also free of social security contributions, though only if they are granted in addition to the agreed wage.
Requirements:
- The devices are only lent to the employee and do not pass into their ownership.
- You require a contractual basis in the employment contract.
- The devices must be of a type also used in the business.
Examples:
- PCs
- Laptops
- Tablets
- Smartphones/telephones
- Accessories (monitors, printers, switches, etc.)
- Ongoing costs (IT support, telephone charges, internet costs, etc.)
- An Xbox does not qualify - unless you use an Xbox in the business.
3. Cash allowances for internet use
You may pay your employees a monthly allowance of up to 50 euros. The allowance need only be taxed at a flat rate of 25% and is free of social security contributions.
Requirements:
- A written declaration from the employee confirming that they have an internet connection and incur costs of at least 50 euros per month.
4. Holiday allowances (Erholungsbeihilfen)
You may pay your employees annual holiday allowances that are only subject to flat-rate taxation at 25% and are free of social security contributions.
Maximum amounts:
- Employee: 156 euros
- Spouse: 104 euros
- Per child: 52 euros
This means you may pay a married employee with 2 children 364 euros per year. If both spouses are employed by you, you may pay each spouse 364 euros.
Requirement: the holiday allowance must be granted in connection with a period of annual leave (specifically within 3 months before or after). Either ensure that the holiday allowance is paid when the employee takes leave, or obtain a written confirmation from the employee.
5. Cash allowances for free or subsidised meals
The company grants each employee a daily meal allowance of 6.20 euros for every working day. Employees use this to have lunch in the vicinity of your business.
If the requirements are met, the following advantages arise:
- Not 6.20 euros but only 3.10 euros (the notional benefit value, Sachbezugswert) is taxable.
- Payroll tax may be levied at a flat rate of 25%.
- The allowance is free of social security contributions.
Alternatively, the company may pay an allowance of 3.10 euros whilst the employee contributes an equal amount of 3.10 euros. In that case there is no taxable benefit-in-kind at all.
Requirements:
- Contractual basis in the employment contract
- Evidence that a meal has actually been purchased - i.e. not cigarettes, for example.
- Only one allowance per working day (excluding holiday, sick leave, and external assignments)
- Allowance must not exceed the price of the meal
This building block is relatively well known, but many businesses have previously shied away from the administrative burden. They had to issue meal vouchers. The business had to enter into contracts either with restaurants or with a clearing house that processes the meal vouchers. The meal vouchers were not accepted everywhere. The employer paid for vouchers that were never redeemed.
In the meantime, procedures have emerged that reverse the process. Allowances are paid to employees upon submission of receipts. Since such a procedure was not provided for in the payroll tax guidelines, we obtained a payroll tax ruling (Lohnsteueranrufungsauskunft) in 2015. The Federal Ministry of Finance issued a decree on 24.2.2016 approving the procedure we had applied for.
No single building block on its own will achieve a great deal, but the building blocks can be combined to deliver substantial savings on payroll tax and social security contributions.