Flexible compensation is a service offered by the company as a type of remuneration that allows the employee to decide what part of their gross salary to allocate to the consumption of products or services. The employee bears the cost of this compensation within their salary and may benefit from tax reductions.
Having a flexible compensation plan offers advantages for both parties, allowing the employee’s salary value to increase without any additional cost to the company.
Flexible compensation regulations
- Law 35/2006, of November 28th, which regulates the Personal Income Tax and partially modifies the laws of the Corporate Tax, Non-Resident Income Tax, and Wealth Tax
- Royal Decree 439/2007, of March 30th, which approves the Regulation of Personal Income Tax and updates the Pension Plans and Funds Regulation, initially established by Royal Decree 304/2004, of February 20th.
As stated by the current legislation, to be considered flexible remuneration, certain criteria must be met:
- Flexible remuneration must not exceed 30% of the employee’s total salary and must not reduce the employee’s net income below the interprofessional minimum wage (SMI)
- The employee’s social security contribution base is not altered by the use of flexible compensation. Changes apply only to personal income tax (IRPF)
- This system must be agreed upon between the company and the employee, allowing the latter to freely choose to participate in it without any additional cost to the employee
- The implementation of this compensation system cannot be imposed by the company unless established through specific regulations or agreed upon in the applicable collective bargaining agreement
- Expenses directly derived from the employee’s professional activity, such as business travel expenses or the use of work tools, are excluded from this system.
Products that can be offered as flexible compensation
- RESTAURANT TICKETS: Employees can use restaurant tickets during their lunch breaks, with a limit of 11 euros per working day, exempt from income tax withholding (IRPF) for the employee
- TRANSPORT TICKETS: Employees can benefit from a maximum amount of 136.36 euros per month (1,500 euros per year), provided it does not exceed 30% of their annual gross salary
- CHILDCARE VOUCHER: It is possible to deduct the total amount allocated to childcare, always considering the 30% salary limit
- PENSION PLANS: The exempt limit for individual pension plan contributions is 1,500 euros annually. Contributions to pension plans can be deducted from the company’s corporate tax base if the company decides to participate, making it a mixed benefit between flexible compensation and social benefit
- MEDICAL INSURANCE: In the case of private insurance for employees (as well as for spouses and dependents) paid by the company, it is exempt up to a limit of 500 euros per beneficiary per year. This limit is increased to 1,500 euros in case of disability.
Benefits of flexible compensation for the employee
The employee can enjoy products and services offered by the company without paying income tax (IRPF) on their value, and they may also receive discounts.
Employees appreciate being able to customize their salary and obtain tax advantages, which improves their perception of the company.
Benefits of flexible compensation for the company
The main benefit for the company is that its use does not necessarily entail an extra cost for the employer.
The company’s tax obligations are not affected, nor is the calculation of social security contributions.
Conclusion
This type of compensation allows companies to offer improved conditions to their employees without incurring additional costs or salary increases.
