Difference between Social Benefits and Flexible Remuneration
In-kind remuneration, alongside monetary compensation and emotional rewards, constitutes one of the three pillars of Total Compensation. In other words, it is one of the various ways in which an employee can be remunerated or compensated for their work in a company. In-kind remuneration can take the form of Social Benefits or Flexible Remuneration (or a mix of both).
Although these terms are often used interchangeably within a benefits and compensation plan, they are not the same. What is the difference between Social Benefits and Flexible Remuneration? Let’s take a closer look at these two terms that often cause confusion among employees.
1. What are Social Benefits?
Social Benefits are a form of non-monetary remuneration that employees receive from a company as a supplement to their salary. By supplement, it means that the cost of these benefits is borne by the company.
Key Features of Social Benefits:
– It is non-monetary remuneration that complements the salary, delivered over and above the monetary compensation, in the form of products or services, not cash.
– The company covers the total cost of Social Benefits. The employee pays nothing to use the products and services offered by the company as Social Benefits.
– The company is exempt from Income Tax (IRPF), and expenses on Social Benefits are 100% deductible from Corporate Tax.
– Employees may contribute to Social Security for these benefits, as they are included as part of their salary.
If you want to know all the details about this form of in-kind compensation, check out our comprehensive Guide on Employee Benefits.
2. What is Flexible Remuneration?
Flexible Remuneration is a system for employees that allows them to allocate a portion of their salary to purchase products and services at a lower-than-usual price. In this case, the employee bears the cost of the products but enjoys interesting tax advantages.
Key Features of Flexible Remuneration:
– Flexible Remuneration enables each employee, individually, to use part of their salary to pay for specific benefits of their choice.
– Payment for products and services is made from the gross salary, resulting in significant tax savings.
– The employee is exempt from Income Tax (IRPF).
– It is entirely voluntary: the employee decides whether to use this system and only for the products they need.
– Products that employees use or contract through Flexible Remuneration will be subsequently deducted from the payroll.
To expand this information and address any questions, we recommend understanding the keys to Flexible Remuneration.
3. What do Social Benefits and Flexible Remuneration have in common?
The current limit set by Social Security for in-kind remuneration is 30% of the annual gross salary, both for Social Benefits and Flexible Remuneration. Benefits exceeding this percentage will be accounted for with the usual retention rate defined in the employment contract.
Both are exempt from fiscal taxes, in this case, IRPF for the employee and Corporate Tax for the company.
Products commonly offered in both Flexible Remuneration and Social Benefits, due to total or partial exemption from IRPF, include: Meals, Transportation, Training, Health Insurance, Retirement or Life Insurance, Computer Equipment, Childcare, Pension Plans, Stocks, and Renting.
Do you already know everything you need about employee benefits to enhance their happiness and increase their purchasing power?
If you require assistance in defining your company’s social benefits strategy, we are at your disposal!