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#Alternative forms of remuneration #Taxes #NSSO #Benefit in kind

The “home services bonus”: let your employer pay for your cleaner or gardener

Tuesday 27/09/2016
Homes services bonus

In recent years, employers and employees alike have been seeking alternative forms of remuneration that are advantageous for both parties; ways to optimise the level of return and benefit for the employee and at the same time minimise the burden of the employer’s social security contributions.

A recently-developed form of extra-legal remuneration, which has been checked with both tax and social security authorities, is the “home services bonus”. 

How does it work?

The employer enters into a framework agreement with a facility management company (@Olivier: Please add a link to for a certain budget that makes it possible to deduct a number of working hours for the performance of specific home services. This primarily relates to the following services: Cleaning and housekeeping services, services provided by maids and household staff, drivers, window cleaners, gardeners, and services relating to minor repairs (plumbing, electrical work, painting jobs, etc.).

The employer can offer these working hours to its employees or managers, and the employee or manager is then taxed for a benefit in kind. The benefit in kind is fixed at a flat rate, so it’s not related to the actual cost.The employee or manager has to go through the employer to book the service with the facility management company, which uses a network of subcontractors to perform the requested services on its behalf. The employer pays the facility management company for the service, which in turn pays the subcontractor.

Determining the benefit in kind

As is often the case, the benefit in kind is determined differently for tax and social security purposes. The market leader in this sector has obtained a ruling regarding both the tax and social security aspects, giving certainty to both the employer and the employee with regard to the tax consequences in the event that they use the services provided by the facility management company.

  • Flat-rate tax assessment:

    Determination of the benefit in kind for tax purposes is based on the flat-rate benefit in kind that consists of free access to a domestic worker; this benefit is fixed at €5,950 per year for a full-time employee (working 1700 hours per year).

    If you convert this into a one-hour benefit in kind, you get a tax benefit of €3.50 per hour (€5,950 / 1700 hrs).

    The Advance Ruling Commission (DVB) has accepted this valuation for both employees and managers, and specifically for the following services (NB: This is an exhaustive list):

    Cleaning and housekeeping services, services provided by maids and household staff, drivers, window cleaners, gardeners, and services relating to minor repairs.

    But be aware that the cost of any products and equipment required to provide the requested services must be paid separately by the employee / manager, who will be invoiced by the subcontractor (e.g. for the purchase of plants in the context of garden maintenance).
     
  • Flat-rate social security assessment:

    The RSZ (National Social Security Office) also accepts a flat-rate assessment of the benefit in kind when calculating the social security contributions to be deducted. Unlike the DVB in the tax assessment opinion, in its own ruling the RSZ did not give an exhaustive list of the services included in this benefit. However, it did refer to services that can be performed using service vouchers or PWA (local employment agency) vouchers (which differ from community to community), namely:
    • Service vouchers: Cleaning including windows, washing and ironing, mending of ironed clothes, preparing meals, running errands, help in transporting people of limited mobility;
    • PWA vouchers: Help in supervising or looking after sick people or children, help in following administrative procedures, help with light garden maintenance work, minor repairs and maintenance work around the home, looking after and caring for pets while the owners are away (if no pet hotel is available in the area).

But you should note: The RSZ opinion obviously applies only to employees, not to managers.

The informal ruling issued by the RSZ accepts an interim flat-rate assessment of €8.54 per hour, based on the value of a service or PWA voucher.The RSVZ (National Institute for the Social Security of the Self-Employed) has now also declared its agreement with the flat-rate assessment accepted by the RSZ.

So what does this mean in practice for employers and employees?

To explain the benefit to the employee we’ve created an example in diagram form, based on the following parameters, in which the total salary cost for the employer is €1,000:

  • RSZ – Employer:             34.70%
  • RSZ – Employee:            13.07%
  • Payroll tax:                      53.50%
  • Flat-rate tax valuation of home services performed:             €3.50 / hr
  • Flat-rate RSZ valuation of home services performed:            €8.54 / hr
  • Facility management company coordination fee per job:             €22.71

As you will see, the benefit to the employee increases the higher the hourly rate for the service performed, e.g. because of having to use service providers with different hourly rates, meaning fewer hours can be used for the same budget (a comparison is given between €30 and €60 per hour) for specific services: the reason is that for tax and social security purposes the benefits are fixed at a flat rate per hour, regardless of the actual cost of an hour of services.

For a relatively small “salary increase” in the form of a bonus for home services, the employee gets a lot in return, because taxes and social security contributions are calculated on the basis of substantially lower flat-rate amounts.

For an ordinary salary increase with a cost to the employer of €1,000, the net amount left over would be €300. If the employee pays for specific services at a rate of €30/h, he or she will only get 10 hours of services for that salary increase.

But if the increase is turned into a home services bonus at the same cost to the employer, depending on the number of different jobs performed (because of the fixed coordination fee payable for each job), this bonus will almost always allow the employee to obtain at least 20 hours of services at a rate of €30/h or 12 hours of services at a rate of €60/h.

What’s more, the employee can always be sure of dealing with capable, qualified service providers.

The benefit for the employer, of course, lies in the fact that the difference between the actual cost and the pecuniary advantage received is considerably greater for the employee (who can count on receiving €837 or €914 instead of only €300), which means that for a small additional cost the employer can increase the everyday comfort of its employee.

The current market leader offering these “home services” arranges for the subcontractors who perform the requested services to be selected by the bonus recipients themselves. If the recipients choose their own providers, they can agree prices in advance and stipulate the parameters of the job.  Of course, the facility management company has a list of qualified service providers who can be requested by the bonus recipient; the provider is then appointed by the facility management company, taking into account the nature of the job and the satisfaction scores awarded to providers by previous bonus recipients. The facility management company can thus create a “quality label” for the benefit of recipients of the “home services bonus”.

Conclusion

This new form of remuneration offers many possibilities for improving the everyday comfort of employees, giving them a financially advantageous way to use qualified service providers without requiring too much effort in terms of accessibility or administration.

In view of the restriction on the number of tax-deductible service vouchers, introduced in various regions in recent years, this plan is certainly a good innovation for employees who already get the maximum amount/number of vouchers from the service vouchers they acquire in the “normal” manner. Because of the government subsidy, service vouchers are slightly more advantageous than the “home services bonus” for one working hour of house cleaning, unless the payment for this service is an extra bonus “over and above” the normal salary. In this case, it results in a saving in the salary net of expenses.