The trailblazer in the field of employee benefits in the Czech lands was Tomáš Baťa, who offered employees company accommodation, education and, for example, contributions to healthcare products. Today we have a wider range of benefits, some of which are, however, more suitable and sought-after. The conditions for the provision of employee benefits should be the same for all employees and set out in an internal regulation. We provide a summary of the most frequently used, including their tax consequences, both on the part of the employer and on the part of the employee.
ADDITIONAL HOLIDAY/SICK DAYS
The statutory annual entitlement to holiday is 20 days. A popular benefit is to increase this entitlement to, for example, 25 or 30 days. If, however, an employee does not use the holiday, it could, on the contrary, have a negative impact. Sick days are more appropriate; their use is not subject to the Labour Code and unused days can be forfeited.
Working in the home environment and being able to choose whether to work early in the morning or late at night could suit employees. But don’t forget that the home environment must undergo a work safety check. According to the Labour Code, every employee must keep records of working hours and comply with breaks at work.
MEAL VOUCHERS/FACTORY CATERING/REFRESHMENTS AT THE WORKPLACE
Meal vouchers in various nominal values are provided, for example, by the companies like SODEXO and EDENRED. An employer can apply 55% of the value of a meal voucher in the company’s tax costs (but no more than 70% of the meal allowance defined for an employee on a business trip of 5 to 12 hours, which corresponds to a nominal meal voucher value of no more than CZK 118 in 2018); 45% can be deduced from employees’ salary by agreement. The ratio for distribution of costs, the nominal value and entitlement to meal vouchers is determined by internal directives. At the current time, meal vouchers can be used in paper form or the value of meal vouchers can be uploaded to a “payment” card.
If an employer has the space to operate its own catering facility, itself or through other entities, all the costs of operating the facility (e.g. energy, depreciation of equipment, workers’ salaries, etc.) can be included in tax-deductible costs. On the contrary, the cost of food is always a non-deductible cost. It is tax-exempt income for employees in both cases.
Mineral water, juice, fruit and sweets will certainly please employees at the workplace; on their part it is non-monetary performance exempt from tax, for employers, however, these costs are entirely non-deductible.
Further education for employees is sought after both by employers and by employees themselves. An expansion of education should, however, go hand in hand with the company’s objectives. If the company pays, for example, for language courses for employees and knowledge of a language is not necessary for the performance of an employee’s job, it is a non-deductible cost on the employer’s part and taxable income on the employee’s part.
BOOKS/CULTURE AND SPORTS ACTIVITIES/MULTISPORT CARD/GIFT VOUCHERS
Gift vouchers and other non-monetary performance for various cultural, sports or educational activities or the use of healthcare facilities is established practice for many employers. Employees can now be rewarded with vouchers for books. This is because books are classified together with cultural and sports activities among benefits exempt from taxation on the employee’s part. The same category includes contributions to medical products such as dioptric glasses and flu vaccinations. It should be emphasised that for employees these are always non-deductible costs.
CONTRIBUTION TO HOUSING/TRANSPORT
Employers can also make a contribution to their employees for transport to work or provide temporary accommodation close to the workplace. For employers these are tax-deductible costs if this entitlement is set out in an internal directive of the employer or a contract of employment. For employees it is taxable income. There is an exception for the value of temporary accommodation, if the municipality of temporary residence is not the same as the municipality of the employee’s residence, up to no more than CZK 3,500/month, which is exempt from taxation on the employer’s part.
COMPANY CAR FOR USE ALSO FOR PRIVATE PURPOSES
In the event an employee has a company car available and following an agreement between them it is possible to use the car also for private purposes, the employee has to pay tax on 1% of the acquisition price of the car including VAT for every month in which he/she uses the car for private purposes. We should not forget that the journey to work and from work is regarded as a private journey.
The costs of private fuel consumed can, following an agreement, be deducted from the employee’s salary or they can be regarded as a non-monetary benefit. In such case however, it is taxable income of the employee and a tax-deductible cost of the employer (the entitlement must be agreed in an internal directive or contract of employment).
CONTRIBUTIONS TO PENSION AND LIFE INSURANCE
Employees who have concluded a contract for pension or life insurance can agree a contribution in the contract also from their employer. This contribution is exempt from personal income tax up to CZK 50,000 a year. For employers, this benefit is a tax-deductible cost. Part of the benefit of pension and life insurance can be, for example, the fact that the company brokers an advantageous contract from their contracted insurance company for an employee.
Most of the aforementioned benefits can be gathered in one place, using a one-card system. These employee benefit systems are often called the Cafeteria system. Employers provide their employees with a benefit card and they can choose from the contracted events and various benefit providers. It is possible to select, for example, theatre rickets, entrance to a selected sports ground or a trip of your choosing. A major benefit of this system is the option of every employee choosing an activity or facilities by himself or herself.
The employer “uploads” points for employees onto a benefit card; it then pays for the benefits at the moment they are used by the employee.
GIFTS FOR EMPLOYEES
Gifts for employees are also a fairly widespread benefit, in particular at Christmas (e.g. a Christmas collection, sports equipment, etc.). In the case of these gifts we should, however, be very careful. Not only is the provision of a gift to an employee a non-deductible expense, but it is also taxable income on the employee’s part. It is therefore a very disadvantageous employee benefit. The only exception is for advertising and promotional items with a value of up to CZK 500 and gifts provided in accordance with the purpose specified in the decree on the Fund for Cultural and Social Needs (e.g. significant life anniversaries, first retirement, etc.).
In conclusion we would like to highlight the fact that a non-deductible cost resulting from the use of employee benefits does not entail a disadvantage for a company. The company may be paying corporate income tax at a rate of 19%, but taxation on the part of employees is a higher cost for the company. If an employee taxes a benefit, i.e. it is taxable income for him/her, for the company this cost represents an additional 34% in terms of social and health insurance, the same as in the case of the payment of salary. Employee benefits that are non-deductible costs on the employer’s part are also exempt income on the employee’s part, so they are advantageous in tax terms for both parties.
There are a whole number of employee benefits and they have various tax consequences. In the event you are thinking about the setup of employee benefits or you want to introduce some new ones, we will be happy to help and advise you.