We have already explained what a cafeteria plan is, how to create and spend a budget and what the regulations are regarding cafeteria plans. But what are the advantages of such a cafeteria plan for both employer and employee?
Freedom of choice
The biggest and most obvious advantage for employees is the absolute freedom of choice that a cafeteria planoffers. A cafeteria plan ensures that employees can (partly) determine their own salary package. The most striking example of this is the holidays and the company car. Do you, as an employee, want more holidays and less pay, or a smaller company car and more pay? With a cafeteria plan, as an employee, you decide what you think is important.
Another argument in favour of the cafeteria plan, which far fewer employees are aware of, is the financial benefit that results from the choices made in a cafeteria plan. When wages are exchanged for fringe benefits, less social security contributions and taxes are often due on them.
Example: within a cafeteria plan, you exchange your thirteenth month for an (electric) bicycle with a list price of €1,000. The net benefit of this exchange compared to the payment of the end-of-year bonus in cash is more than €700!
If the employer were to pay this €1,000 to you as cash, the employer would first have to pay an employer's contribution of approximately 28%. Your gross salary (what remains after deducting the employer's contribution) would thus be €720. On this €720, you also have to pay an employee social security contribution of 13.07%. So you get a 'taxable wage' of €626. On this amount, you also have to pay withholding tax. This wage tax is on the high side (53.5%) for a thirteenth month. This means that of the initial sum of €1000, less than €300 remains.
What if you were to exchange the end-of-year bonus for a bicycle in the cafeteria plan? In the cafeteria plan, €1,000 is deducted from your budget, being the purchase price (lease price) of the bicycle for the employer. Note that the employer cannot recover any VAT on the purchase of this bicycle if you only use it for private journeys and journeys to and from work. How is this budget spent from the employee's point of view? Very advantageous! Indeed, the tax authorities accept that, even if the bicycle is only used for private journeys, no 'benefit in kind' (on which social security contributions and taxes are levied) is calculated on the bicycle. (You can read all about the benefit in kind here.) The only thing the employee might have to pay after the end of the lease period of the bicycle is the remaining value of the bicycle (16%) to the employer in case of take-over.
Did you know that your employer can also give you a net bicycle allowance of €0.24 per kilometre for the home to work trips you make every day?
This means that choosing a bicycle in the cafeteria plan is a completely tax-neutral operation (spend €1,000, get €1,000). If you compare this with the cash payment of the same end-of-year bonus, the employee gains more than €700 net!
There are also many advantages for the employer in introducing a cafeteria plan.
Firstly, a cafeteria plan, especially for SMEs, gives a real boost to their employer branding in an era dominated by the war for talent. Employees, both young and old, are increasingly sensitive to an employer who takes their personal needs into account. Also when it comes to wages. Research by social secretariats Securex (2017) and Acerta (2019) showed that 70% of employees find it important to be able to compose (part of) their own wage package. The current labour shortage therefore makes it a necessity to make the difference with a flexible wage policy, tailored to the individual employee.
Unchanged labour cost
Secondly, there is no impact on salary costs. A cafeteria plan ensures that your employees can optimize their current salary, without this resulting in additional costs for the employer. The cafeteria plan is therefore an ideal option for companies who want to give their employees a nice extra, without having to incur financial losses themselves.