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Nexia Ebner Stolz

Tax Advice

Fringe Benefits – attracting and retaining qualified employees

There's hardly a company around that's not constantly trying to find qualified employees, recruit them to join the company and then keep them on board as long as possible! In addition to interesting work, good opportunities for advancement and a reasonable salary, one way employers can stand out from the competition is by offering fringe benefits.

Fringe bene­fits include all sorts of dif­fe­rent things, from free bevera­ges and snacks, well­ness oppor­tuni­ties, free child care, and even stock option plans and reti­re­ment bene­fits.

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Not only do fringe bene­fits help com­pa­nies attract and retain emp­loyees, but they also have a posi­tive side effect: they can eit­her be gran­ted tax-free or are sub­ject to a rela­ti­vely lower income tax, while being exempt from social secu­rity. This can often result in lower costs for emp­loy­ers than if they offe­red emp­loyees a hig­her gross salary so that emp­loyees could fund these bene­fits from their net wages.

Parti­cu­larly when the com­pany is loca­ted far away from a city, an onsite cafe­te­ria can be parti­cu­larly attrac­tive. Alt­hough the bene­fit resul­ting from free or low-cost meals at the com­pany's cafe­te­ria or the issu­ance of meal vou­chers is sub­ject to income tax and social secu­rity, as a rule it is only taxed at the offi­cial value of in-kind bene­fits. If this bene­fit is pro­vi­ded in addi­tion to the salary, the emp­loyer can also tax it at a flat 25% income tax rate plus soli­da­rity surch­arge and church tax, lea­ving it exempt from social secu­rity.
The emp­loyer can also apply a flat rate tax to an allo­wance for the emp­loyee's tra­vel to and from work, but this flat rate is limi­ted to 15%, eit­her up to the amo­unt of the com­mu­ting allo­wance or up to the actual costs if pub­lic trans­port is used. This flat-rate taxa­tion also means that the allo­wance is not sub­ject to social secu­rity.

As always, emp­loyees parti­cu­larly app­re­ciate being pro­vi­ded with a com­pany car. This bene­fit is sub­ject to income tax and social secu­rity, but various cal­cu­la­ti­ons have shown that it can be less expen­sive for the emp­loyer to pro­vide emp­loyees with a com­pany car for their per­so­nal use. Other­wise emp­loy­ers would have to inc­rease sala­ries for emp­loyees to pay for their own per­so­nal auto­mo­bi­les.

A parti­cu­larly use­ful way to encou­rage emp­loyee loy­alty is a stock option plan. Emp­loyees are gran­ted opti­ons to buy sha­res in the emp­loyer's com­pany on advan­ta­geous terms at a future point in time or over a period of time. What makes this parti­cu­larly attrac­tive: The pro­s­pect of inves­ting in the com­pany and its suc­cess inc­rea­ses the emp­loyee's com­mit­ment and his wil­ling­ness to work hard. There are also tax bene­fits when the sha­res are purcha­sed, because the gain in the amo­unt of the dif­fe­rence bet­ween the mar­ket price of the invest­ment and the amo­unt paid by the tax­payer is not taxed until the option is exer­ci­sed (when the emp­loyee obta­ins the power to dis­pose of the share). Under cer­tain con­di­ti­ons the maxi­mum income tax and social secu­rity exemp­ti­ons can be taken into acco­unt. Stock option plans can also be struc­tu­red in many dif­fe­rent ways, so that the indi­vi­dual needs of the emp­loyer and the emp­loyees are con­s­i­de­red.

Finally, it is clear that even young emp­loyees begin thin­king about secu­rity for their old age and asking about reti­re­ment bene­fits. They often assert their sta­tutory right to a com­pany pen­sion plan through defer­red com­pen­sa­tion. Com­pany pen­sion plans are attrac­tive to emp­loyees because the amo­unts paid by the emp­loyer to estab­lish them are to a cer­tain extent exempt from income tax and social secu­rity. Alt­hough emp­loyees must pay taxes on reti­re­ment bene­fits once they retire, they are often then sub­ject to a much lower per­so­nal income tax rate than during their wor­king life. This can pro­vide emp­loyees not only with secu­rity in their old age, but also a real tax advan­tage.

Whe­ther an emp­loyer should offer fringe bene­fits in order to attract and retain qua­li­fied emp­loyees, and if so, which bene­fits to offer, is not a mat­ter of having the lar­gest num­ber of pos­si­ble bene­fits available. It is more important for the bene­fits to be custo­mi­zed to the emp­loyees' per­so­nal and pro­fes­sio­nal needs and let them know that they are valued by the com­pany, while also giving them finan­cial added value.

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