Employee Benefits and Perks: Is It on the Rise?

Employee benefits and perks experiences have spread massively in Italy in recent years, some of which are very original and innovative, so as to even attract foreign observers.

 This is also due to the relevant legislation which, although not completely organic and consistent as of yet, is aimed to encourage these benefits. In fact, seemingly, well-designed employee benefit and perk plans can really draw a win-win strategy and satisfy the interests of companies, workers and the State itself at the same time: this makes it predictable that they will spread further in the near future.

What is meant by employee benefits and perks?

The notion of employee benefits and perks commonly refers to a very heterogeneous set of legal instruments through which the company grants its employees economic or organisational benefits, separate from ordinary remuneration, aimed at increasing the well-being of the same employees and their families.

The benefits made available by the company to its employees can be varied and diversified: ranging from the most traditional forms of rewards or productivity awards, increased salary upon the achievement of certain goals, to fringe benefits, to the provision of services within the company (canteens, kindergartens, etc..), to the negotiation with external suppliers of special favourable conditions for the provision for employees of certain services (subscriptions to means of transport, services for the family, supplementary health care, insurance policies, supplementary social security, training or education services, recreational activities, etc.).

The legal instruments through which these benefits are made available can be based either on unilateral initiatives by employers or on agreements with the collective trade union representatives of the employees.

Who benefits from employee benefit and perk plans?

Generally, these forms of employee benefits and perks bring benefits both to workers (increasing their overall economic treatment, facilitating the use of services or helping to solve personal or family organisational problems), and to companies (allowing direct and indirect tax benefits and increasing the productivity of workers through such perks), and to the State as well (since the risk is lower that certain services be on the community to support workers’ needs).

This explains why employee benefit and perk plans have been increasingly developed, with various and often innovative forms, and why companies are increasingly asking their consultants to assist them in the development of articulated, complex and sometimes innovative employee benefit and perk plans.

What are the advantages of devising such a plan for a company?

There are direct advantages of a well-structured employee benefits and perks plan, since they allow lower labour costs relative to a compensation increase of equal net value, and indirect advantages, since they increase corporate productivity and organisational well-being, and can reduce conflicts. These advantages are often very significant, obviously in proportion to the care with which a company welfare plan is drawn up to reflect the needs of its employees, that is, selecting the services that best suit their needs.

Aware of the advantages that employee benefits and perks can bring also to the community, in recent years the Italian State has decisively, and in various forms, incentivised employee benefits and perks, both by reducing the tax burden (and in part the contribution burden) on individual salary increases linked to increases in corporate productivity (productivity bonuses), since a series of goods and services made available by the employer to the employees directly, or through external suppliers are excluded from the tax and social security base (i.e. the total economic value paid by the employer to the employee and on which taxes and social security contributions are to be calculated).

It has been confirmed by countless studies and research that organisational well-being, and therefore productivity, can be boosted not only thanks to greater purchasing power, of course, but also thanks to the provision in the company of goods and services that can meet the actual personal and family needs of workers.

In fact, if certain conditions are met, on the one hand the employer can link a part of the workers’ pay to the increase in company productivity, so as to have it taxed significantly less than the remaining part of the salary and exempt from contribution payment on up to 800 amounts; and on the other hand the employer can make available to its employees goods and services whose value is not taxed and is exempt from social security contributions. Thus, lower costs for employing companies and at the same time greater economic availability for workers.

Furthermore, the said incentives, as well as the goods and services made available, allow the employer to articulate the overall economic treatment of its employees in a more tailored way to its specific organisation and make  employee benefit and perk plans an important element of bargaining with trade unions; employee benefits and perks have in fact an increasingly important role in collective bargaining aimed at resolving corporate crisis situations or even, more simply, to introduce organisational improvements in the company.

It has been confirmed by countless studies and research that organisational well-being, and therefore productivity, can be boosted not only thanks to greater purchasing power, of course, but also thanks to the provision in the company of goods and services that can meet the actual personal and family needs of workers. In addition, this motivates the workers to be loyal to the company, thus reducing the turnover and the risk of opportunistic behaviour which is otherwise contrary to the interests of the company. In a broader sense, workers’ commitment is significantly increased.

What are the main forms of employee benefits and perks?

As already mentioned, what makes many forms of employee benefits and perks immediately advantageous is their economic convenience; the most common and widespread forms of employee benefits and perks are, therefore, those that allow companies and workers effective tax and social security savings.

The general principle in force in the Italian legal system is that taxes and social security contributions are calculated on all sums and values in general received by the worker for any reason in relation to the employment relationship (as provided for in Article 51 of Presidential Decree no. 917/1986, the so-called Consolidated Law on Income Taxes, acronymized in Italian as “TUIR”). Any amount or benefit paid by the employer to the employee in connection with the employment relationship is, therefore, generally considered as income from employment and is subject to taxation and compulsory contribution.

There is full tax exemption when performance bonuses are taken on employee’s choice in one of the employee benefits and perks listed above.

However, the law identifies a series of payments that, although received depending on the employment relationship, within certain limits and under certain conditions are not calculated as a worker’s income, hence are not subject to taxation and contribution; the worker receives the same benefit with lower charges and a lower cost for the company. These payments include, as far as is relevant here and by way of example:

  • health care contributions in addition to obligatory general care;
  • contributions to supplementary pension schemes;
  • the administration of food directly or in company canteens or affiliated canteens or replacement meal vouchers;
  • the provision of collective transport services for employees;
  • fringe benefits in general, at least to a certain extent;
  • works or services offered to all employees or to certain categories of employees and their families for the purposes of education, education, recreation, social and health care or worship (such as medical check-ups, courses of study, babysitting services, subscriptions to sports clubs, gyms, theatres, etc.);
  • the sums or services provided to all employees to enable their families to make use of education and training services and related activities (kindergartens and canteen services, summer and winter centres for children and young people, scholarships);
  • the sums or benefits paid to all employees to enable them to benefit from care services for elderly or dependent family members;
  • contributions or premiums to enable insurance against the risks of non-self-sufficiency in the performance of daily life activities.

The law also establishes that performance bonuses of variable amounts whose payment is linked to verifiable and measurable increases in productivity, profitability, quality, efficiency or innovation, as well as the amounts disbursed in the form of a share in the profits of the company, are subject, within certain quantitative limits, to a substitute tax for income tax of 10% (Law no. 208/2015). This is a significant tax advantage over the ordinary system. Tax advantage that adds up to a significant contribution advantage where there are also forms of equal involvement of workers in the organisation of work.

There is full tax exemption when performance bonuses are taken on employee’s choice in one of the employee benefits and perks listed above.

In addition, performance bonuses and profit-sharing also benefit from important advantages in terms of social security contributions, since in some cases and under certain conditions, they can even lead to full exemption from the obligation to pay social security contributions on the amounts paid out to these securities.

More in general, and regardless of tax and social security benefits, other initiatives and other instruments, whether legal or simply organisational, are also brought back to the notion of employee benefits: all those initiatives and all those instruments, for example, aimed at facilitating work-life balance (such as instruments supporting motherhood and fatherhood or forms of smart working), promoting equal opportunities or facilitating the inclusion and participation of potentially disadvantaged categories of workers (diversity management).

A company welfare plan is, to all intents and purposes, an investment by the company, which chooses to allocate company resources to economic treatments that reward increases in productivity or efficiency or to the provision of goods and services for its employees.

Organisational tools of this kind reduce, as has been amply demonstrated, turnover, absenteeism and, more generally, the non-participative or conflictual conduct of workers: these are therefore initiatives that, even regardless of their immediate fiscal advantage, bring the company easily verifiable organisational and economic benefits.

What should a company do if it wants to adopt employee benefits and perks?

A company that intends to introduce a company welfare plan must first of all start from an accurate analysis of its organisation, the objectives it intends to pursue, the possibilities of interaction with trade unions and the needs expressed by its employees.

A company welfare plan is, to all intents and purposes, an investment by the company, which chooses to allocate company resources to economic treatments that reward increases in productivity or efficiency or to the provision of goods and services for its employees.

Such benefit plans may be the result of unilateral decisions by the employer or be agreed with the trade unions.

It should be noted, however, that not all initiatives of this kind have the same economic advantage.

As regards to welfare plans, tax and social security exemption is provided on condition that:

  • the individual benefit granted is attributable to one of the exemption hypotheses set forth in Article 51, paragraph 2, of the Consolidated Income Tax Act, while it is not noted that the benefit is recognised by the employer on a voluntary basis or in relation to an obligation undertaken in the collective bargaining agreement;
  • the welfare services and/or performances are recognised to all employees or homogeneous category of them. It is therefore not possible to assign them on an individual basis

More specifically, the company that intends to introduce a productivity bonus shall take into account that the workers who receive it can have tax benefits

If, however, the provision of welfare services is the subject of a collective contract or agreement (including a company agreement) or of binding company regulations, the costs incurred by the employer will be fully deductible from the company’s income for IRES (Tax on Company’s Income) purposes (art. 95, par. 1, of the TUIR). If, on the other hand, the expenses for “social security charges” are borne voluntarily by the employer, these will be deductible within the limit of 5×1000 of the expenses for employment services (art. 100, par. 1).

As regards performance bonuses, in order to benefit from tax and social security exemptions, they have to be agreed on by collective company agreements or even territorial agreements.

More specifically, the company that intends to introduce a productivity bonus shall take into account that the workers who receive it can have tax benefits (application of a substitute tax of ordinary taxation equal to 10%, within predefined limits – only up to a maximum of 3,000 euros per year and provided that the income of the worker does not exceed 80 thousand euros per year) only if:

  • the productivity bonus is agreed with the trade unions by company or territorial collective agreements;
  • the corporate or territorial collective agreements that provide for the premium filed electronically in the forms provided by the law and within the terms set out on the specific website of the Ministry of Labour;
  • the payment of the bonus is linked to increases in productivity, profitability, quality, efficiency and innovation that can be measured and verified on the basis of criteria defined by a specific decree of the Ministry of Labour.

Where the agreement on the productivity bonus provides for equal participation of employees in the setting of objectives, an exemption to pay contribution on up to €800 amount is provided.

A trade union agreement introducing a productivity premium may provide that the workers concerned may replace the premium with company welfare measures (for example, replace the monetary value of the premium with contributions to complementary social security, with supplementary health insurance premiums, with family care services, with other services for the purposes of education, recreation, social and health care or religion in any case agreed in the collective agreements).

The system encourages this substitution; the worker who decides to replace the productivity bonus with these employee benefits and perks  can, in fact, benefit from the full exemption from taxation of the corresponding values (with an additional advantage, therefore, compared to the reduction of taxation to 10%) and both parties can benefit from the reduction of the social contribution borne by them.

The law also provides that the payment of goods and services that are the subject of the agreement on employee benefits and perks can be made through vouchers. The worker is given titles that allow them to contact the suppliers with whom their employer has made arrangements and to request directly the goods or services covered by the agreement.

As mentioned, well-designed  employee benefit and perk plans satisfy the interests of all parties involved

What is the future of employee benefits and perks?

It is to be expected that the company’s welfare tools, which have already developed and become widespread in recent years, will see new developments in the future and will receive ever greater attention.

As mentioned, well-designed  employee benefit and perk plans satisfy the interests of all parties involved: the employer’s interest because they can be a very efficient and advantageous tool for the governance of the company and the management of phases of growth, transformation or even crisis; the workers’, because they allow them to enjoy goods and services on more advantageous terms than those they could find themselves on the market and can help to solve problems of balance between work and personal and family life; and the State’s interest, because they can reduce the costs to be borne by the community in many direct and indirect forms, (reducing the possibility that certain goods and services must still be provided to workers by public bodies, reducing conflict and conditions of unease at work, contributing to the good performance of businesses).

It is no coincidence, thus, that companies increasingly ask their legal advisers to assist them in drawing up structured employee benefit and perk plans.

 

Luca Daffra and Serigo Passerini

Via Lorenzo Mascheroni, 31 20145 Milano

Tel. +39 02 4819 3249

e mail: luca.daffra@ichinobrugnatelli.it

sergio.passerini@ichinobrugnatelli.it

https://ichinobrugnatelli.it

Ichino Brugnatelli e Associati is widely recognised as a leading specialist employment law firm. We have also strong experience in high-stakes litigation and complex transactions, for both domestic and international clients.

 

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