Step-by-step plan Labour Costs Scheme

Transcription

1 Step-by-step plan Labour Costs Scheme Date July 24 th 2014

2 Step 1: Investigating This allows you to chart which reimbursements and allowances you apply as the employer. This investigation must be carried out by those involved in the payroll administration, financial administration and HR departments. The employment conditions policy is a good starting point for the investigation. The financial administration and payroll administration also include amounts that may be charged to the fixed exemption. On the basis of the following questions, you evaluate per reimbursement or allowance whether these are charged to the fixed exemption. Click on the question for an explanation. Question 1: Is he/she an employee or an ex-employee and is he/she also your employee? Yes - go to question 2. No - Labour Costs Scheme is not applicable. Question 2: Are intermediary costs involved? Yes - Labour Costs Scheme is not applicable. No - go to question 3. Question 3: Is it a benefit from employment? Yes - wages are involved, go to question 4. No - no wages, Labour Costs Scheme is not applicable. Question 4: Is an exemption from wages applicable? Yes - no wages, Labour Costs Scheme is not applicable. No - wages are involved, go to question 5. Question 5: Is specific exemption involved? Yes - the benefit is not charged to the fixed exemption. No - go to question 6. Question 6: Does a zero valuation involve wages in kind? Yes - wages are involved, but zero valuations do not use fixed exemption. No - go to question 7. 2

3 Question 7: Who pays tax on the benefit, the employee or the employer? Employee - see explanation. Employer - you currently also pay a final levy, therefore this is logically charged to the fixed exemption. 3

4 Question 1: Is he/she an employee or an ex-employee and is he/she also your employee? The first question is, is or was the person employed by you? If you provide certain reimbursements or allowances, you should first establish if you are providing these to employees. If, in fact, the person is not your employee, then the Labour Costs Scheme is not applicable to you at all. The costs remain outside the Labour Costs Scheme. IS NOT an employee: Examples are: Self-employed workers without employees (ZZP ers), temporary workers, volunteers... While the costs remain outside the Labour Costs Scheme, you may pay the tax for this group. This includes in the form of a final levy, but at a rate of 45% if less than 136 and 75% if above 136. IS an employee or ex-employee: The employee is employed by you or is an ex-employee for whom employment has ended. The exemployee still receives income from the discontinued (former) employment. For example, a pension or severance pay. But also, for example, if you give your ex-employee a Christmas hamper, this is income from former employment and the ex-employee is still your employee for tax purposes. People with fictitious employment should also be treated as employees, such as: students and interns homeworkers supervisory board members children who work pseudo employees (opting in) Question 2: Are intermediary costs involved? Intermediary costs are costs for the employee that are paid in advance by the employer. If you reimburse these costs then there is no benefit and therefore no wages for your employee. You can therefore exclude this reimbursement from the Labour Costs Scheme. For example: costs for items that will become part of your company s assets; costs for items that are part of your company s assets and that you provided to your employee for his/her use; costs that are specifically related to the business operations rather than to your employee s performance; expenses that he/she incurs for external entertainment for your business, such as: Entertainment expenses for a dinner with clients; Parking charges and the car wash costs for a company car. 4

5 Question 3: Is it a benefit from employment? All the benefit that an employee receives from his/her employment is considered wages, including all reimbursements, allowances and assignments. There must therefore be a benefit and employment is a decisive factor for why the benefit is received. The latter is called a causal link. If there is no benefit or if there is no causal link then wages are not involved and the Labour Costs Scheme is not applicable. Examples: No benefit: When reimbursing intermediary costs (see question 2) no benefit is involved. If you give your employee a gift for his/her wedding, birthday or any other occasion when someone other than the employer gives a gift and the gift is not more expensive than 25 (including VAT) and not in cash or a gift voucher, then it is assumed that the benefit is negligible and the Dutch Tax and Customs Administration assume that there is no wage. No causal link to employment: Flowers for your employee during illness. According to the explanation by the Ministry of Finance, this is a gesture of sympathy and good employment practices rather than an employment-based issue. If your employees can conclude an insurance using a group discount because they are employed by you, then the connection to the employment is too far removed. It is more the group that provides the discount. Question 4: Is an exemption from wages applicable? Exempt wage Is a specific exemption from wages applicable under Article 11 of the Dutch Salaries Tax Act 1964 (Wet op de loonbelasting 1964)? Then this is excluded from the wages and is therefore not within the scope of the Labour Costs Scheme. Exempt entitlements In principle an entitlement is a wage, but it is usually fully or partially exempt. If the entitlement is exempt, the benefit payment based on that entitlement is usually taxed. This is known as the reversal rule (delayed taxation system). entitlement to benefit payments for death or disability due to an accident; entitlement to a one-off benefit payment or allowance for death of up to three times the monthly wage; 5

6 entitlement to a one-off benefit payment at the end of employment; the entitlement to a pension; entitlement to leave; entitlements based on the Dutch Sickness Benefits Act (Ziektewet), the Dutch Work and Employment Support (Young Disabled Persons) Act (Wet Wajong), the Dutch Unemployment Insurance Act (Werkloosheidswet), the Dutch Invalidity Insurance Act (Wet op de arbeidsongeschiktheidsverzekering)/dutch Work and Income (Capacity for Work) Act (Wet werk en inkomen naar arbeidsvermogen) and similar entitlements. Exempt benefit payments and allowances one-off benefit payments and allowances for death of up to three times the monthly wage; employment benefits for up to one month if the employee has been employed for at least 25 or 40 years; benefit payments from funds in which the employer has not contributed more than the employees in the past five years. Question 5: Is specific exemption involved? Not all reimbursements and allowances you have identified in the final levy will be charged to the discretionary margin. The law includes a number of specific exemptions. These are ultimately not charged to the discretionary margin. These specific exemptions are largely based on the old tax-free reimbursements. The criteria are mostly unchanged. To be classified as a specific exemption you must first formally identify the reimbursement as a final consideration as wages for final levy purposes. You do not need to record this separately. The fact that the employee is not taxed for the reimbursement shows that you have classified it as wages for final levy purposes. The specific exemptions are: The actual costs of public transport; Travel expenses at 0.19 per kilometre; Congresses, seminars, study costs, outplacement, business literature, registration with a professional association; Temporary accommodation costs; Extraterritorial costs; Business costs pertaining to relocation; Personnel discount (proposed change); Allowances for workplace-related provisions (proposed amendment). 6

7 Question 6: Does a zero valuation involve wages in kind? Wages in kind are estimated at the fair market value or the value stated on the invoice. A value of zero applies to some items. These items with a value of zero euros are charged to the discretionary margin so that the margin of 1.2% does not decrease. In general, zero valuations generally concern items provided to the employee and that are (mostly) used in the workplace. Examples are: work clothing provided, occupational health services, tools provided, means of communication, computers and laptops. Please note: According to the letter of the Secretary of State of 3 July 2014, reimbursements, allowances and provisions are to be treated in the same way again from Question 7: Who pays tax on the benefit, the employee or the employer? Taxing the employee You are now at the point where you know that it is a benefit from employment and that payroll taxes must be paid on the benefit. Taxation on the wages of the employee is mandatory in the case of: use of company accommodation; company car; fines. The other benefit you must now decide who is going to pay the tax. You can make this choice for each period. In the first instance, the benefit received is for the employee and the employee will have to pay tax on this (via the payslip as gross payment or as an additional tax liability for wages in kind). As an employer, if you want the employee to receive the benefit untaxed (net) then you can charge it to the discretionary margin or gross up on the payslip. If you have already included the benefit in the final levy, logically you have no choice but to charge it to the discretionary margin. Please note: As an employer, with grossing up you also bear the burden of payroll taxes and any employee insurance premiums and health insurance contributions. In general, the costs are then higher than 80%. 7

8 Step 2: Calculating Now that you have investigated what is and what is not charged to the fixed exemption on the basis of step 1, it is time to add up the total expense allowances and calculate the fixed exemption so that it is clear whether or not you exceed the fixed exemption. You calculate the fixed exemption by deducting 1.2% (2015) from the payroll costs for tax purposes for the previous year (column 14 of the payroll records). Explanation: In the first instance, your (temporary) fixed exemption is determined based on the wages for the previous year. The final fixed exemption is calculated after the end of the current year based on the actual payroll costs for tax purposes. If you have a statutory payroll tax number with multiple subnumbers (e.g. L01, L02), then the Expense Allowance Scheme applies to all sub-numbers. To calculate the fixed exemption you add up the taxable wages of all sub-numbers. In addition, according to the proposed changes, it is also possible to use the group policy (see the explanation under Expense Allowance Scheme General). If you exceed the fixed exemption with the total expense allowances costs, you can still see if you can reduce the total expense allowances by arranging items in a different way. (See step 3: Making a choice) TIP: A final levy on expense allowances does not automatically mean that it will cost you as an organisation more. Realistically, you should take into account the outstanding final levies that lapse under the Expense Allowance Scheme for the amount of the final levy under the Expense Allowance Scheme. The final levies that will lapse are: The final levy for wages that is difficult to individualise; The final levy for wages with a destination character; The final levy for gifts in kind; The final levy for excessive cost reimbursements and allowances. In addition to the final levy Expense Allowance Scheme of 80%, some final levies also apply: The final levy for additional tax assessments is 300 for vans, 45% or 75% tax on business gifts. The pseudo-final levies for the early retirement scheme (VUT-regeling) (52%), excessive severance payments (75%) and past service pension (15%) remain. 8

9 Step 3: Making a choice Have your total expense allowances exceeded the fixed exemption? Then you pay 80% final levy on the excess. If you exceed the fixed exemption you have several options. 1. Accept the overrun 2. Taxing the employee (payslip) 3. Adjusting employment conditions 1. Accept the overrun You accept the overrun and the final levy. You leave all the current reimbursements and allowances and the employment conditions intact. Accepting the overrun does not necessarily mean that the costs will increase. It is possible that the final levies you paid under the old regime for tax-free compensation and benefits (Vrije Vergoedingen en Verstrekkingen VV&V) are actually higher than the final levy under the Expense Allowance Scheme (see Tip in step 2). 2. Taxing the employee (payslip) You may include certain reimbursements and provisions as the wages of the employee instead of charging this to the fixed exemption. You may convert a net reimbursement into a gross reimbursement. The employee will then have a net fall in wages. This does not need to be applied for the full amount of the excess. Another option is grossing up. The employee will receive the same net wages if you gross up. Grossing up is a more expensive option for you as employer than merely calculating an item as wages. All supplementary costs will be borne by you. In many cases, it is cheaper to pay 80% final levy Expense Allowance Scheme (see Tip in step 2). Please note: in both cases this involves a change in the employment conditions, which makes it necessary to consult with employees and their representatives (Works Council) (see comment 3, adjust working conditions). Benefit for employers: the total payroll for tax purposes will increase, thereby increasing your fixed exemption. The total of the reimbursements and allowances charged to the fixed exemption will decrease. Disadvantage for employers: You will have to start paying contributions for social security and healthcare for employees whose wages are currently below the maximum limit for such contributions. 9

10 Benefit for employees: The basis for calculating the benefit increases. Disadvantage for employees: There may be consequences for the employee relating to healthcare, home rental subsidy, etc. 3. Adjusting employment conditions The easiest way to limit the excess appears to be to abolish certain reimbursements and allowances. In many cases, this will not prove so easy in practice. Many companies are bound to provide a company bicycle scheme, company fitness or reimburse trade union fees pursuant to their CLA agreements. This also applies if you have recorded schemes in your individual employment conditions. For example, you can offer to increase the travel allowance if you currently reimburse less than 0.19 per km in exchange for the reduction or cancellation of a company bicycle scheme allowance that is fully charged to the fixed exemption, but it is not easy to arrange. Therefore, do not run out of time! Comment: If the employment conditions need to be adjusted this will be a major operation. The management and, for example, the Works Council or personnel representatives will have to be consulted or informed. The employees must also be informed, of course. 10

11 Step 4: Finalisation If your choice has led to the adjustment of the employment conditions policy, then this choice will have to be coordinated with the Works Council and you should inform your employees about this. Once you have made your choices, the systems and processes must also be organised according to the Expense Allowance Scheme. Colleagues in payroll administration, finance and HR will have to continue to work closely for a complete overview. Decide who will be responsible within the organisation for monitoring the available fixed exemption and who will provide a timely indication when any final levy amount needs to be paid. According to the proposed annual settlement system, timely means by the first reporting period of the following year at the latest. Finally, also ensure that the employees of the departments concerned are aware and remain up to date of the Expense Allowance Scheme and the associated new processes. 11