Employee benefits have become an indispensable part of an optimal employee experience today. Many employers want to financially support their employees and express their appreciation without resorting to a traditional salary increase. This can be beneficial for both sides. Unlike a salary increase, companies can save on taxes and social security contributions through corporate benefits—provided they adhere to legal regulations. This article explains what HR managers need to consider regarding employee benefits.
Employee benefits, also known as corporate benefits, are special additional services that companies can grant their employees in addition to their salary. With these additional services, employers can strengthen their employer brand, increase their attractiveness to employees in the job market, improve employee retention and motivation, or show that they value and recognize their employees' performance.
Other terms used in the German-speaking world for employee benefits or corporate benefits include:
Benefits can be financial benefits in the form of reimbursements, vouchers, or allowances, tangible benefits such as technical equipment or a company bike/car, as well as training and team-building measures. According to statistics like the Circula Benefits Report, a mobility allowance was the top desired benefit for employees in 2023.
For an optimal employee experience, HR managers should consider the individual needs of their employees. Those with cars and long commutes appreciate a fuel card, while others without a driver's license might prefer a subsidy for public transport or a flexible mobility budget for shared mobility.
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There are employee benefits, such as health insurance, that companies in Germany must fully or partially cover for their employees. Additionally, there are tariff social benefits, which vary depending on the employer and industry. The collective bargaining conditions of the respective unions and employer associations are crucial here.
In addition to these mandatory employee benefits, employers can also grant voluntary employee offers. These do not have to exclude each other and can be offered simultaneously or in combination. Whether and how these corporate benefits are tax- and social security-free depends on the type of benefit.
Corporate benefits can be divided into two categories:
Cash benefits (English: Cash Allowances) complement the salary with a financial allowance. They are usually contractually agreed upon and paid regularly at a specific time—such as an annual vacation allowance or a monthly travel allowance—or granted as bonuses and premiums.
Unlike cash benefits, non-cash benefits (also known as non-cash grants or non-cash services) are not paid directly with the salary. They still represent a monetary value, as they are services that employees would otherwise have to pay for themselves.
The best-known example is the company car, which employees can also use privately. Other non-cash benefits include employee discounts, meal vouchers, fuel vouchers, or training courses. This means companies can choose from a wide range of benefits to offer their employees the most individualized additional services possible. Employers often provide vouchers and money cards with which their employees can select their non-cash benefits and gifts.
Companies can save ancillary wage costs with corporate benefits as an alternative to a salary increase. However, not all employee benefits are tax-free or tax-privileged. The purpose and type of employer benefit are usually decisive. Additionally, the benefit must be granted in addition to the salary and not as part of a salary conversion for a flat-rate or tax-free settlement to be possible.
For many corporate benefits, there is a monthly or annual exemption limit (for example, the 50€ non-cash benefit exemption limit). If this is not adhered to, employees must pay taxes and social security contributions on the entire employer allowance. The amount of the exemption limit also depends on the type of grant. Furthermore, taxes apply to the services. Depending on the service, the following points must be considered:
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Get infoCash benefits like bonuses and premiums are intended to reward and financially relieve employees. However, with rising salaries and payout amounts, the tax rate also increases, leaving employees with less net income than before. In addition, employers must pay ancillary wage costs on these allowances.
Tax exemption limits for these monetary benefits are legally regulated. If employers contribute to private health insurance (PHI), the subsidy amount is calculated based on the employer's share, which is currently around 404 euros per month. If employers pay higher subsidies, their employees must tax these. The same applies to the vacation allowance: It remains tax-free up to an exemption limit of 156 euros. If employees are married or have children, this exemption limit changes. Employers must tax this amount at a flat rate of 25 percent.
Travel allowances for public transport, also known as public transport allowances, are generally tax-free.
In contrast, non-cash benefits (English: “Fringe Benefits” or “Non-Cash Benefits”) offer numerous advantages for employers and employees, but they also have two disadvantages: They must be purpose-bound and do not contribute to pension insurance. However, non-cash benefits are tax- and social security-free—as long as they are within specified legal exemption limits and granted by the employer in addition to the salary.
Currently, employers can give their employees up to 50 euros per month in individual gifts or provide them with voucher cards. Prepaid cards for predefined purposes are also possible.
For special grants—gifts on the occasion of a special personal event—tax exemption amounts up to 60 euros apply. This event does not have to be job-related, such as an anniversary celebration, but can also be private, such as a birthday or wedding. Employees can be gifted this way three times a year.
For employee discounts, employers and employees can currently use an annual tax exemption amount of 1080 euros. Additionally, a valuation discount of four percent applies. Employers must ensure that the gifted or discounted goods and services are not predominantly produced, distributed, or provided for employees' needs.
Employers can also offer their employees external services—such as nutritional counseling or fitness courses—up to an annual exemption amount of 600 euros tax- and social security-free, provided these services contribute to health promotion or reduce health risks.
Furthermore, services related to education and childcare are generally available tax- and social security-free. The training measures do not have to relate to the current job. Parents can choose between in-company or external childcare.
Non-cash benefits also include mobility expenses such as job tickets, company bikes, and company cars, as well as fuel vouchers. The legislator favors environmentally friendly employee mobility: Travel by public transport is generally tax-free. Low-emission or zero-emission vehicles—such as e-bikes—can even be used tax- and social security-free outside of work and charged. E-cars have a lower taxation of the monetary benefit (0.25% instead of 1% of the new car's list price) compared to traditional company cars with combustion engines.
When designing employee offers, companies increasingly rely on non-cash benefits because they offer attractive and tax-advantageous options for employee benefits. To optimally utilize the tax advantages of non-cash benefits, HR managers can use a tax ruling from the tax office in individual cases to ensure additional tax security.
The so-called tax ruling or payroll tax ruling explains the conditions under which employers can grant their employees salary extras such as non-cash benefits and employee benefits. Companies can obtain the tax ruling from their responsible tax office.
This involves specific and clearly formulated payroll tax issues and doubts about the payroll tax deduction procedure, such as the tax treatment of non-cash benefits, salary conversions, or the application of flat-rate taxation. Employers and employees can thus secure their payroll tax obligations. The ruling is binding and legally secure. Companies can obtain it free of charge from the responsible tax office.
Learn more in our detailed article on the tax ruling.
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We point out that the benefits information and our website are intended solely for informational purposes and do not constitute actual tax or legal advice. The content cannot and should not replace individual and binding tax and legal advice tailored to your specific situation. All information provided is without guarantee of accuracy and completeness.
Despite careful research, the provider cannot accept any liability for the accuracy, completeness, and timeliness of the information provided. The information is also of a general nature and does not constitute individual tax or legal advice. For specific questions, please consult a tax advisor or lawyer.
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