Global compensation forms

The term ‘fringe benefit’ or ‘corporate welfare’ refers to the set of payments in kind that an employer can make available within a subordinate employment relationship, which are added to the ordinary monetary remuneration agreed contractually within the same employment relationship.

These disbursements, in the form of goods or services, may be granted to employees (free of charge or at a subsidised price), either by virtue of individual agreements with employees - e.g., granting a car for mixed use or vouchers - or in compliance with provisions of collective bargaining agreements or as a result of donations decided by the company in favour of all or of categories of employees, which falls within the scope of what is ordinarily defined as company welfare. 

Considered the above, this type of payment in kind can either be part of the construction of a global compensation ‘package’, when granted at an individual level, or be aimed at certain worker retention forms and at the creation of a satisfactory working environment, when addressed to all workers or to certain and identified categories of employees.

In recent years, we have assisted to an increasing use of remuneration in kind, with the aim of compressing, as far as possible, the incidence of the significant social security contribution and tax wedge that has always characterised the Italian labour market and guaranteeing workers a higher ‘effective’ remuneration, albeit with a view to compressing costs.

Such forms of remuneration, in fact, although falling within the general criterion of all-inclusiveness, which income from subordinate employment is subject to - and by virtue of which all sums and values in general, for whatever reason received during the tax period, including donations, are included in such income, in connection with the employment relationship - benefit from a favourable social security contribution and tax regime, which provides for their total or partial exclusion from the calculation of employees’ income, if the relevant requirements provided by the Consolidated Income Tax Act are met, which also has its effects on the taxable income for social security contribution purposes, by virtue of the harmonisation of the tax and social security contribution taxable bases.

In addition, expenses incurred for corporate welfare in relation to works or services that can be used by the generality of employees or categories of employees, voluntarily incurred for specific education, instruction, recreation, social and health care or worship purposes, are deductible for IRES purposes for their total amount, when regulated by a company agreement or regulation with a contractual validity. 

Issues relating to fringe benefits and corporate welfare are also connected with the possibility to turn performance bonuses of variable amounts related to increases in productivity, profitability, quality, efficiency and corporate innovation, and measurable and verifiable based on the criteria identified by collective bargaining agreements (at corporate or territorial level) into goods in kind, with the possibility of further decreasing the related corporate costs.

Attention to the reduction of the social security contribution and tax wedge, moreover, is not exclusive to companies. In fact, there is growing attention to such issues also by the Italian legislator, since in the Budget Laws of recent years the amounts within which such remunerations in kind are excluded from the taxable income have been increased  - albeit always temporarily -, and the exemption from taxable income has been extended to reimbursements of home water and electricity utility bills and to the reimbursement of home rent or mortgage interest expenses.

The outlined picture suggests a careful evaluation of the possibility of using fringe benefits with the aim of defining a global compensation ‘package’ to be offered to employees, finding the right balance of policies that allows optimising the cost-benefit ratio, depending on the number of resources employed by the company and on specific company needs, and mixing proper company welfare – meant for the generality or categories of workers, with fringe benefits that can also be granted individually.

The above undoubtedly requires a careful evaluation of the characteristics of the company people, but also – and above all – an exhaustive knowledge of the current regulation, which is diversified and complex.

In this sense, it is fundamental to approach these issues with the support of consultants, who become privileged stakeholders in the definition of a policy mix that can effectively allow employers to make the most of the opportunities offered by the regulation on employment income.