Cafeteria – benefit or wage-in-kind?

Lucie Javorová
There is a number of employees' benefits which are being improved to best meet the needs of employees. The so-called cafeteria system, which is a system of optional employee benefits, has become very widespread and popular.

In fact, it is a "loyalty program" for employees, which allows employees to collect credits, points or vouchers under predetermined conditions. The collected credits, points or vouchers are then converted into benefits (based on the employee´s preferences) from the benefits menu. The provided points, credits or vouchers and their amount can reflect the work results of the employee, the length of his employment with the employer, etc.

The advantage of the cafeteria system is the high individualization of benefits and the effective use of employer resources to motivate employees. The needs of employees with different preferences can be met and the employer can respond flexibly to changes in employee demand for benefits. However, the question arises as to whether this system is also as advantageous from a tax point of view as it is presented by the providers of benefit systems.

There are various opinions (from the professional public as well as the financial administration) which consider for the tax treatment crucial the fact whether the remuneration provided to the employee is deemed to be a benefit of the employee or a part of employee´s wage-in-kind. Each of these institutes is bound by a different tax treatment on the side of the employee.

We are of the opinion that for tax purposes (both on the side of the employee and on the side of the employer) it is decisive the fulfillment of the legal conditions stipulated in § 6 (9) (d), § 24 and § 25 of the Income Tax Act following the particular benefits drawn by an employee from the benefit system.  This is rather than assessing the nature of the remuneration of employees from the labor law point of view. However, it is possible that in accordance with the Labor Code, the conclusion of Wage-in-kind agreement (in Czech “Dohoda o naturální mzdě”) or Consent with remuneration-in-kind (in Czech “Souhlas s naturálním plněním”) will be required.

If your company is considering motivating its employees with this less traditional form of employee benefits, we will be happy to review and set the benefit system from a tax point of view.


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Jiri Sindelar
Jiří Šindelář
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