Top 10 employee benefits and their tax (dis)deductibility

In addition to the salary, interesting work and a relaxed team, company benefits contribute to employee satisfaction. In addition, they will also help you with recruitment. However, setting up benefits translates into the tax burden of the company and the employees. Take a look at the different types of benefits and their tax implications to see which ones are most beneficial for you and your employees.

What are employee benefits?

Employee benefits are non-financial or financial rewards that an employer provides to its employees over and above their basic salary. These benefits promote employee motivation, loyalty and satisfaction, and thus translate into work productivity.

Some benefits are tax-advantaged and can pay off for you as an employer and for your employee in terms of taxes and insurance contributions. Generally, benefits are divided into:

* The same rule applies to all non-monetary benefits - they are exempt from income tax only if they do not exceed half of the current average salary of the employee in the whole year (for 2024 this amount is CZK 21,983). Anything above this threshold is still a tax-deductible expense for the employer, but will already be reflected in the employee's wages and therefore income tax and levies.

Main types of company benefits and tax deductibility

Benefits vary in form and nature and therefore also vary in terms of taxation. Some will please employees because they are exempt from income taxes, while others can be claimed as a tax expense by you. A few of them even meet both conditions, making it an ideal benefit for both parties. See below for specific information on each category.

1/ Meals

Meals as a benefit can take several forms:

• A non-cash contribution for meals is the provision of your own catering facilities.
• The monetary contribution is represented by meal vouchers, electronic meal cards and meal allowances (i.e. money for meals that you give to the employee over and above the salary).

Until recently, meal allowances were fully tax-free. However, from 1 January 2024, they are now subject to a limit of 70% of the upper limit of the meal allowance that can be given to an employee (i.e. CZK 116.2).

At the same time, you should make sure that you have a meal allowance for employees enshrined in your internal regulations or in a collective or employment agreement. This is the only way it will be tax deductible for you.

Other conditions for tax exemption of the contribution up to the limit of CZK 116.2 (the amount applies for 2024):

• The employee does not have to work shifts, but must work at least 3 hours in a given calendar day.
• For a shift longer than 11 hours including breaks, a second meal allowance may be provided with an exemption up to the limit of CZK 116.20 per shift.

2/ Insurance and investment allowances

An employer may contribute to its employees, for example:

• life insurance,
• pension insurance,
• long-term investment product (so-called DIP).

For employers: if provided for in the internal regulations, this is a tax deductible expense.

For employees: the contribution is exempt from income tax up to CZK 50,000 per year (the limit applies to all the financial products mentioned together).

3/ Bonus and 13th salary

The financial bonus, 13th or 14th salary falls under cash benefits and is thus subject to income tax and social security and health insurance payments just like ordinary wages. The 13th salary is usually paid in December or early January and the 14th salary is usually paid mid-year (sometimes taken as a summer holiday allowance).

For employers: the 13th salary and bonuses are tax deductible expenses for the company, which means that they can deduct them from the tax base. However, in addition, they must pay the compulsory social security and health insurance contributions on behalf of the employee.

For employees: the 13th salary, bonuses and bonuses are part of the gross salary and therefore subject to income tax and insurance contributions. The employee will therefore receive the net amount after all deductions together with the salary.

4/ Home office

Home office or working from home is an increasingly common company benefit that many employees demand. Since the employee does not work from the office but from his own home, he can claim reimbursement of expenses (electricity, water, heating, etc.).

Reimbursement can be provided in the following ways:

• reimbursement of actual costs,
• by reimbursement of a flat-rate according to the decree of the Ministry of Labour and Social Affairs.

The employer may also agree with the employee not to pay compensation.

What about the taxation of home office compensation?

For employers: home office reimbursements are a tax deductible expense for the employer.

For employees: as long as the compensation does not exceed the limit set by the Ministry of Labour and Social Affairs (currently CZK 4.6/hour), it is not subject to tax or insurance. If the amount paid by the employer exceeds this limit, it is subject to standard taxation and contributions.

5/ Company vehicle and transport allowances

A company car is essential for some types of professions, but it can also serve as a great benefit for employees. This is if you give them the opportunity to use the vehicle not only for business trips but also for private purposes.

In addition, you can provide your employees with an allowance for transport to work, which will make their daily commute financially easier.

A) Provision of a motor vehicle free of charge for business and private use

For the employer: the employer can claim the tax costs for business purposes.

For the employee: if the employee also uses the car for personal purposes, this is treated as income. The taxable salary then enters the amount as:

• 1% of the entry price for a normal vehicle (running on petrol or diesel),
• 0.5% of the entry price for a low-emission vehicle (hybrid cars),
• 0.25% of the entry price for a zero-emission vehicle (typically electric cars).

This amount is calculated as income on the entry price of the vehicle, including VAT, and for each calendar month of the vehicle, at least CZK 1 000 each time.

B) Transport allowance

For employers: this is a tax-deductible expense if it is specified in internal regulations or a collective or other agreement.

For the employee: whether it is a sum of money or the provision of transport by the employer, it is income subject to taxation and insurance contributions.

6/ Extra leave and sick days

Extra leave (i.e. more than the statutory 4 weeks) or sick days are specific for both employees and employers in that they are not subject to any special rules set by law. Sick days can be paid in various ways, most often at the rate of average earnings, but it depends on the employer's decision.

Sick days cannot be carried over to the next year and you are not obliged to pay them when you leave your job, when you move from maternity leave to parental leave, etc.

For employers: the cost of the extra holiday is tax deductible for the employer. Even if the company does not pay any additional levies for this leave, it still has to pay the employee's salary even though he or she is not working and pay the standard levies on holiday pay.

For the employee: the extra holiday is considered a non-cash benefit and the employee receives normal pay for it, subject to standard taxation and deductions.

7/ Training allowances

Employee training allowances are of value to both employees and employers who can benefit from the newly acquired experience and skills of their staff.

How does the taxation of training courses, workshops etc. work ?

For employers: in order for an employer to be able to deduct a training allowance from tax, the training must be related to the work of the company (e.g. an accounting course for accountants, not a drawing course).

For the employee: to avoid having to pay tax on the training allowance, it must be provided in kind - i.e. you will reimburse the invoice directly to the training agency. However, the annual limit for non-monetary benefits of ½ of the minimum wage still applies for the tax exemption of the contribution; once this limit is exceeded (in total for all non-monetary benefits), the extra amount must be taxed and mandatory contributions must be paid.

8/ Multisport card

The Multisport card is an employee benefit that allows you to use one free or discounted entry to a network of relaxation and exercise facilities throughout the Czech Republic every day.

For employers: it is a tax-deductible expense, so the company cannot reduce its tax base by the amount of its contribution to the card. However, it does not pay social security and health insurance contributions on the amount, so it is still a saving for the company compared to the increase in salary.

For employees: the Multisport card is exempt from income tax and national insurance contributions if, together with other non-monetary benefits, it does not exceed half of the current average wage. If the employee pays for the card in part or in full, the cost of the card is always deducted from the employee's net pay.

9/ Company nursery

One way to support and motivate working parents is through a company daycare. A popular benefit that eases a parent's return to work, reduces recruitment costs and saves parents time and money.

The passing of the consolidation package at the beginning of 2024 has also affected the taxation of company nurseries, which are now no longer fully exempt.

For employers: company-run nurseries are subject to the same laws as other private nursery providers and can be funded by MoE subsidies if they meet the legal requirements for premises, hygiene, etc. Otherwise, it is entirely the employer's cost.

For employees: company nurseries as well as other selected benefits (according to Section 6(9)(d) of the Income Tax Act) are tax exempt from 2024 up to a uniform limit of half of the average annual wage. Anything above this amount enters the employee's income and is subject to taxation and levies.

10/ Other refreshments outside the meal allowance

In addition to the meal allowances described above, there are also benefits including a working lunch (for example, with a client) and small refreshments in the workplace, which more and more employers now offer, for example, in the form of a company breakfast or refreshments during a meeting.

A) Working lunch

For these benefits, make sure that the benefits are reasonable. In particular, the authorities check here that there is no abuse and self-enrichment.

For employers: Expenses for working lunch are considered a non-taxable expense.

For employees: a working lunch, e.g. with a client or employer, is treated as part of the performance of work and is therefore not taxable or counted towards the daily limit of CZK 116.2.

B) Refreshments

As part of the catering, you may purchase small snacks in the form of soft drinks, coffee, fruit, biscuits, yoghurt, etc. for the workplace.

For employers: expenditure on snacks in the workplace is treated as a non-tax expense. The only thing an employer can deduct from this category from the tax base is drinking water (bottled and tap).

For employees: it counts as a means of improving work performance. Therefore, it is not taxable or subject to the daily meal limit.

We can help you set up benefits and payroll.

Conditions in the financial world are always changing, and if you're unsure how to apply the new limits to your existing benefits system or want to ensure your benefits program is as tax-efficient as possible, we're here to help.

We are happy to advise on payroll accounting and help you implement employee benefits in a way that benefits both you and your employees. We will also keep an eye on any legislative news and changes. Just get in touch using the form below.