EY Romania survey: six out of ten companies consider that the 300 lei tax-free threshold for gifts offered to employees is too low

Deniza Cristian 13/06/2023 | 12:40

The majority of employers (61%) in Romania surveyed in the latest EY survey consider that the tax-free level of 300 lei provided for by the tax legislation for gifts given to employees on special occasions is too low in the current inflationary context. Respondents would opt for increasing the amount to 500 – 1,000 lei.

 

However, if these tax concessions were removed from the legislation, one in four companies would stop offering these benefits to employees, and a third would only continue to offer them if employees paid the related taxes and contributions themselves. These are some of the findings of the latest survey conducted by EY among employers in Romania.

Under the Tax Code, employers have a number of tax breaks available for extra-salary benefits granted to employees. Thus, these benefits represent for employers both an incentive and staff retention tool, but also a tax-efficient alternative to increasing basic salaries.

The results of the EY study reveal to what extent companies grant salary benefits to employees on special occasions such as Easter, Christmas, 1 June, 8 March, taking into account also the tax benefits eligible for these occasions, in what form (cash or material goods) and in what amount.

According to the regulations in force, income representing gifts in cash and/or in kind, including gift vouchers, offered to employees, as well as those offered to their minor children, on special occasions, according to the provisions of the employment contract or internal regulations, are exempt from the payment of income tax and social contributions, within the limit of 300 lei/person/occasion. The special events for which the tax facilities apply are Easter, Christmas, 1 June for employees’ children and 8 March for female employees.

When asked if they offered salary benefits to employees this year at Easter, 78% of EY survey respondents said yes and 23% said they did not. Those who answered in the negative explained why they chose not to offer these benefits, with one third citing a lack of budget for 2023 as the reason, and the remaining 67% citing various other reasons: this benefit is not provided for at the company level, employers preferred to direct the budget towards other business objectives, other benefits such as performance bonuses were given priority.

On the other hand, employers who have chosen to offer Easter benefits to employees consider that offering these benefits is a tool to retain and incentivize employees (67% of respondents), a tax-efficient alternative to increasing salaries (20% of respondents), a means to differentiate themselves from competitors (8% of respondents), a way to compensate for inflation and a sign of appreciation for the work done by employees (4% of respondents).

Most companies regulate the granting of Easter benefits in employment contracts, and/or in internal regulations (64%), while 4% have internal policies or board decisions for granting these salary benefits. On the other hand, a third of EY survey respondents said that they did not have Easter benefits in either their employment contract or internal rules.

“The lack of provisions in the internal regulation or in the employment contract regarding the granting of gifts to employees on special occasions can lead to the disqualification of favorable tax treatment by the authorities in the event of a tax audit, in the context in which the Tax Code states that these benefits must be provided for in the employment contract or in the internal regulation”, says Cătălina Butan, Manager, Income Tax and Social Contributions Department, EY Romania.

“By mentioning the types of benefits in the internal regulation, as opposed to the employment contract, the employer has more flexibility in establishing the internal rules for granting these benefits. The employee’s agreement will not be necessary in case the employer decides not to grant the benefits”, says Claudia Sofianu, People Advisory Services Leader at EY Romania & Moldova and CESA region.

As for the types of Easter benefits granted by employers, most companies opted for gift vouchers – 36%, followed by the Easter bonus with 33% of options, then cash and in-kind gifts, tied with 11% of respondents for each type, cash gifts for employees’ children – 4%, in-kind gifts for children – 1%, holiday vouchers – 1% and other forms of benefits, such as half of the 13th salary or company products – 3%. However, no respondents opted for cultural vouchers or wellness services.

The value of gifts given to employees on this occasion for just over half of respondents (51%) is 300 lei/employee, while 23% opted for an amount between 101 and 300 lei. More than a fifth of respondents (21%) offered employees Easter benefits of more than 300 lei / per employee and only 5% benefits of less than 100 lei per employee. Of those who chose to reward their employees with Easter perks of more than 300 lei/employee, the highest amount given by EY survey participants was 1,300 lei net, of which 1,000 lei cash perks and 300 lei gift vouchers. Only 18% of respondents also gave Easter benefits to employees’ children, worth up to 300 lei/child.

In the context of the tax benefits applicable to gifts given to employees on special events, EY survey participants were also asked whether they would continue to give these benefits in the scenario where the tax benefits were removed from the legislation. Most respondents (36%) said they would not waive the benefit, but employees would have to bear the associated individual payroll taxes themselves, while 28% said they would not waive the benefit and the employer would bear all payroll taxes, and 26% said they would waive the benefit. Also, 77% of the respondents said they would also give benefits to employees on other occasions (1 June, Christmas, 8 March), 19% said the decision depended on available budgets and the company’s financial situation, while the remaining 4% said they would not.

The benefits employers plan to offer this year would be, according to the EY survey, in order: Christmas bonuses (22%), March 8 gifts for employees (21%), Christmas gifts for employees including gift vouchers (16%), June 1 gifts for employees’ children (12%), Christmas gifts for employees’ children (11%), holiday vouchers (6%), other benefits such as gift vouchers for employees’ birthdays, half of the 13th salary, company Easter and Christmas products, tourist service settlements, holiday bonuses (5%), wellness services (4%), cultural vouchers (3%).

“In the context of the changes made to the Tax Code earlier this year regarding the taxation of employee benefits, i.e., the introduction of additional tax breaks and an additional non-taxable ceiling for certain wage income of 33% of monthly salary, it is essential for employers to re-examine their benefits policies, on the one hand, to make use of all the tax incentives provided for by the legislation, and on the other to ensure full tax compliance. It is important that company policies contain clear regulations on the tax obligations of the employee and the employer, where applicable, in relation to the salary benefits received by employees and on the documents to be kept to justify the tax treatments applied”, says Claudia Sofianu, People Advisory Services Leader at EY Romania & Moldova and CESA region.

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Deniza Cristian | 06/06/2024 | 16:28
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