Wage income tax changes – maximum benefit at minimum cost

According to the latest figures from the National Institute of Statistics and other public information, the annual inflation rate has continued to rise and, at 15.32% in August, reached its highest rate in 20 years. . Inflation has been rising at a galloping pace over the past year, both globally and nationally.

Although Christmas is fast approaching, Romanian businesses do not seem to believe in a seasonal miracle and, most likely, 2022 will end with even higher inflation.

The why
(Higher) inflation usually means a higher cost of living, which pushes consumers to increase their income – at least to cover the effects of inflation. A natural move will be for employees to transfer some of this pressure to their employer by asking for a raise. This, in turn, will increase employers’ costs and therefore affect their overall profitability. How to escape this dilemma? How can employers maintain the balance between cost optimization and employee satisfaction?

The answer is likely to be different for everyone… However…

The how
Recently, the Romanian government enacted a series of changes to Romanian tax legislation, which, although restrictive at first sight, may create an unexpected opportunity for Romanian companies to redefine their compensation policies and work towards the elusive goal of to obtain the maximum benefit for their employees at the minimum cost to themselves.

From January 1, 2023, employers will be able to provide tax-free benefits up to an aggregate limit of 33% of gross salary for eligible employees. The pool of benefits subject to this limitation will include benefits already existing in the tax legislation as well as new benefits, as follows: (i) remuneration received on the basis of mobility clauses (with some exceptions); (ii) food allowances within certain limits and under certain conditions; (iii) voluntary health insurance premiums or healthcare subscriptions; (iv) private pension contributions; (v) reimbursement of the cost of tourist services and/or care, including transport, during the holiday period, for employees and their family members under certain conditions; (vi) certain housing allowances.

In this context, the scope of social benefits is opening up and employers can redesign their Ben&Comp policies to offer their employees higher net salaries.

Good numbers speak louder than words
By way of illustration, we can consider a gross salary of RON 6,000, which, in the absence of personal deductions, would correspond to a net salary of approximately RON 3,510 (after social contributions and taxes).

From January 1, 2023, the net salary based on a gross salary of RON 6,000 would remain unchanged. However, what would happen if the gross salary were redistributed as follows: (i) gross base salary of RON 4,515; (ii) a monthly food allowance of RON 600; (iii) mobility clause remuneration of RON 600; (iii) monthly vacation allowance of RON 285?

This redistribution would result in an overall net salary (not taking into account personal deductions) of RON 4,126, which would provide employees with a 17.5% increase in their net salary in a scenario where the employer would not have at all to increase its wage costs. . Sweet!

Too good to be true?
A real application will reveal the answer. Any reshuffling of salary packages will need to be done in accordance with the requirements of applicable labor laws, which can lead to various complications.

Also, employers should keep in mind that the above tax rules may still be subject to change/improvement, and implementation instructions may still be issued to make actual application more cumbersome. of the “non-taxable benefit” rule.

Even so, we think it’s definitely worth considering if there’s any chance of giving people more money without really spending more.

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