Employers, employees, their families and even the government are all winners with flexible rewards.
Over the years, employees in equivalent positions have been treated in an equal way. Managers are entitled to the same type of company car, even if one comes to work by bike – as they live in the city center of Brussels or Antwerp – while the other has to commute for two hours a day.
Employers are more and more conscious that this system is no longer sustainable. They indeed look for alternatives, rewarding employees with equivalent salary packages, rather than equal ones. They do this by allowing employees to opt for the most suitable solutions at an individual level. For example, some young parents prefer five extralegal days of paid leave instead of a bonus, while others prefer to receive the latest smartphone. If employers allow employees to compose the best remuneration package for themselves, the latter will be more happy, more productive and more motivated. Moreover, the employer could stimulate wellbeing in the work place, offer their employees a better work-life balance and a healthier lifestyle.
How can employers switch to this more personalized remuneration system? By implementing flexible reward schemes which include motivating factors: an employer can go the extra mile by associating different values to different options for the employee. This gives the employee the ability to make choices that have more value for them. It is possible to determine at individual level what the budget for the remuneration opted for is. An employer would and could drive the extra mile by taking the full budget for all employees into account and stimulate healthy options by making the option less expensive: For example, personal net investment is less significant if an employee opts for a bike, rather than for a car. Such systems exist and are very interesting. Under these circumstances, the government also wins: A happy employee with a choice over their rewards will be absent less and will contribute to society and social security.
In the framework of the flexible reward system, the ratio between budget and positive net value for the employee will change drastically.
Is implementing a flexible reward scheme possible from a legal perspective? Yes! These are the key principles:
- Contractually, it is important to determine what part of salary could be converted into a budget to be used within the flexible reward system and what consequences this salary conversion will have in the event of promotion, demotion, part-time work, etc. For example, if an employee is opting for a salary conversion of €100 to obtain a bike within the flexible rewards scheme and this same employee later decides to work part-time, this will also reduce the available budget within the flexible rewards scheme to a more limited investment of €50;
- From an employment perspective, one question will be whether the end-of-year premium could be converted. Sector regulations should be checked. Any and all benefit(s) on top of the sector minimum could be granted. It is, however, not always advantageous for the employer to grant extra-legal benefits as the social security and tax value should be taken into account;
- From a social security perspective, it is possible to convert a portion of the salary package into a budget to be used for flexible rewards as long as this does not reduce the remuneration that is paid out as salary below the legal minimum;
- From a tax perspective, the same rules apply, but the Ruling Commission also adopted additional principles such as the 20% rule in relation to warrants (the tax value of warrants may not exceed 20% of the fixed and variable salary), while some benefits are less tax deductible;
- From a pension perspective, changing salary structure could lead to changes in the pensionable salary, which could lead to a change of the pension scheme.
Flexible rewards are a new and adaptable way for employers to not only maximize the salary and compensation budget in a way that benefits both employees and employers, but can also serve to reinforce the values and company culture through the options on offer. Implementing such a scheme does, however, require some thought in order to take into account the legal implications and ensure that the maximum benefit is reaped from the scheme. Companies that can master these challenges can look forward to a brighter future with flexible rewards!
This article follows our Lunch & Learn: Flexible Rewards for Employees, hosted by Loyens & Loeff on October 24.
About the author
Kris De Schutter works in Loyens & Loeff’s Employment and Benefits department. He has extensive experience in alternative (flexible) remuneration, restructuring and change processes.