pwc

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pwc
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Employee benefits and related tax issuesReward
your people to the best and most efficient way
Iva ubrtováVáclava Jersáková
6 May 2003
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Theoretical foundations of motivation

• Maslow Hierarchy of needs
• Herzberg Two-factor theory of motivation
• Porter and Lawler Expectancy theory
• Krivohlavý Theory of hope

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Motivation according to Maslow and Herzberg
Motivators
Hygienic factors
Maslow
Herzberg
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Motivation according to Porter and Lawler

• Reward is the result of a dynamic relationship
  between effort and performance
• Employees must know clearly what is expected of
  them and must know the performance criteria
  qualifying for reward
• Employees must value the reward(s) offered

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Motivation according to Krivohlavý
b
a
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De-motivators

• Rumours
• Failure to understand the rules
• No respect for superiors (or lack of it)
• Lack of recognition and gratitude
• Neglect of work safety
• No signs of interest in employee satisfaction
• Bad internal personnel marketing
• Problematic reputation of the organisation
• Experience of unfair treatment

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Motivation vs loyalty

• Importance of reward (How important is money to
  you?)
• Position of reward (Besides money, what else do
  you want?)
• in employee motivation
• vs other tools for building employee loyalty

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Golden rule in reward
Use reward to improve the organisations
performance by improving the performance of
individuals.
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Reward objectives

• Supports organisations strategy
• Helps communicate organisations values
• Supports culture management and change
• Drives and supports desired behaviour
• Encourages value-added performance
• Promotes continuous development
• Motivates everyone (from the shop floor to the
  board room)
• Promotes flexibility
• Provides value for money

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Performance improvement

• Performance-related reward
• Competency-based reward
• Skill-based reward

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Benefits usually provided to employees

• Pension plan/pension contributions
• Health insurance/above-standard medical treatment
• Life insurance/other insurance
• Education/training program/school fees
• Recreation/sport/culture
• Meal vouchers/canteen
• Per diems
• Employee loans
• Company cars
• Mobile phones
• Gifts to employees
• Accommodation
• Share option/purchase schemes
• more...

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Company cars

• Company car for business and private purposes
• One percent of purchase price (incl. VAT and
  customs duty) is a taxable benefit for the
  individual, min. CZK 1,000
• This benefit is not subject to social and health
  insurance
• Automobile fuel for private purposes
• Is subject to personal income tax
• Costs are not deductible for corporate tax
  purposes VAT is not recoverable

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Granting a company car for private purposes

• Company car purchase price of CZK 500,000
• Tax increase for an employee with 25 tax burden
  is CZK 1,250 monthly
• Provision of a private car by leasing would stand
  for the financial burden of CZK 16,500 monthly
  from the net income which would suppose the gross
  income of approx. CZK 22,000

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Canteen

• Provision of food/subsidised canteen
• Operated by the employer
• Meal vouchers
• Employee
• Provision of food by the employer and consumed at
  the workplace is not a taxable benefit for the
  employee
• Employer
• Expense of running the canteen is tax-deductible
  food expenses are a non-deductible expense for
  the employer
• Meal vouchers are deductible up to a certain
  limit

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Canteen boarding/meal vouchers

• Refreshment (non-alcoholic beverages) provided by
  the employer at the workplace and consumed there
  are not taxable income for the employee
• Meal vouchers (tax exempt) without a limit, and
  not subject to social and health insurance

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Meal vouchers

• Fifty-five percent of the value of the main meal
  price (up to 70 of per diem for business trips
  lasting 512 hours)- Tax deductible expense for
  the employer
• Since 1 January 2003, a maximum amount of CZK 49
  can be deducted

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Meal vouchers
) Net income increase of CZK 575
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Supplementary state pension scheme

• Contributions paid by the employer are
• Tax-free for the employee, up to 5 of the base
  for calculation of social security
• Tax deductible for the employer, up to 3 of the
  base for calculation of social security

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Example from the employees point of view

• Net income increase - Employer contribution to
  supplementary pension scheme
• Gross income CZK 35,000
• Social and health insurance CZK 4,375
• Tax CZK 5,510
• Net income CZK 25,115
• Employers contribution exempt from tax up to 5
  CZK 1,750
• Net income, incl. contribution CZK 26,865

• Net income increase - Gross income increase by 5
• Gross income increased by 5 CZK 36,750
• Social and health insurance CZK 4,594
• Tax CZK 5,983
• Net income CZK 26,173
• Net income increase of CZK 1,058

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Example from the employers point of view

• Net income increase - Employer contribution to
  supplementary pension insurance
• (net income of CZK 25,115)
• Gross income CZK 35,000
• Social and health insurance CZK 12,250
• Employers contribution,
• exempt from tax up to 3 CZK 1,050
• Employers expenses CZK 48,300
• Expense saving CZK 1,302

• Net income increase - Gross income increase by
  5
• (net income of CZK 25,115)
• Increased gross income
• so net income is increased
• by CZK 1,050 CZK 36,742
• Social and health insurance CZK 12,860
• Employers expenses CZK 49,602

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Life insurance

• Employer contributions to private life insurance
  are
• Tax-free for the employee, up to CZK 12,000
  annually, provided further conditions are met
• Tax-deductible for the employer, up to CZK 8,000
  per employee per year
• Effect similar to one of supplementary state
  contributory pension insurance
• Strict conditions

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Accommodation

• Under certain circumstances, temporary
  accommodation provided by the employer to its
  employees represents a non-monetary benefit
  exempt from taxation (Income Taxes Act)
• Rental contract should be concluded in the
  companys name
• Rent paid directly to landlord
• Employer
• Cost is not tax-deductible for the employer
• Travel Expenses Act

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Employee equity plans

• Common benefit offered by international companies
• Lack of concept of tax preferred plans
• No official specific provision regarding personal
  taxation, taxed according to general principles
• Corporate tax deductibility often questionable

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Training/sport/culture - non-monetary benefits

• Continuation training x increasing qualification
• Preschool institutions
• Membership in sport clubs
• Use of sport and cultural facilities
• Tickets to sport and cultural events (e.g.,
  Ticketpro, etc.)

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