Flexible remuneration is almost always poorly explained, which is why it is implemented less than it should be. The mechanism is simple and the effect is direct on the employee's pocket without additional cost to the company.
The mechanism, in two sentences
The employee gives up part of their gross salary in exchange for a product or service, in this case the health policy. As it is deducted before calculating the withholding, that part is not taxed. Additionally, the first €500 per year per insured person is expressly exempt from IRPF, a figure that rises to €1,500 in the case of disability.
The two effects are cumulative
First, the exemption applies to the initial €500. On the excess, the payment with gross operates, saving the worker's marginal rate. Combined, the effective savings compared to contracting the same policy on their own usually ranges between 25% and 45% depending on the bracket, and the exemption also applies to spouses and children included in the policy.
What the company gains
The premium is a deductible expense in the Corporation Tax and is not subject to contributions for the exempt part. With the salary assignment well articulated, the net cost for the company can be zero, and in return, it incorporates a benefit that the staff uses several times a year and associates with the company.
Where implementation usually fails
In two areas. The first, choosing the insurer by premium and ending up with a short medical network in the province where the staff lives, which undermines the perception of the benefit. The second, not setting up a process for enrolments and withdrawals, which results in employees without cover and billing for people who have already left.
