Benefits in Kind (BIK), often called perks or fringe benefits, can be tricky when it comes to payroll. A BIK includes benefits an employer provides in addition to the employee’s salary.
BIK are taxed as notional (face value) pay and are taxable either when the benefit is provided or when the payment is made. Benefits in kind cover many different types of items, including: private healthcare, housing, a company car, mobile phone, a gym membership, an interest-free loan, travel expenses, or otherwise.
The purpose of BIK is to improve the financial security of staff members, and in doing so, increase worker retention in the company. Hence, BIK often become a part of an organization’s reward management, or total compensation package.
In most countries, most types of BIK are taxable. If a benefit has a monetary value, it will need to be declared, as it might be subject to taxation, depending on earnings and other factors. However, it’s important to note that each country has its own regulations for which benefits should (or should not) be included for taxation, and if so, how.
For example, many countries would consider a mobile phone provided for “work use only” a non-taxable BIK. But, if the phone has been provided for “work or personal use,” it then may be considered taxable, because as far as the tax authority is concerned, the company has just gifted the employee with a mobile phone. In some countries, if the phone were given to the employee only for use during employment (return the phone upon separation from the company), then it is typically not taxable at all.
Even though they are typically taxable, a BIK often provides an overall tax saving for both the employee and the employer in which case they both benefit. Think of it like this: if an employer gives the employee something they want at less cost than paying additional salary, then the employer saves money and the employee is happy. Saving money and having happy employees! It’s an ideal scenario.
It’s vital that your global payroll processors understand BIK and the regulations for each country. If you need help with paying your international employees, we would be happy to work with you.