The Work-Related Costs Scheme (WKR) is compulsory for all employers. The idea behind the WKR is simple. All allowances and benefits in kind to your employee are considered wages and are, in principle, taxable. Under the WKR a maximum of 1.18% of the total tax payroll, the so-called 'discretionary scope’, may be spent on tax-free allowances and benefits in kind for employees. This means that you are not required to pay payroll taxes on this. On everything above that, you pay a final levy of 80%. Some allowances and benefits in kind are not charged to the discretionary scope. These are the so-called specific exemptions, zero valuations and intermediary costs.

For this year, the discretionary scope has been expanded in connection with the higher costs for employees. This year, the discretionary scope is 3% of the total taxable wage up to € 400,000, and 1.18% of the taxable wage in excess of € 400,000. You may therefore have opportunities to do something extra for your employees in the month of December. This can even be cost-neutral!

In order to determine whether you have extra discretionary scope, it is important that you establish whether you are applying the rules concerning the WKR correctly. Below we describe three misconceptions we often come across.

Misconception 1:  When it comes to the WKR, it refers to the 1.18% 'discretionary scope' and tax is due if this is exceeded

The WKR covers more than the discretionary scope and also includes specific exemptions, zero valuations and intermediary costs

Misconception 2:  If an employee receives an untaxed allowance which is not an specific exemptions, these allowance will automatically be charged to the free space

Without designation, the work-related costs scheme does not apply! Without application of the work-related costs scheme, these allowances are therefore considered taxable wages for the individual employee.

Misconception 3: Christmas baskets are tax-exempt when the employer's discretionary scope has not yet been exhausted

The same applies here: the WKR may not be applied without designation. As a consequence, Christmas baskets must then be considered as taxable wages for the employee. You obviously do not want employees to pay tax on their Christmas baskets. Grossed-up, these Christmas baskets suddenly cost more than twice as much.
Action item if you are planning to give your staff a Christmas basket this year:

  • Check whether the Christmas basket has been designated as a final levy component under the WKR;
  •  If not, you may still be able to arrange this for this year!

In short, no designation? Then it is considered wages!
To clarify, a sample calculation:

If you have not designated any of the above expenses, they are considered wages. For 2023, the additional tax assessment may be as high as € 20.580 (excluding penalties and interest).

Should you have free space left over in 2023, you can make the most of it. This can even be cost-neutral. For example, you can choose to give your employees untaxed compensation in December in exchange for (partial) gross pay or 13th month. Employees will receive more net in the month of December without you having to incur additional expenses.

Are you questioning whether the WKR is properly implemented within your organisation? Or would you like to know about any possible extra things you can do for your employees in December? If so, please contact your trusted advisor at RSM of one of our wage tax specialists