Cafeteria plan basics

In this series, we try to provide an insight into the basic elements of a cafeteria plan based on our years of experience. A cafeteria plan is a plan in which the employee, within a certain framework developed by the employer, can compose the salary package on a voluntary basis. The employee can choose benefits within that framework or adjust existing benefits. The financing of these benefits is usually done by creating a budget or by handing in an existing budget.

Once the decision has been made to start a cafeteria plan, the first hurdle is behind you. Next is to understand the main points of attention and challenges when starting a cafeteria plan. Based on our experience, we share 10 important tips.

It seems logical to think carefully about what you offer in the cafeteria plan. In practice, however, we see that companies sometimes decide too quickly on the content and consider the wrong criteria, such as tax optimization. However, the scope is one of the most important decisions: which budget and which benefits do you include?

Even more important than the 'what' is the 'why'. Why do you offer a particular benefit? What do you want to achieve as an employer with the cafeteria plan? Does your plan fit into your company's strategic remuneration policy? Try to look at the bigger picture; offering bicycle leasing in a cafeteria plan is good, but thinking about bicycle parking, showers, and a broader bicycle policy is even better.

Another important question is whether you should organise a survey to ask all your employees what they want in the cafeteria plan. In some cases, this is desirable, but sometimes risky. On the one hand, you can create wrong expectations with a survey, and on the other hand, it is a challenge to provide sufficient explanation of possible benefits with a questionnaire. A survey can be useful for very specific topics, such as mobility.

An interesting alternative is to set up a limited working group with a sample of employees. Within that group, you can obtain valuable input by properly explaining each benefit. These colleagues can also act as 'ambassadors' during the communication and launch of the plan.

The plan should not be too extensive; this can lead to choice-related stress among your employees. Moreover, each additional benefit results in possible additional work for HR and extra communication. If you start with a more limited plan, you can always expand it later. In fact, employees expect an update of the cafeteria plan after two or three years.

In addition, you need to find a good balance between the offer and the attractiveness of the plan. The cafeteria plan must be interesting enough for all employees. It makes no sense to offer a cafeteria plan with two benefits if you know in advance that only a handful of employees will be attracted to it. In practice, we find that a cafeteria plan has an average of three to four benefits. The same applies to the budgets, of course.

A big risk is that the cafeteria plan becomes a separate 'silo' within the total reward and mobility policy. Therefore, dare to make the link with existing elements. Take the opportunity to make your car policy flexible and link your entire mobility policy to the cafeteria plan. It is also possible to include the car budget in the cafeteria plan so that certain choices, such as a bicycle lease, can be funded from the car budget. However, the cafeteria plan does not have to be limited to mobility. It can be interpreted more broadly by also including IT equipment or insurance, for example.

The question of whether everyone or only a limited group can participate in the cafeteria plan is also crucial. There can be several reasons why you might start with only a portion of the employee population. The main reason is legal: in Belgium, it is not always possible to use a flexible budget for everyone. In addition, it can be useful to run a trial with a limited group or it can be too complex to start immediately for everyone. Finally, it is not always useful to allow certain employees to benefit from the cafeteria plan, such as expatriates who are not subject to Belgian social security.

If you exclude groups, it is important to clearly communicate the reason. That way, employees know why they cannot (yet) participate in the plan and you reduce frustration.

It is essential to decide when to launch the plan, considering the implementation period. Take enough time to implement and communicate the plan. The timing also depends on the budgets and benefits included in the plan.

You also need to decide when employees can make a choice and for how long they can do so. Do you work with a cafeteria plan with one option period, several option periods, or without a limit? In practice, one period is usually used. The main advantage is that this reduces the work for HR and the focus is not on the cafeteria plan for the entire year. We have noticed that it is sometimes better for employees to be 'obliged' to choose within a certain period. Employees who can choose during the entire year sometimes forget that.

 The question remains, of course, what should happen with new employees or choices that must remain open throughout the year, such as recharging budgets on the mobility app or the company car? We therefore see that the trend is towards a combined choice period: a closed choice period for most benefits and an unrestricted choice period for other benefits, mainly related to mobility.

An important starting point in a flexible reward plan is usually budget neutrality. Take this starting point into account immediately in the design phase of the plan, as it can have an impact on various elements of the cafeteria plan. Try to take budget neutrality into account in the broadest sense: not only all fiscal aspects, but also the impact on other costs (workload, administration, and the impact on tax breaks).

You can achieve budget neutrality in various ways: charging administrative costs, reducing the employer's contribution, taking all costs into account that relate to the level of the benefits. We will come back to this in a subsequent article.

The Belgian (para)fiscal and legal landscape of flexible pay is extremely complex. Therefore, we recommend taking all challenges into account when drafting the plan. The points of attention can be counted on one hand, but can be even more complex depending on the sector in which the company is active. Only when all aspects are accounted for (social law, personal tax, social security, corporate tax, VAT, accounting aspects) can there be a sustainable cafeteria plan. In some cases, it may be advisable to conclude a tax ruling with the Advance Decision Service.

It is a very useful exercise to think extensively about the possible negative consequences of the plan during implementation. Have you thought about what will happen in the event of dismissal, retirement, temporary unemployment, illness, or theft? It is better to think about this in advance and provide a solution. After all, an employee must be able to make a well-considered choice. It is therefore important not only to include the impact of a choice in a policy, but also in the communication of the plan.

The implementation of a cafeteria plan potentially impacts several different processes. HR and payroll are obvious, but there is also an impact on finance, fleet, marketing, and recruitment.

A cafeteria plan has an important impact on a company's bookkeeping, among other things. For example, if an employee chooses a bicycle with their end-of-year bonus, the budget and the benefit do not fall in the same year, which may result in a need to work with accruals. It is therefore worth discussing this with your finance function, so that they are not faced with a fait accompli after the launch of the cafeteria plan.

As a general recommendation: try to identify and involve relevant colleagues from the start. Practice has shown that they have very valuable input on the possible impact of a cafeteria plan and future processes.