Everything you want to know about a cafeteria plan

A flexible remuneration plan or cafeteria plan offers employees the opportunity to make choices concerning their remuneration package, within the framework set by their employer. Although there is no single definition of a ‘cafeteria plan,’ the general idea is that employees with a budget (often part of their current remuneration package) can make choices that suit them better.

A classic example of a cafeteria plan is the bicycle lease that an employer can make available. An employer will not usually offer a bicycle lease to everyone. This is partly because it would result in a considerable additional cost and partly because not everyone is interested in a leased bicycle. A bicycle lease is also only feasible as an employment condition for a limited number of employees, due to the condition of regular commuting as a requirement for the (para)fiscal exemption.

In such situations, a cafeteria plan can offer a solution. In this case, the employer offers employees the option of exchanging a certain existing budget (such as the end-of-year bonus or, if applicable, the car budget if the employee has chosen a cheaper company car than the one to which they are entitled) for a bicycle lease. This has several advantages: 

• It remains budget-neutral for the employer (the wage cost remains the same because the employee only exchanges part of their existing wage package for something else);
• it allows the employer to encourage the use of alternative (green) mobility;
• the employee can choose whether or not to take the bike lease; and
• the employee optimizes their salary package by aligning it more closely with their personal needs. In many cases, the employee can also use the budget in a more tax-efficient way than if they had to make the purchase privately.

A cafeteria plan is therefore a win-win for all parties. 

It is essential to include the cafeteria plan in the company's strategic wage policy. As a company, you also need to ask yourself why you are introducing a cafeteria plan. After all, there are many reasons for choosing a cafeteria plan.

The first hurdle has been cleared: the decision has been made to start a cafeteria plan. What are the main points of attention and challenges when starting a cafeteria plan? Based on our experience, we share some important tips.

When starting a cafeteria plan, it is crucial to determine which budgets are available to your company. In concrete terms, which (extralegal) wage elements of the existing wage package can be converted into other benefits? This not only depends on the joint committee under which the company falls, but can also vary from status to status (workers, employees, or executives) or from the legal source by which the wage elements are determined.

Companies often already have an idea of what they want to offer when they start their cafeteria plan. This may be due to specific business situations, such as difficult accessibility by public transport, which increases the need for a car. In other cases, the opposite may be true, with a company being very centrally located and employees being more inclined to use alternative means of transport due to the difficulty of reaching the company by car.

Other factors can also influence the offering, such as the increase in working from home, which has led to a huge rise in demand for additional IT equipment.

A mobility budget can be part of a cafeteria plan. However, it is important to understand the exact scope of this budget.

On the one hand, it can be a company-specific mobility budget, such as an additional budget provided by the company to encourage alternative forms of mobility, separate from a company car.

On the other hand, it can also be the federal mobility budget, the exact rules of which are determined by law. A combination with an existing cafeteria plan is possible, but there are some points to consider. For example, an end-of-year bonus cannot simply be used to finance elements of pillar 2. Conversely, the federal mobility budget cannot be used for extra leave or IT equipment, for example.

From the employer's point of view, the biggest concern is the administrative burden that can be associated with a cafeteria plan. It is therefore crucial to pay sufficient attention to the following when choosing a provider:

• The services and support provided: both in terms of content and technical aspects.
• The automation provided by the tool: such as importing and exporting data, communication with the social secretariat, automatic orders for bicycles or multimedia devices from providers, generating reports, drawing up contract appendices that can be signed digitally, etc.
• The start-up procedure: when starting a cafeteria plan, it is advisable to begin with a limited number of benefits. This keeps the workload manageable and allows you to expand gradually over the years once the system is established and familiar to both HR and employees.

A cafeteria plan must always be tailored to the company and must consider the availability of HR and other employees to follow it up. That is why it is best to seek guidance from an experienced party.

Transparent communication is particularly important for employees. They need to be able to accurately assess the impact of their choices in the cafeteria plan, not only on their salary, but also in other areas.

After all, choices that involve paying no or lower social security contributions can have an impact on your vacation pay and the accrual of your social security rights. When you receive an end-of-year bonus in the traditional way, an employee sees a gross amount on their payslip, but social security contributions and withholding tax are then deducted from this. As a result, an employee ends up with a lot less net income.

This is precisely where the strength of a cafeteria plan lies: if (part of) this end-of-year bonus can now be used as a budget in the cafeteria plan, the employee can spend this budget on other benefits that – in many cases – are taxed less heavily and/or are exempt from social security contributions. This often creates a nice net benefit for the employee and therefore more purchasing power.

The downside of this, of course, is that no social security contributions are collected on that part of the budget spent, which means that you cannot build up your social rights, such as statutory pension or sickness and unemployment benefits.

Not every employee will be affected by this, as the accrual of these social rights is capped. Only wages up to a certain income ceiling are taken into account for this calculation. If you earn more than the ceiling amount (which is indexed annually) and participate in the cafeteria plan, your social rights will not be reduced because you have already accrued the maximum. As long as your gross salary does not fall below the ceiling, this will have no individual impact. In general, however, the impact is often minimal, as the ceiling is reached fairly quickly for sickness and unemployment benefits, for example, while the ceiling for pension accrual is slightly higher.

It is particularly important to inform your employees properly so that they can make an informed choice. They need to understand the trade-off between the impact on social security benefits and the net benefits of the cafeteria plan, such as an electric bicycle or additional health insurance. They also need to be aware of the conditions, such as rules regarding termination of employment or long-term absence. Employees need to understand that they often do not immediately own the items they choose, because the tax benefit is linked to their provision by the employer for a certain period of time.

Depending on the budgets and benefits you offer in the cafeteria plan, a settlement will have to be made for the employee.

On the one hand, it must be determined whether the budget spent has actually been ‘earned’ at the time of dismissal. On the other hand, it must be determined whether there are any ongoing choices that need to be discontinued (bicycle, IT equipment, extra-legal leave days).

As an employer, it is best to determine in advance how you will deal with this in a policy and, if necessary, a contract addendum that employees must agree to at the time of their choice.

Consider, for example, a bicycle lease whose contract must be terminated early when the employee leaves the company. In this case, the employee often has the option of taking ownership of the bicycle, provided they pay the market value at that time. If the employee does not want to take ownership of the bicycle, in many cases a termination fee is payable to the leasing company.

Here too, it is important to engage an experienced partner who is familiar with all the legal obligations and positions in this area when introducing the plan.

No, flexible remuneration is also known in certain other countries. This depends, of course, on the different national legislations. The way in which flexible remuneration is implemented differs from country to country. The offer we provide in Belgium cannot therefore simply be copied one-to-one for foreign entities. This always requires the necessary analysis of local legislation.

By introducing a cafeteria plan with a diversified offering, you have an additional asset to increase employee satisfaction. Of course, a cafeteria plan is not a miracle cure. If there are other underlying problems, you will not be able to convince your employees with a cafeteria plan alone. In practice, we do notice that participation in the plan increases almost year on year. By offering benefits tailored to their own needs and requirements, employees feel more involved and committed.

In addition, there are also benefits that have a longer term, such as a bicycle (often leased over 3 years) or multimedia (2 to 3 years). Employees will therefore make a conscious choice to finance the device during this term and, if necessary, take ownership of it afterwards. This therefore requires a more long-term commitment.