What is the Work-Related Costs regulation?

The Work Related Cost Scheme (WKR) has been mandatory for all employers since January 1, 2015, but remains a complex regulation. There are many different types of reimbursements and provisions to employees that you, as an employer, can provide. Which ones are taxable and which are tax-free? What’s the deal with parking tickets, gifts, courses, and staff parties? It takes a lot of effort to ensure that all of this is correctly allocated within the WKR. In this blog, we will delve deeper into the WKR. We will explain the rules and how, as an office, we can provide insight into our clients’ WKR reporting since this is a standard part of our service.

Table of Contents

1. What is the employee benefits scheme (WKR)?
   1.1. WKR Free Space
   1.2. Employee Benefits Scheme 2022: Key Developments
2. WKR Intermediary Costs
3. Targeted Exemptions in the WKR
   3.1. Actual Car Travel Expenses
   3.2. Meals
   3.3. Knowledge and Skills
   3.4. Employee Parties
   3.5. Necessary Facilities
   3.6. Occupational Health and Safety Facilities
4. Zero Valuation
   4.1. Work Clothing
   4.2. Facilities at the Home Workplace
5. Free Space
6. The Employee Benefits Scheme (WKR) and Your Administration within Practical
   6.1. WKR Reporting

1. What does the Working Conditions Regulation entail?

The WKR essentially encompasses everything that you, as an employer, provide or reimburse to an employee, which is considered taxable income. However, fortunately, there are many exceptions in the WKR, so not all reimbursements and provisions are taxable.

1.1 WKR Free Space 2023

Central to the WKR is the free space. In 2023, the WKR free space amounts to 3 percent of the fiscal wage bill up to €400,000, plus 1.18 percent of the remainder of that wage bill. You can use the free space amount for tax-free reimbursements and provisions for your employees. Therefore, you do not pay payroll tax on this amount. If you exceed the free space, you will incur an 80 percent final levy on the excess amount.

But do all reimbursements and provisions count against the free space? No, fortunately, there are other possibilities. When you, as an employer, provide or reimburse something to your employee, there are four possibilities in the WKR. The reimbursement is considered as:

1. Intermediary costs;
2. Specific exemption;
3. Nil valuation;
4. Costs allocated to the free space. In case of exceeding the free space, an 80% final levy is due.

1.2 Working Conditions Regulation 2023: Important Developments

In the Working Conditions Regulation 2023, there are several important developments, namely:

• Due to energy costs and inflation, the free space in the working conditions regulation for 2023 has been temporarily increased to 3 percent for the first €400,000 of the total fiscal wage bill. From 2024, the percentage will be reduced to 1.92%.
• The maximum tax-free home working allowance has been increased to €2.15 per day. This allowance is intended to compensate for costs incurred during remote working, such as coffee, water and electricity consumption, heating, and toilet paper.
• The maximum tax-free travel allowance has been increased to €0.21 per kilometer.
• Note: Per working day, a choice must be made between a tax-free home working allowance or a tax-free travel allowance. It is not allowed to apply both specific exemptions to the same working day. Establishing a standard number of fixed office or remote working days with the employee can offer a solution. Only in the case of a structural change in this distribution does the allocation of the allowance also need to be adjusted. An occasional change does not matter.
• It is allowed to combine a home working allowance with a tax-free travel allowance to a location other than the office on the same day.

2. WKR Intermediary Costs

WKR intermediary costs are expenses that the employee has incurred on behalf of the employer. The employee has paid for these costs upfront. For example, if the employee pays for a business lunch or covers parking expenses for a company car, these are considered intermediary costs. The employee then submits these expenses to the employer for reimbursement. These reimbursements are not considered income and do not count against the free space.

However, please note that if the employee pays for something upfront and it is subsequently made available to the employee, it is considered income and this rule does not apply. In this case, the upfront costs must be charged against the free space unless a specific exemption or nil valuation applies.

3. Specific Exemption in the WKR

The Tax Authorities have established a specific exemption in the WKR. Certain reimbursements and provisions are specifically exempt. These specific exemptions can be provided to employees tax-free and do not count against the free space. Specific exemptions in the WKR include:

• Costs for commuting (up to €0.21 per kilometer);
• Train tickets;
• Business accommodations;
• Meals with a business purpose, such as during overtime and late-night shopping;
• Knowledge and skills: courses, seminars, training, and professional literature;
• Essential facilities provided to employees, such as laptops;
• Mandatory occupational health and safety provisions;
• A relocation due to employment (at least 25 kilometers from the workplace);
• Tools that the employee can also use outside of the workplace for 90% or more and primarily for business purposes;
• Additional costs related to remote working (up to €2.15 per day);
• Reimbursement for obtaining a certificate of good conduct (VOG).

3.1 Actual Car Travel Expenses

For travel expenses using the employee’s own car, there is a specific exemption of up to €0.21 per kilometer. Travel expenses using the employee’s own car are considered to be reimbursed at this kilometer rate. This means that there is no specific exemption for reimbursing parking or gasoline expenses for the employee’s own car. These expenses are considered part of the kilometer allowance.

If an employee claims actual car travel expenses, this is considered income for the employee, but the reimbursement can also be charged against the free space. Therefore, it is advisable to use the kilometer allowance when employees incur travel expenses using their own cars. The distinction between an employee’s own car and a company car is significant in the WKR.

3.2 Meals

There is a specific exemption for meals with a more than incidental business character. In the following situations, there is certainly a more than incidental business character:

• The meal is enjoyed with a business relation;
• The meal is enjoyed during a business trip, which can include an overnight stay in the Netherlands for business reasons or a trip to a conference or abroad. A meal for the employee alone during a trip to a client does not fall under this exemption and is only specifically exempt if it is related to an itinerant employee:
  • An employee is itinerant if they travel to different workplaces.
  • An employee is also itinerant if they travel to the same workplace at least one day a week and do so on a maximum of 20 days (the 20-day criterion).
• You start work before 5:00 PM and finish after 8:00 PM. Meals enjoyed between 5:00 PM and 8:00 PM in this situation have a business character.
• The meal is enjoyed after 8:00 PM due to unexpected overtime;
• The meal is enjoyed during work on late-night shopping evenings;
• The meal is enjoyed during therapeutic meals;
• The meal is enjoyed during work on airplanes, ships, drilling platforms, or fairground wagons;
• The meal is enjoyed during work at non-permanent locations, such as the work of road builders, construction workers, and film crew members;
• The meal is enjoyed with colleagues during a work meeting. We recommend that you have an agenda or minutes available in case of a Tax Authority audit.

If there is no business-related character to the meal, the meal is considered taxable income for the employee. Alternatively, the meal can be allocated to the free space. In this scenario, a choice can be made between the actual costs or €3.55 per meal.

It is also possible to include a fixed addition of €3.55 per meal to the employee’s gross salary. This way, you don’t need to utilize the free space for these meals.

3.3 Knowledge and Skills

There are specific exemptions for reimbursing/providing:

• Courses, conferences, training, coaching programs, professional literature, and similar items for maintaining and improving the knowledge and skills necessary for work, registration in a professional register, and outplacement;
• Study and training aimed at acquiring (additional) income and recognition procedures for acquired competencies (EVC procedures). Three conditions apply:
• The study costs are not already reimbursed by another party.
• The study or training is aimed at a future profession.
• The employer has provided or promised the reimbursement before the end of the calendar year in which the costs are incurred.

If a study day includes various activities, the costs can be divided into:

• The costs of activities primarily of a business nature. The specific exemption for meals with a business nature and temporary residence in the context of employment can then apply;
• The costs of activities primarily of a consumptive nature. The rules for staff parties apply (see below).

It is advisable to clearly document this division.

3.4 Staff Parties

How consumptions and meals for a staff party under the WKR should be treated depends on the location of the party:

• Party at the workplace:
  • For provided consumptions, a zero valuation applies. For meals, the standard amount of €3.35 per meal must be included in the salary. This can also be allocated to the free space. All other costs, such as decorations or performances, are part of the party and fall under a zero valuation.
• Party at an external location by a third party:
  • These parties are part of the employee’s salary but can also be allocated to the free space. This concerns the total costs including VAT. There is no specific exemption or zero valuation for these meals.

If an external activity is primarily of a business nature and the festive character is only incidental, the total costs of the activity do not need to be split into business and consumptive costs. The consumptions are then specifically exempted.

3.5 Necessary Provisions

Reimbursements, provisions, and allocations of tools, laptops, phones, and similar equipment are specifically exempted if they meet the following conditions:

• The provision, in the reasonable judgment of the employer, is necessary for the proper performance of the employment relationship (necessity criterion). For directors and supervisory board members, the provision must be customary for the proper performance of the employment relationship;
• The employee must return the provision or pay its residual value to the employer if they no longer need it for the employment relationship;
• The provision is not part of a cafeteria scheme. Any private benefit from these provisions does not need to be included in the salary.

SIM cards, dongles, internet and telephone subscriptions, and software may also be exempt. If the employee has a 3-in-1 package, the portion of the bill for the internet connection should be determined. It may be necessary to determine what the provider would charge for an internet-only subscription.

Another specific exemption applies to tools that the employee can also use outside the workplace and that they use for 90% or more for business purposes.

3.6 Occupational Health and Safety Provisions

Mandatory occupational health and safety provisions are specifically exempted. It does not matter whether the employee uses the provision at the workplace or not. Examples include an ergonomically suitable office chair or computer screen.

The occupational health and safety provisions must meet the following conditions:

• They are mandatory occupational health and safety provisions directly resulting from the Occupational Health and Safety Act. In short, these are provisions that ensure the safety and health of the employee;
• The employee uses or consumes the provisions in the (home) workplace (in whole or in part) or at a location where the employer enforces the Occupational Health and Safety Act;
• The employer does not charge any costs to the employee.

Since 2022, the rule is that the occupational health and safety provision must be mandatory. An optional occupational health and safety provision can be allocated to the free space.

4.0 Zero Valuation

Certain provisions used by an employee at the workplace can be designated as having a zero value. Costs falling under a zero valuation also do not count against the free space. Important examples of zero valuations are:

• Consumables at the workplace that are not part of a full meal. For example, coffee, fruit, cookies, or instant soup. As soon as it can be seen as a meal, it must be determined whether the specific exemption for business meals applies;
• Work clothing;
• Workplace facilities such as a desk, desktop computer, photocopier, or fitness room. Under certain conditions, this zero valuation can also apply to workplace facilities at home.

4.1 Work Clothing

If you reimburse or provide work clothing to the employee, there is no zero valuation, and it is considered part of the employee’s salary. However, it is possible to allocate this reimbursement or provision to the free space.

A zero valuation can apply to providing work clothing to an employee if one of the following conditions is met:

• The clothing is (almost) only suitable for wearing during work, such as a lab coat or dust jacket;
• The clothing has one or more clearly visible image characteristics associated with the employer (e.g., a company logo). These must have a combined surface area of at least 70 cm² per garment, calculated with an imaginary rectangle around the outermost points of the logo;
• The clothing remains demonstrably at the workplace;
• The clothing is a uniform or overalls. If a group of employees wears the same clothing, which is also associated with a company or profession outside the work environment, then that clothing is considered a uniform;
• You reimburse, provide, or make the clothing available because the Occupational Health and Safety Act requires it, such as a pair of safety shoes. The employee does not have to pay a personal contribution.

If the clothing does not meet any of these conditions, the value of the clothing is considered part of the employee’s salary. However, this can be allocated to the free space if a zero valuation applies to the clothing. Reimbursement of cleaning costs in this case is a reimbursement for intermediary costs.

4.2 Workplace Provisions at Home

The zero valuation for workplace provisions can also apply to workplace provisions at home if all of the following conditions are met:

• The space is an independent part of the home: the space, for example, has its entrance and private bathroom;
• The employer has a (real) business lease agreement with the employee, allowing only the employer to use the space;
• The employee works in that space.

If these conditions are not met, there is no zero valuation. Workplace provisions at home may still be subject to a specific exemption:

• See the two specific exemptions for Necessary Provisions;
• Occupational health and safety provisions in the home workplace are specifically exempt if:
• These provisions directly result from the Occupational Health and Safety Act;
• The employee uses or consumes these provisions (partially) in the home workplace;
• The employee does not pay a personal contribution for these provisions.

5.0 Free Space

All reimbursements/provisions that do not fall into one of the above categories must be charged to the free space. If you do not allocate them to the free space, they will be considered taxable income for the employee. Well-known examples of such expenses are meals without a business character, staff outings, tax-free bonuses, and Christmas hampers. The free space is determined based on:

• 3% of the fiscal wage bill up to €400,000; plus
• 1.18% of the remainder of the fiscal wage bill.

The reimbursements/provisions are tax-free as long as the free space limit is not exceeded. Therefore, the free space can be a valuable fiscal benefit for a business.

A total of €2,400 per year per employee can be allocated to the free space. If the employer exceeds this standard amount, the Tax Authority will ask the employer to justify the customary nature of the allocations. An amount of up to €2,400 is considered customary by the Tax Authority.
If the free space limit is exceeded, there is an 80% final levy on the excess amount. Any final levy is fully the responsibility of the employer and must be included in the February payroll tax return of the following year.

6.0 The Work-Related Expenses Scheme (WKR) and Your Administration within Practical

How can Practical provide value to its clients when it comes to the WKR? For each client, we use a so-called WKR tool. In this tool, we calculate the free space and display a specific group of ledger accounts. We can then go through those ledger accounts and assign a WKR label to each entry:

• Intermediary costs;
• Zero valuation;
• Specific exemption;
• Free space;
• Not WKR-related.
  

By carefully reviewing the entries and asking any relevant questions to the client, we can ensure that each entry is handled correctly in the WKR. The more information the client provides that may be relevant to the WKR, the faster and better we can perform this service for the client.

6.1 WKR Reporting

And what is the end product? A clear report generated based on our work in the WKR tool. In the report, the client can first see clearly how high the free space is, to what extent it is filled, and how many costs are allocated to each WKR category.

Then, the client sees a detailed breakdown of the entries assigned to each WKR category. This way, they can easily verify whether the costs have been correctly allocated and can inform us if they disagree with how certain costs have been allocated. Costs allocated as “Not WKR-related” do not appear in the report.
Practical can periodically check the WKR for the client and provide a report. This provides value to the client in several ways:

• If, through the report, they know that their company is well below the free space limit, they know that they have a certain amount of free space left to spend on tax-free provisions/reimbursements to employees. They can then take advantage of the fiscal benefit.
• If, through the report, they know that they are close to the free space limit, they know they need to handle tax-free provisions/reimbursements to employees carefully for the rest of the year. If they end the year with an excess of the free space, the company is subject to an 80% final levy on the excess.

At the end of the year, Practical provides a final WKR report for the previous year in the beginning of the following year. It clarifies whether an 80% final levy is due or not. If so, this final levy must be included in the February payroll tax return at the latest.