What is the work cost scheme

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

Table of contents

• 1. What does the work costs scheme entail?
  • 1.1 Free space WKR
  • 1.2 Work Cost Scheme 202 4 : important developments
• 2. Intermediary costs for the WKR
• 3. Targeted exemption in the WKR
  • 3.1 Actual car travel costs
  • 3.2 Meals
  • 3.3 Knowledge and skills
  • 3.4 Staff party
  • 3.5 Travel
  • 3. 6 Necessary facilities
  • 3. 7 Occupational health and safety facilities
• 4. Zero rating
  • 4.1 Work clothing
  • 4.2 Facilities at the home workplace
• 5. Free space
• 6. The work costs scheme (WKR) and your administration within Practical
  • 6.1 WKR reporting

1. What does the work costs scheme entail?

The WKR in fact includes everything that you, as an employer, provide or reimburse to an employee and what is considered taxable income. Fortunately, there are many exceptions in the WKR, so not all compensation and benefits are taxable.

1.1 Free space WKR 2024

Free space is central to the WKR. In 2024, the free space in the WKR amounts to 1.92% of the taxable wage bill up to €400,000, plus 1.18% of the remaining part of that wage bill. You can use the amount of the free space for tax-free allowances and facilities for your employees. That is why you do not pay payroll tax on this amount. If you exceed the free space, you pay a final tax of 80% on the excess amount.

But do all allowances and facilities count towards the free space? No, fortunately there are other options. When you, as an employer, provide or reimburse something to your employee, there are four options within the WKR. The compensation is considered as:

1. Intermediate costs;
2. Targeted exemption;
3. Zero rating;
4. Costs allocated to the free space . If the free space is exceeded, an 80% final tax is due.

1.2 Work costs scheme 2024: important developments

There are a number of important developments in the WKR 2024, namely:

• The temporary increase in 2023 of the free space to 3% for the first €400,000 of the total fiscal wage bill will be scaled back. From 2024, 1.92% will apply.
• The maximum tax-free home working allowance has been increased to €2.35 per day. This allowance is intended to compensate costs incurred while working from home, such as coffee, water and electricity consumption, heating and toilet paper.
• The maximum tax-free travel allowance has been increased to €0.23 per kilometer.
• Please note: A choice must be made per working day between a tax-free home work allowance or a tax-free travel allowance. It is not permitted to apply both targeted exemptions on the same working day. Setting a standard number of fixed office or home working days with the employee can provide a solution. Only in the case of a structural change in this distribution should the allocation of the compensation also be adjusted. An incidental change doesn’t matter.
• It is permitted to combine a tax-free home work allowance with a tax-free travel allowance to a location other than the office on the same day.

2. WKR Intermediate costs

Intermediate costs are costs that the employee has incurred on behalf of the employer. The employee has paid these costs in advance. For example, if the employee pays for a promotional gift or covers parking costs for a company car, these are considered Intermediate costs. The employee then submits these costs to the employer for reimbursement. These allowances are not considered income and do not count towards the free space.

Note, however, that if the employee prepays something and it is then made available to the employee, it is considered income and this rule does not apply. In this case, the prepaid costs must be deducted from the free space, unless a specific exemption or zero valuation applies.

3. Targeted exemption in the WKR

The Tax Authorities have established a targeted exemption in the WKR. Certain fees and facilities are specifically exempt. These targeted exemptions can be provided to employees tax-free and do not count towards the free space. Targeted exemptions in the WKR include:

• Commuting costs (max. €0.23 per kilometer);
• Travel costs by public transport;
• Business overnight stays;
• Meals with a business character, such as overtime and shopping evenings;
• Knowledge and skills : courses, seminars, training and professional literature;
• Necessary facilities , such as laptops, that are made available to the employee;
• Mandatory occupational health and safety provisions;
• A move due to employment (at least 25 kilometers from work);
• Tools that the employee can also use outside the workplace and that he uses for 90% or more business purposes;
• Additional costs associated with working from home (max. €2.35 per day);
• Reimbursement for requesting a certificate of conduct (VOG).

3.1 Actual car travel costs

There is a targeted exemption of a maximum of €0.23 per kilometer for travel expenses with the employee’s own car. Travel expenses with the employee’s own car are considered reimbursed at this kilometer amount. This means that there is no specific exemption for the reimbursement of parking or fuel costs for the employee’s own car. These costs are considered part of the mileage allowance.

If an employee claims actual car travel expenses, this is considered income for the employee, but the reimbursement can also be deducted from the discretionary allowance. It is therefore advisable to use the mileage allowance when employees incur travel expenses with 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 was enjoyed with a business relationship. We recommend that you note in your administration who the business relationship was;
• The meal was enjoyed during a business trip. A business trip refers, for example, to an overnight stay in the Netherlands for business reasons or a business trip to a conference or abroad. A meal for the employee alone during a trip to the customer does not fall under this and is only specifically exempt if it concerns an ambulant employee:
  • An employee is itinerant if he travels to different places of work.
  • An employee is also itinerant if he usually travels back and forth to the same workplace at least 1 day per week and he does so for a maximum of 20 days (the 20-day criterion);

• You start working before 5:00 PM and only stop working after 8:00 PM. Meals enjoyed in this situation between 5:00 PM and 8:00 PM are of a business nature;
• The meal was enjoyed after 8:00 PM due to overtime, whether expected or not;
• The meal was enjoyed during work on shopping evenings;
• The meal was enjoyed during therapeutic sharing;
• The meal was enjoyed during work on board aircraft, ships, oil platforms or fairground floats;
• The meal was enjoyed during work at non-permanent locations, such as the work of road builders, construction workers and film crew employees;
• The meal was enjoyed with colleagues during a work meeting. We recommend that you can submit an agenda or minutes during any audit by the Tax Authorities.

If the meal is not of a business nature, 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 €3.90 per meal.

It is also possible to add a fixed addition of €3.90 per meal to the employee’s gross salary. This way you don’t have to use the free space for these meals.

3.3 Knowledge and skills

There are specific exemptions for the reimbursement/provision of:

• courses, conferences, training, coaching programs, professional literature and
  the like for maintaining and improving the knowledge and skills required for work, registration in a professional register and outplacement;
• study and training with a view to acquiring (more) income and
  procedures for the recognition of acquired competencies ( EVC procedures). Three
  conditions are:
  • The study costs are not already reimbursed by another party
  • The study or training is aimed at fulfilling a profession in the
    future.
  • 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 several activities, the costs can be divided into:

• the costs of activities that are mainly of a business nature. The targeted exemption for the above, meals of a business nature and temporary stay in the context of the employment relationship may then apply;
• the costs of activities that are mainly of a consumer nature. The rules for the staff party apply (see below).

It is advisable to clearly document this distribution.

3.4 Staff party

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

• Workplace party: A zero rating applies to refreshments provided . For meals, the standard amount of €3.90 per meal must be included in the wage. This may also be assigned to free space. All other costs, such as decorations or a performance, are part of the party and are subject to a zero rating.
• Party at an external location at a third party:
  These parties are the employee’s wages but may also be allocated to the free space. This concerns the total costs including VAT. There is no specific exemption or zero valuation involved. There is no standard amount for these meals.

If an external activity is mainly of a business nature and the festive character is no more than incidental, the total costs of the activity do not need to be split into business and consumer costs. The drinks are then specifically exempt.

3.5 Travel

In the case of a trip with staff that is not of a business nature, the costs for staff are considered taxable wages for the employees. Or it is decided to allocate the costs to the free space.

If a trip with staff is of a business nature, standard amounts must be taken into account with regard to the costs for staff. The Tax Authorities state that expenses for personnel above those standard amounts are taxable wages or must be allocated to the free space. The costs are specifically exempted at the standard amounts. An employer must follow this if the employee’s expenses are comparable to civil servants on business trips. It is also important that you clearly record any business nature of the trip.

The standard amounts differ for domestic and foreign business trips:

• Domestic business trips: The standard amounts are as follows:
  • minor daytime expenses: €5.93
  • small expenses in the evening: € 11.86
  • a breakfast: €13.88
  • a lunch: €11.88
  • an evening meal: €29.82
  • accommodation: € 140.57
• Foreign business trips: The standard amounts are stated in the “Rate list of accommodation costs for foreign business trips as of January 1, 2024” as included in the Central Government Collective Labor Agreement and can be found online. The list specifies the maximum amount of accommodation costs and other costs per day per employee per location. Within that maximum amount, a targeted exemption applies. An excessive compensation is considered taxable salary (or free space) for the excess part. It is also important that you can justify the costs of an overnight stay.

3.6 Necessary facilities

Reimbursements, benefits and provision of tools, laptops, telephones and similar equipment are specifically exempt if they meet the following conditions:

• The provision is necessary in the reasonable opinion of the employer
  for the proper fulfillment of the employment relationship (necessity criterion). For directors and supervisory directors, the provision must be customary for the proper performance of the employment relationship;
• The employee must return the provision or
  pay the residual value of this provision to the employer if he no longer needs it for the employment relationship;
• The facility is not part of a cafeteria scheme.

Any private benefits from these facilities do not have to be included in the salary.

SIM cards, dongles, internet and telephony subscriptions and software may also be exempt. If the employee has a 3-in-1 package, the part of the invoice that is for the internet connection must be determined. It may be necessary to check 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 he uses for 90% or more business purposes.

3.7 Occupational health and safety facilities

Mandatory occupational health and safety provisions have been specifically exempted. It does not matter whether the employee uses the facility at the workplace or not. Examples of this are an ergonomically suitable office chair or computer glasses.

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

• These are mandatory occupational health and safety provisions that result directly for the employer from the Working Conditions Act. In short, this concerns facilities that ensure the safety and health of the employee.
• The employee uses or consumes the facilities at the (home) workplace (in whole or in part) or at a place where the employer implements the Working Conditions Act.
• The employer does not charge the employee any costs.

Since 2022, the rule has been that the occupational health and safety provision must be mandatory. A non-mandatory occupational health and safety facility can be assigned to the free space.

4. Zero rating

Certain facilities that an employee uses in the workplace can be designated as zero-rated. Costs that fall under a zero rating also do not count towards the free space. Important examples of zero valuations are:

• Consumptions in the workplace that are not part of a full meal. E.g. coffee, fruit, cookie, cup a soup. As soon as it can be seen as a meal , it must be determined whether the targeted exemption for
  meals with a more than incidental business character applies;
• Workwear ;
• Workplace facilities , such as a desk, desktop computer,
  copier or fitness room. Under certain conditions, this zero rating may also apply to facilities at the workplace at home.

4.1 Work clothing

If you reimburse or provide work clothing to the employee, there is no zero valuation and the employee’s wages belong to the employee. But it is possible to allocate this compensation or provision to the free space.

A zero rating may apply to providing work clothing to an employee. Then one of the following conditions must be met:

• The clothing is (almost) only suitable for wearing during work, such as a laboratory coat and a dust coat.
• The clothing contains one or more clearly visible image features that belong to the employer (for example a company logo). Together these have a surface area of at least 70 cm² per garment. You calculate the area with an imaginary rectangle around the extreme points of the logo.
• The clothing is demonstrably left behind 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 a uniform.
• You reimburse, provide or make the clothing available because the Working Conditions Act prescribes this, such as a pair of safety shoes. The employee does not have to pay a personal contribution.

If the clothing does not meet one of the conditions, the value of the clothing is the employee’s wages. But this may be allocated to free space. If a zero rating applies to the clothing, the cleaning costs may be reimbursed tax-free. Reimbursement of these costs is compensation for intermediary costs.

4.2 Facilities at the home workplace

The zero rating for facilities at the workplace can also apply to facilities at the home workplace if all the following conditions are met:

• The room is an independent part of the house:
  for example, the room has its own entrance and private sanitary facilities.
• The employer has a (real) business
  rental agreement with the employee, which means that only the employer has access to the space.
• The employee works in that space.

If these conditions are not met, there is no
zero rating. A specific exemption may apply to the facility at the workplace at home:

• See the two targeted exemptions under Necessary provisions.
• Occupational health and safety facilities in the home workspace are specifically exempt if:
  • those occupational health and safety provisions result directly from the Working Conditions Act;
  • the employee who (partially) uses or consumes facilities in
    the workspace;
  • the employee does not pay a personal contribution for those facilities.

5. Free space

All reimbursements/benefits that do not fall into one of the above categories must be allocated to the free space. If you do not allocate them to the discretionary space, they are 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 packages. The free space is determined on the basis of:

• 1.92% of the fiscal wage bill up to €400,000; plus
• 1.18% of the remainder of the taxable wage bill.

The reimbursements/benefits are tax-free as long as the free space limit is not exceeded. The free space can therefore be a valuable tax advantage for a company.

A maximum of €2,400 per year may be allocated to the free space per employee. If the employer exceeds this standard amount, the Tax Authorities will ask the employer to justify the customary nature of the allocations. An amount of max. €2,400 is in any case considered customary by the tax authorities.

If the free space limit is exceeded, 80% final tax is due on the exceeding amount. Any final levy will be fully borne by the employer and must be included in the wage tax return of February of the following year at the latest.

6. The Work Cost Scheme (WKR) and your administration within Practical

How can Practical provide value to its customers when it comes to the WKR? We use a so-called WKR tool for each customer. In this tool we calculate the free space and show a specific group of general ledger accounts. We can then go through the general ledger accounts and assign a WKR label to each entry:

• Intermediate costs;
• Zero rating;
• Targeted exemption;
• Free space;
• Not WKR related.

By carefully going through the bookings and asking the customer any questions, we can ensure that every booking is handled correctly in the WKR. The more information the customer provides that may be relevant to the WKR, the faster and better we can perform this service for the customer.

6.1 WKR reporting

And what is the end product? A clear report, which is generated based on our work in the WKR tool. In the report, the customer first clearly sees how much free space is available, to what extent it is filled and how many costs have been allocated to each WKR category.

The customer then sees a detailed explanation of the bookings assigned to that WKR category per WKR category. This way he can easily check whether the costs have been allocated correctly and he can indicate to us if he does not agree with how certain costs have been allocated. Costs assigned as “Not WKR-related” do not appear in the report.

The customer can also provide relevant notes in advance when submitting invoices, such as the business relationship with whom a meal was enjoyed or the non-business nature of a dinner.

Practical can periodically check the WKR for the customer and provide a report. This delivers value to the customer in several ways:

• If he knows from the report that his company
  is well below the limit of the free space, he knows that he has a certain amount of free space left to spend on tax-free benefits in kind/reimbursements to staff. Then he can use the tax benefit.
• If he knows from the report that he is close to the limit of the free space
  , he knows that he must carefully handle tax-free benefits/reimbursements to staff for the rest of the year. If the year ends with the free space being exceeded, the company owes 80% final tax on the excess.

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