I.P. Flexem ter – Oulu 2007
Flexibility of the fringe benefits in the European Union
Sylvana Janssen (the Netherlands)
Asta Benetyte (Lithuania)
Lina Pileicikaite (Lithuania)
Brigitte König (Germany)
Evelyne Van Dyck (Belgium)
Anna Puigdecanet (Spain)
Cecilia Orlandini (Italy)
Michele Bazzi (Italy)
1. INTRODUCTION 5
2. DEFINITION 6
3. CURRENT SITUATION 7
3. 1 Similarities 7
3.1.1 The wage calculation 7
3.1.2 The role of law concerning fringe benefits 10
3.1.2 Labour agreements 10
3.1.3 Common types of fringe benefits 11
3.1.3.1 Monetary benefits 12
3.1.3.2 Non-cash fringe benefits 12
3.1.3.3 Insurance benefits 12
3.1.3.4 Benefits in form of spare time 13
3.2 Exeptions 13
3.2.1 Minimum wages 13
3.2.2 Taxation 14
3.2.3 Cafeteria systems 16
3.3 Economical and sociological data 17
3.3.1 Structure of labour costs as % of total costs 18
3.3.2 The role of fringe benefits in dependency of economic and social environment 20
3.4 Consequences 21
3.4.1 Pros and cons for the employees 22
3.4.2 Pros and cons for the employers 23
3.4.2.1 Loyalty and infrequent turnover 23
3.4.2.2 Public image of the company 23
3.4.2.3 Tax reductions 24
3.4.2.3 Cons: administration costs 24
3.4.3 Pros and cons for the state 25
4. RECOMMENDATIONS 25
4.1 Do’s for practical implementation 25
4.1.1 How to implement the green paper 25
4.1.2 Simplify and uniform the taxation system 26
4.1.3 A common criteria for the minimum wage 26
4.1.3 A solution for the gap between men and women and the benefits concerning women 27
4.1.4 Cafeteria-System 30
4.2 Don’t’s for practical implementation 30
4.2.1 Don´t overrule! Leave the States the space for ruling in case of economic differences. 30
4.2.2 Balance between flexibility and security 31
4.3 Coherent synthesis 31
SOURCES 32
2
1. INTRODUCTION
The current social, economic and legal situation in European Union is shaped through globalization, international competition and technological advances. A growing and strong market pressure forces companies to grasp all current and possible opportunities to stay competitive. That means – the employers are forced to rethink their plans and programmes for the Human Resources Departments in order to keep their employees satisfied with the current job position.
The kind of remuneration has a serious influence on success and performance of an enterprise. The wish to use the potentials of employees optimally and to raise the productiveness by motivation and incentives are the starting point of many considerations about salary systems. With such a perception it is not astonishing that remuneration systems are demanded which are responsive also to the requirements of the employee.
In our paper we will try to give a view on how fringe benefits are regulated in the different Member States of the E.U. (Spain, Belgium, Germany, Lithuania, the Netherlands and Italy) by showing differences and similarities and trying to suggest some recommendations and ways out to solve problems concerning this topic. We are going to analyse legal, economic and social aspects of the fringe benefits and the way they influence employees, employers and States.
2. DEFINITION
Flexibility is the popular term for the ability to easily bend an object or the ability to adapt to different circumstances.[1] The origin is the Latin word “flectere”. But even though a general definition could be found, the interpretation can differ according to the cultural, political and economical background. In addition to that possible different understanding of the word “flexibility”, the point of view plays a crucial role. On one hand it could be the possibility to react in a fast way on changing circumstances, but it could also be seen as unstableness. So when we talk about flexibility several points of view have to be taken in account.
Employee benefits and (especially in British English) benefits in kind (also called fringe benefits, perquisites, or perks) are various non-wage compensations provided to employees in addition to their normal wages or salaries. Where an employee exchanges (cash) wages for some other form of benefit, this is generally referred to as a 'salary sacrifice' arrangement. In most countries, most kinds of employee benefits are taxable to at least some degree.
The term fringe benefit has blown over to continental Europe from the Anglo-Saxon countries. In countries such as the United States employee benefits or fringe benefits are a clearly established term while in Europe it is quite different, because there is nearly no legal regulation of fringe benefits. It is about ‘employee advantages’ that the employee borrows from the work relation with the employer. In this case there can be made a socio-economic distinction between traditional wage and other forms of wage.
Fringe benefits can also include, but are not limited to the following: company cars, mobile phones and computers, cheap loans, meal cheques, group insurance (health, dental, life etc.), income protection, retirement benefits, daycare, extra vacations, stock options, funding of education. There is no fixed distribution of fringe benefits. They could be grouped according to fiscal treatment, according to the working position of the employee or according to the provided service, right or privilege. Due to the huge variety of different finge benefits, in this paper fringe benefits are classified according to the provided right. By that, similar benefits of every discussed country could be summarised. Otherwise repetitions could not be avoided. For example by classifying fringe benefits according to taxation, the same benefits would have to be mentioned at different places, because very often there are different taxation regulations concerning the same fringe benefit in every country. So for this paper it is useful to classify fringe benefits in the following four groups:
· Monetary benefits
· Insurance benefits
· Benefits in form of spare time
· Non-cash benefits
One possibility to combine fringe benefits in a flexible way is to offer them in the context of a so-called “cafeteria-system”. In some countries (i.e. the Netherlands, Germany and Belgium) such a cafeteria system, which has also flown over from the United States, is already used. With this concept of flexible payment organization the employee receives the possibility to add together parts of his salary individually from single components offered by the company.
Finally, we tried to find a common and general definition of fringe benefits and we concluded that a fringe benefit is: a form of remuneration offered by the employer not strictly connected to the employee’s individual tasks. Fringe benefits can be regulated on a national, collective, company and/or individual level.
3. CURRENT SITUATION
3. 1 Similarities
3.1.1 The wage calculation
In first place, a wage is an employment benefit due from the company to the employee, which is an absolutely necessary element in every work contract, thus it is always an onerous contract. It is very existence explains the peculiarity of profiting from work, which is a characteristic of any working relationship. The worker accepts this peculiarity by offering the benefit of his own work, for which he or she is compensated with a wage.
In every Member State of the European Union the calculation of the wages are similar. Every country has to pay social contributions and taxes on their wages. The social contributions the employee has to pay are the highest in Germany (approximately 19%) and the lowest in Lithuania (approximately 3%) but in a lot of countries the amount depends on the profession. The social contributions the employer has to pay are in most countries quite high but those contributions often depend on the type of work the employees do. The problem in a lot of the countries is that the total cost of wages is too high.
In the first place, the function of a wage as a form of assistance has also served as the basis for the idea of the "family wage", taking into account not only the amount of work carried out but also the family responsibilities of the worker, for which he or she has the right to an extra allowance. We can found this idea in many international documents, such as the Universal Declaration of Human Rights, the Economic, Social and Cultural Rights Pact and in the European Carter. However, it is true that the legal rules in force to control wages completely disregard the idea of the minimum wage.
On the other hand, there is still a gap between payments towards women and man in most countries although there are several Declarations or Directives that describe that you can not discriminate on the grounds of sex. ILO Convention number 100, European Social Charter, article 119 of the EEC Treaty and Directive 75/117 EEC.
Title V of the Economic Reorientation Act of August 4, 1978 comprises the implementation of the EEC Directive of February 9, 1976 on equal treatment for men and women as regards access to employment, promotion, vocational training and employment conditions.
Title V of the Act reads as follows: "Equal treatment for men and women as regards employment conditions, access to employment, vocational training, promotion and access to self-employment"; it is therefore clearly based on the European provisions. It has to be taken in conjunction with Article 119 of the Treaty of Rome and the EEC Directive of February 10, 1975 on equal pay for men and women, and is also a step forward along the difficult road to more equal treatment for men and women. We can conclude that in case of fringe benefits men and women also need to be treated equally.
For the different types of wage, we can distinguish: wage per unit of time, per unit of work or both, wage in cash and payment in kind and wages based on the professional category and on the job classification.
With regard to the former, a wage is calculated per unit of time when its amount is related to the amount of time taken to complete the work, irrespective of the results or amount of work rendered. Obviously, this fact does not remove the employee’s obligation to complete the work; the fact that the wage is determined by calculating a measurement of time (by hour, day, etc) does not interfere in any way whatsoever with the duty to perform, which falls contractually and legally to the worker.
A wage is calculated per unit of work when the amount of payment is fixed depending on the results, piecework, measurements of specific units or groups of units, irrespective of the time taken. The contracted worker undertakes to complete a job in a predetermined period of time, and this work will be considered finished when the task is completed.
Time is therefore important, fixing the period in which the work must be finished. The execution of the job in less time than required is advantageous for the worker, as he has “saved” time in completing the task. If management decides that the worker must continue working until the predetermined allotted time is reached, he would have to compensate the employee for any additional work at the fixed overtime rate.
The system of incentives or bonuses is intended to compensate for the inconveniences of doing piecework, based on the simple correlation between greater effort and higher pay. Given this rudimentary technique of increasing production, which can cause worker exhaustion, even leading to negative economic results, there are different methods to try to simplify the procedure with bonuses linked to production. To that effect, variable bonuses have been created that, to avoid worker exhaustion, increase to a maximum level, after which they start to decrease; differential bonuses, non proportional, depending on different levels of production; penalisation when minimum production is not achieved; the adoption of work measurement units, etc.
Bonuses can be collective (to groups, teams, etc) and individual. The latter have experienced an increase recently, given modern business policies of “individualising” working terms and conditions.
In a simplified way, we can say that in determining wages based on incentives or production, there is a double calculation: one in relation to production at different levels (normal and optimum) and the other in relation to the payment rates. Production is estimated through complex technical calculations (time and motion studies, task evaluation, etc), establishing the corresponding wage rates.
A mixed wage results from the combination of the previous systems (per time unit and per unit of work). The most usual techniques for mixed wages are the tasks and the system of bonuses or incentives.
Payment in kind (method agreed in ILO Convention number 95, includes benefits other than money: electricity, water, subsistence, housing, etc.
Collective bargaining offers a wide range of examples of payment in kind: transport season tickets, free parking, etc. Although they do not constitute payment in the strict sense, the worker can enjoy certain benefits connected with work.
In any case, the Law expresses its preference for wages in cash, which is much more exact and with less likelihood of fraud than payment in kind. Finally, there is a distinction between classifying by professional category or by job evaluation, which is reflected in two wage types: category wage, according to professional group or level, and job classification wage, based on an evaluation of the job, taking into account its specific characteristics. It is also possible for workers within the same professional category, despite the right to an equal wage, to receive different wages, due to their respective jobs being graded differently.
While professional classification involves assigning a category, degree or level to a worker, according to the function carried out, job classification depends on a highly complex technical evaluation of the tasks of all the classifiable jobs.
This evaluation includes the following:
· Analysis and descriptions of the tasks involved for each job (“specifications”).
· Assignment of points according to previous classification factors: physiological, professional (initiatives, responsibilities, effort, supervision received or undertaken, working conditions, etc).
· Financial translation of classification scales, turning the points into their monetary equivalent.
3.1.2 The role of law concerning fringe benefits
In most countries of the European Union there is no legal basis concerning the fringe benefits. Although, employees receive from their employers some benefits, for example, if they work at night or at the weekends, they receive a surplus. We cannot define these benefits as fringe benefits, we can better define these benefits as an advantage on your wage, because it fixed by law and a right for all the workers. These benefits for weekend work are mostly regulated in laws what we can not say about the “real” fringe benefits. Although the fringe benefits can be fixed in collective labour agreements. It means that the employer can choose if he wants to use it or not.