Labour costs as a source of tax savings

Munich:

At the beginning of this year, the business capital tax was finally abolished, but there are still considerable uncertainties in tax planning – for example with regard to 620-mark jobs and night work supplements. In the following article, attorney Johannes Fiala* describes how considerable savings are possible under current law, not only for craftsmen and small businesses, via wage costs.

620 Mark forces

Have the wage receipts and timesheets confirm that your employee has only one such employment relationship: Otherwise, the AOK will only react after months of delay after a registration and then inform you that you have to pay the normal social security contributions because several such jobs were taken over by your employee. Don’t be impressed by the politicians’ discussion and take advantage of this levy-saving opportunity while it (still) exists.

Continuation of pay

You do not need to regulate the legal regulation (80 percent continuation of payment instead of 100 percent before – or one vacation day less per 5 days of illness) in the employment contract: The law applies anyway. But with regard to surcharges for work on Sundays, public holidays and at night, an exclusion is required – because the continued payment of these wage components in the event of illness leads to tax liability.

Substantiation:

The supplements are only tax-free if the work was actually performed. Surcharges for work on Sundays, nights and public holidays The tax-free surcharges (possible, for example, for night work from 8 p.m. to 6 a.m.) are from 25 percent upwards. Because they add up (for example, night work and work on public holidays are possible), bonuses of up to 190 percent can be paid – in addition to the normal wage. Since the tax exemption is also followed by the social security exemption as a rule, this means in effect: net payouts of up to about 5 times would be possible. Furthermore, if you are paid by piece rate, there is an additional option for a special bonus.

Partial retirement/early retirees inform the LVA and the BfA about permitted additional earnings. A first orientation about the closer details offers a software of the technical health insurance – there for employers free of charge available.

Travel costs

Instead of the tax-free reimbursement of the travel ticket for public transport (also the Bahncard), there is also the possibility of the kilometre allowance: Here, up to 0.70 Marks per distance kilometre and working day can be paid out free of social insurance at a flat rate of 15 percent. But be careful: if your employee buys his ticket, you cannot deduct the VAT as input tax. Therefore, it is more convenient for you as an employer to have the invoice sent directly to your personnel office.

Recreational Allowance

Up to 300 marks per year, plus 200 marks for the spouse and 100 marks per child – are taxable at a flat rate of 25 percent and can be paid out insurance-free per year.

Telephone costs

Under special circumstances, you can pay 20 percent of the employee’s telephone expenses tax-free. PC and other work-related expenses If the employee uses a PC exclusively for work, you can pay the costs. If you buy the PC as an employer, you can get the VAT back from the tax office.

If you reimburse the employee, the payment may be tax-free. This saves you and the employee the social security, because the employee could deduct the PC from the tax – however, he would then only be credited with the wage or income tax as a deduction. This means that both employer and employee are spared the burden of social security.

You can also reimburse the employee for the cost of other work equipment and approved work clothing against proof of receipt. Caution is advised with regard to the costs of the study room, as there are a number of court cases pending here and the legal situation has not yet been finally clarified.

If possible, you should not pay for the employee’s expenses as a lump sum – even if the employee bought the items himself. This is because a lump sum – apart from exceptions – would always count as taxable (and thus also social security-liable) wages. If you set up a home or telecommuting workstation at the employee’s home, you can deduct the costs in full. The employee can also claim the costs – but if he still has a job at your company, no more than 2,400 marks per year may be deducted.

Tool allowance and professional clothing

If the employee uses his or her own tools, the cost of tool wear and tear, maintenance and repair, and transportation costs to and from work can be reimbursed tax-free. This also applies mutatis mutandis to typical professional clothing. Compensation for time spent cleaning is part of normal wages. Home work allowance In the case of telework and other home work, a supplement of ten per cent to the basic wage may be paid to cover the expenses associated with the home work (such as rent or electricity) free of tax and social security contributions (this is therefore a type of permitted lump sum).

Reimbursement of travel expenses

Tax-free regularly means social security-free: If your employee runs an errand for you in his or her own car, you can reimburse 0.52 marks per kilometer driven tax-free. As you can see from the ADAC cost table, the 0.52 Marks are only a fraction of the actual costs that the employee has for his car (for example, over one Mark per kilometre for the VW Golf). In the case of travel for the employer or to training seminars, there are also hotel, flight, board and lodging costs. If you additionally reimburse the employee for meal costs above the statutory flat rate, you can also opt for flat rate taxation at 25 percent up to the maximum rate.

Direct insurance

Also taxed at a flat rate of 20 percent and exempt from social security contributions is the accumulation of assets for the employee if the employer pays the premium for a small endowment policy. This medium or long-term investment has always been more profitable than a savings account.

Accident insurance

As an employer, you can also pay the employee’s accident insurance contributions under certain circumstances.

Termination and severance pay

Depending on the age of the employee, 24,000 marks or more can be tax and social security free. According to case law, this can also be the case if a new employment relationship is subsequently established under changed conditions. Maybe you are thinking about a dismissal with notice – in that case you should check whether a two-step procedure would not be more favourable:

First the termination with tax-free severance pay and then a rehire of the employee in another job.

Own vehicle costs

Word has already spread that the so-called one-percent rule is only favorable to the finance minister. It desperately needs money because of the high tax losses. You would do well to keep a logbook so you can prove how many miles you drive for work. According to strict tax officials, you must keep a logbook even if the car is only used for business and a private car is available. An electronic logbook in the car or a logbook software in the office (e.g. from Schweighofer Managersoftware, Passau) can help to keep the extra work within limits.

Recording obligations

Always remember: you still have to document specific requirements for each tax savings opportunity. Written proof is always required and is regulated differently in each case. If you calculate the wages yourself, the software programs (such as Presto-Verlag, Hemmingen) on the market provide great services. Keep in mind that an audit by the LVA or the tax office can lead to high additional claims – after all, the above possibilities of reducing taxes offer considerable Cost savings:

Without documentation, the savings effect will be lost in the long run. In the case of income tax liability of up to 1,600 marks per year, annual registration is sufficient. Otherwise, the levies must be reported and paid by the tenth day of the following month.
Recruitment of unemployed persons: The Federal Employment Office and the employment offices will inform you about the following financial aid on request:

Familiarization Grant,

Wage subsidy,

Employment aid,

Inclusion allowance,

Hiring subsidy.

However, you must ask the mediators at the employment office about this – an application after you have been hired is usually too late.

Cooperation of the spouse

If the spouse works along, it must be checked whether there is underpayment: The tax office objects to unclear regulations about the usual remuneration and possible free work – this must also be regulated in writing in the employment contract beforehand. In the case of spouses – as is also the case, incidentally, with 620-mark jobs – the above-mentioned supplements may also be paid, for example for work on Sundays, nights and public holidays. This allows the net wage to be more than doubled tax-free.

Kindergarten subsidies

Contributions for the accommodation and care of children of the employee who are not of school age in kindergartens and similar institutions may be reimbursed tax-free. This normally also applies to spousal employment relationships. If you set up a (small) company kindergarten, you can also deduct the costs. Not deductible would be costs for child care at home. Students, pupils, temporary workers Pension insurance contributions must be paid only for students. However, this does not apply to interns (for example, of a vocational school) and to students whose internship is stipulated as compulsory according to the study regulations.

Meals to employees

If you provide a meal on the company’s dime, you can use it to give employees a kind of indirect pay raise. Only the so-called non-cash benefits between 2.60 Marks for breakfast and 4.60 Marks for lunch or dinner (for trainees under 18 years only 0.10 Marks less each) are to be taken into account for income tax. You can deduct the difference between that and your actual costs (food, cook, etc.), and the employee doesn’t have to pay any further tax on that.

Moving allowance

The actual additional expenses of the relocation costs incurred for professional reasons can be reimbursed tax-free. However, there are numerous special features to be taken into account here.
Marriage allowance In the case of marriage, 700 marks may be paid as a tax-free allowance. Company events usual are expenses of up to 200 Marks per employee for usual events. “Ordinariness” is particularly present if it is one day and the occasion is, for example, a company outing, a Christmas party, or a retiree reunion.

Gifts worth up to 60 marks are also possible. A company holiday trip would therefore be unusual: Here, however, the employer can also save taxes by taxing the costs exceeding 200 Marks at a flat rate of 25 percent as wages. Incidental expenses, such as flight costs or hall rental, are to be converted or apportioned among the employees for the purpose of determining the DM 200 limit.

Special depreciation for small and medium-sized enterprises

Provided that the business assets do not exceed 400,000 Marks, an additional 20 percent special depreciation can be used in addition to the normal depreciation.
Anticipated succession The transfer of a business to close relatives may be preferential. First, a deduction of 40 percent is mathematically deducted from the value of the company. For the remaining value, up to 500,000 marks are tax-free. However, a number of pitfalls must be taken into account in this arrangement to ensure that the tax advantage is not subsequently lost.

Secure advice

Not only for the selection of suitable software, but also for questions regarding the current changes in the tax law as well as regarding the recording obligations, you should ask your tax advisor. If your advisor doesn’t know your problems, there’s little they can do for you. usual payroll accounting is in practice remunerated to the consultant at the rate of ten to 30 marks per employee per month. Don’t skimp on the consultant’s fees for tax savings, because with ongoing cost reductions from his help, he’s certainly worth his money:

Some reorganizations of the payroll system have yielded savings of up to one-third of the costs – with no change in the net payout to employees, of course. However, you should change advisors if they have not informed you about tax saving opportunities without being asked, despite taking over the payroll accounting. Then he should be more set up to just do the tax returns.

by Dr. Johannes Fiala

courtesy of

from www.channelpartner.de (published on 05.08.1998)

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About the author

Dr. Johannes Fiala
PhD, MBA, MM

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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