Fiscal aspects involved un labor and Social Security regulationsPublished on:
Article 318 of Law No. 11-92 ("Tax Code") and its amendments defines a "supplementary compensation" as any product, service or benefit provided by an employer to an individual for his/her work as an employee, in addition to any cash payment given thereto, but only if the good, service or benefit is given in kind, contains a personal identifiable element and provides personal satisfaction to the employee or the people who depend on him/her. For example, housing and vehicle related services covered by an employer in favor of the employee is deemed as a supplementary compensation. An employer must pay, on a monthly basis, a tax on supplementary compensation at a rate of 25% on the benefits of such nature granted in favor of an employee, except when the employer enjoys a general tax exemption, such as nonprofit institutions, free zone companies, among others, in which case, the tax must be withheld from the employee.
For the purposes of Law No. 16-92 of May 29, 1992 ("Labor Code"), Article 192 defines wages as the remuneration an employer must pay an employee as compensation for work performed, consisting of cash and any other benefits received for such work. From the definition provided by this Article, it is understood that the supplementary compensation granted by an employer to its staff should be deemed part of the salary, so that, in case of termination of the employment contract, the additional remuneration received by the worker should be considered for the purposes of making the calculation of compensation for vacation pay, Christmas bonus, income-participation bonuses and finally, labor benefits.
With regard to the Social Security Law, Article 17 of Law No. 87-01 dated May 14, 2001 stipulates that for employed workers, the wage subject to contributions is defined in Article 192 of the Labor Code. Therefore, the supplementary compensation granted by the employer to its employees can be considered part of the base salary to calculate contributions to be made to insurance provided by the Social Security Law No. 87-01. Moreover, it is important to note that contributions that the employee must make to his/her insurance help to reduce the income tax payment that must also be made, as stated in Article 15 of Law 87-01.
Treatment of additional compensation is particularly important with respect to laws granting tax exemptions to this tax, as is the case of Law No. 179-09 on Deduction of Education Expenses from income tax for individuals. Article 5 of this Law provides that if an employer grants its employees, in addition to payments in cash, coverage of educational expenses, and such employees receive an income that does not exceed the maximum exempted by the income tax for individuals, such compensation shall not be subject to tax on supplementary compensation.
However, for the purposes of labor and social security laws, such compensations for educational expenses constitute part of the salary and should, therefore, be considered when calculating employees’ compensation for vacation pay, Christmas bonus, income-participation bonuses and finally, employment benefits upon termination of the employment contract and as part of wages subject to contributions to the Old Age Insurance, Disability and Survivorship Insurance; Family Health Insurance and Occupational Risk Insurance.