Flexible compensation: how it works, advantages, examples, and keys to implementing it

In recent years, the flexible remuneration It has positioned itself as one of the most valued compensation systems by both companies and employees in Spain. Beyond the traditional fixed salary, this model allows part of the salary to be tailored to individual needs and preferences, becoming a key tool for improving well-being, talent retention, and tax optimization within organizations.

This article explores in depth what flexible compensation is, how it works, the differences with respect to in-kind wages, its tax advantages, legal limits, the most common options, its regulations, practical examples, and the steps necessary to implement it effectively in any company. If you want to understand why more and more companies are embracing this system and how you can make the most of it, here is the definitive guide.

What is flexible compensation?

La flexible remuneration It is a system through which employees can voluntarily allocate, in agreement with the company, a portion of their gross salary to the purchase of certain goods or services. These products, which are usually fully or partially exempt from personal income tax, are more economical for employees, who pay these items through their payroll before incurring tax withholdings and contributions.

In essence, this modality allows the worker to optimize his salary. without the company increasing its labor costsBy choosing certain benefits, such as health insurance, meal vouchers, transportation, childcare, or training, employees can tailor their compensation package to their needs, increasing their net disposable income and, in many cases, improving work-life balance and job satisfaction.

How does flexible compensation work?

Flexible compensation works based on a voluntary agreement between the company and the employee. Each year or for a set period, the company offers a catalog of services and products that the employee can subscribe to. The amount chosen by the employee can never exceed the 30% of the gross annual salary, as stipulated by law. The remainder of the salary continues to be paid in cash.

In this way, the corresponding amount is deducted directly from the gross salary and used to pay for the selected products or services. In practice, this means that the employee reduces the tax base on which personal income tax is calculated, achieving a tax savings and more net money on your payroll if you have opted for exempt or bonus concepts. For example, an employee with gross salary of €28.000 You can allocate up to €8.400 in flexible compensation, benefiting from tax advantages and increasing your net salary.

To better understand how it works, you can check out the full explanation in our review on financial concepts related to flexible compensation.

Legal limits and regulation of flexible remuneration in Spain

In Spain, flexible remuneration is mainly regulated by the Personal Income Tax Law 35/2006 and the Royal Decree 439 / 2007, in addition to the Workers' Statute. These regulations establish several essential conditions:

• Salary in kind or flexible remuneration cannot exceed 30% of the gross annual salary.
• The monetary salary should never be lower than the Interprofessional Minimum Wage (SMI).
• Access to flexible compensation is optional and voluntary for the worker.
• The Social Security contribution base is not altered for flexible compensation.
• Only certain concepts enjoy tax exemption, and all have maximum limits for benefiting from this advantage.

It is also essential to highlight that, although the use of flexible remuneration implies tax savings in personal income tax, All amounts count towards quotation purposes to Social Security and affect the calculation of benefits and dismissals, as they are part of the actual salary.

Types of flexible compensation: common products and services

Companies can offer a wide range of products and services through flexible compensation, always respecting established legal limits and negotiating with suppliers to improve prices and conditions. Some of the most common and valued options are:

• Restaurant ticket/meal vouchers: They cover food expenses from Monday to Friday. The amount exempt from personal income tax is up to €11 daily and a maximum of €1.980 per year (220 days).
• Health insurance: Includes coverage for the worker, his or her spouse and descendants. Exempt from personal income tax up to €500 per person per year (€1.500 in case of disability).
• Nursery check: For early childhood education expenses (0-3 years). Totally exempt from personal income tax without limit of quantity.
• Public transport: Transport vouchers or cards. Exempt from personal income tax up to €1.500 per year (maximum €136,36/month).
• Vocational training: Job-related skills improvement courses and programs. 100% exempt from personal income tax and without quantity limit.
• Pension plans: Contributions that can be deducted from personal income tax and corporate tax (if the company contributes) up to the annual tax limit.
• Gym fees: They promote healthy habits and can be a deduction for the company.
• Company shares/stock options: Up to €12.000 per year may be exempt from personal income tax.
• Home, car or parking space: They are usually offered in specific sectors and are always subject to tax limits and specific conditions.

An example would be if a worker uses a childcare voucher to pay for her child's daycare, that amount will not be subject to personal income tax, increasing her annual net salary.

Differences between flexible compensation, salary in kind and social benefits

Sometimes terms such as flexible remuneration, salary in kind y social benefitAlthough they are related, they present key nuances:

• Flexible compensation: It is a portion of the gross salary that the worker can voluntarily allocate to subsidized or tax-exempt products or services.
• Salary in kind: This consists of the delivery of goods or services by the company that replace part of the monetary salary and may appear on the payroll. It is a subtype of flexible compensation.
• Social benefit: These are additional benefits or services offered by the company, such as medical insurance fully paid for by the company, life insurance, access to childcare, etc. They are typically not deducted from salary and depend on internal agreements or policies.

The main difference is that with flexible compensation, employees choose which funds to allocate part of their salary, while social benefits are offered by the company without directly affecting payroll.

Advantages of flexible compensation for employees and companies

The popularity of flexible compensation is no coincidence. This model brings tangible benefits to both those who enjoy it and the organizations that promote it:

Employee benefits

• Tax savings: By allocating part of their gross salary to income tax-exempt products, employees pay less tax and see their net salary increase.
• Personalization and flexibility: Each employee can tailor their compensation to their personal or family needs: childcare, transportation, healthcare, training, food, etc.
• Improving conciliation: Products such as childcare vouchers and transportation vouchers facilitate work-life balance.
• Well-being and motivation: Feeling valued and empowered to choose increases job satisfaction and motivation.
• Without administrative complications: The process is simple for the employee, as the company and the intermediary platform handle the paperwork.

Advantages for the company

• It does not entail an increase in salary costs: The cost to the company is similar, but it offers an emotional salary and additional benefits.
• Attracting and retaining talent: A flexible plan helps attract and retain employees in a competitive labor market.
• Improving the work environment and productivity: Motivated and satisfied employees perform better and stay longer in the organization.
• Competitive advantage: Offering flexible benefits differentiates a company and improves its image as an employer.
• Simple implementation: Today, digital platforms like Cobee, Factorial, and Retriplus make it easy to manage the entire process automatically.

Limitations and disadvantages of flexible compensation

Although flexible compensation offers many advantages, it also presents limits and complications What should be known:

• 30% limit: No more than 30% of gross salary can be allocated to this system, limiting the maximum savings.
• Individual tax limits: Each product has exemption limits: restaurant vouchers (€11/day), transportation (€1.500/year), health insurance (€500/year per person), etc. Any amount exceeding these limits is subject to personal income tax.
• You cannot reduce your salary below the minimum wage: The monetary portion of the salary must always be at least equal to the Interprofessional Minimum Wage.
• Administrative complexity: Implementing a flexible plan requires additional management and modern platforms, especially in large companies.
• Wage inequalities: Without proper regulation, some employees may benefit more than others.
• Difficulty of understanding: Some staff may be unaware of its benefits if it is not communicated clearly.
• Changes in preferences: Interest rates may fluctuate over time, so it's a good idea to review your plan periodically.
• Exclusion of certain expenses: Professional expenses (tools, travel expenses) are not included in flexible compensation.

In what cases is flexible compensation paid and how does it impact payroll?

Many questions arise regarding whether flexible remuneration affects Social Security contributions. The answer is yes. all quantities are quoted: both the salary in cash and the portion allocated to services or benefits. That is, the contribution base remains the same, although the taxable income for personal income tax will be lower, benefiting the worker's liquidity.

This system does not affect future benefits such as pensions, unemployment benefits, or severance pay, as it is part of the salary defined in the collective bargaining agreement. However, it does reduce personal income tax and increase real net salary without additional costs for the company or employee.

Practical examples: how it applies to payroll

To better understand, some practical examples:

• A worker with gross salary of €30.000 allocates €6.000 to food vouchers, transportation, and childcare. Their taxable income will be €24.000, reducing their tax liability and increasing their monthly income.
• Another person with salary of €22.000 spends €5.000 on health insurance, training and transportation, achieving tax advantages and increasing their annual net salary without the company increasing expenses.
• Allocating part of your salary to a pension plan or family insurance allows for tax deductions for both the employee and the company.

How to implement an effective flexible compensation plan

The success of a flexible compensation plan lies in its good implementation. design and implementationKey steps include:

1. Analyze needs: Understand the real preferences of your workforce through surveys or meetings to identify the most valued services.
2. Choosing suppliers and products: Select attractive, useful, and easy-to-manage options, prioritizing variety without complicating the system.
3. Design the plan and negotiate: Clearly define the catalog, limits, and conditions; reach agreements with suppliers and formalize contracts.
4. Communicate clearly: Explain to employees how it works, what benefits they have, examples, and channels for resolving questions.
5. Digitize management: Use platforms that automate calculations, management, and communication, reducing errors and simplifying processes.
6. Follow up and improve: Monitor usage, satisfaction, and efficiency, adjusting the plan based on needs and changing preferences.

How to communicate and motivate adherence to the plan?

Effective communication is crucial for success. It's recommended that employees understand:

• What products and services are available.
• How savings are reflected in your payroll.
• How to select and modify your benefits annually.
• Who manages and answers questions, generally HR or digital platforms.

Using talks, visual materials, practical examples, and proactively addressing questions helps engage and motivate staff.

Mistakes to avoid and practical recommendations

To implement an effective plan, keep these recommendations in mind:

• Do not impose the plan: It must be optional and voluntary, unless indicated in the agreement.
• Don't oversimplify: Adjust to individual needs without complicating management.
• Avoid ignorance: Ongoing communication is essential to ensure everyone knows the benefits.
• Do not exceed legal limits: Respect the exemption limits to avoid paying excess taxes.
• Monitor results: Periodically review usage, satisfaction, and savings to adapt to your needs.

Platforms and technology to manage flexible compensation

Digitalization has facilitated management with platforms such as Cobee, Factorial, Personio, and Retriplus, which automate the process, from benefits selection to payroll management and reporting.

These solutions allow:

• Automate tax and payroll calculations.
• View impact on net salary.
• Easy access to benefits via apps or portals.
• Facilitate communication and adjustments.
• Reduce errors and administrative burden.

Impact on human resource management and corporate culture

This system positively impacts talent attraction and motivation, improves internal culture, and improves brand image, as employees perceive greater autonomy, appreciation, and commitment, increasing their performance and loyalty. For more information, see our article on flexible compensation in large companies You will be able to learn about success stories and applied strategies.

Frequently Asked Questions: Questions and Answers About Flexible Compensation

Some common questions are:

• Can the selection be changed every year? Yes, it is generally reviewed annually or when personal changes occur.
• Does it affect retirement? No, the contribution is the same, without affecting future benefits.
• What happens if I don't spend everything? Normally, it is not recovered if it is not consumed, so amounts must be adjusted.
• What if I exceed tax limits? The excess is taxed as normal salary.
• Is it mandatory in the company? Only if the agreement indicates it, it is generally voluntary.

La flexible remuneration It has established itself as a key tool for modern people management, enabling the optimization of resources, increasing motivation, and improving competitiveness within the current legal and tax framework. Its success is based on appropriate design, effective communication, and ongoing employee support.