Employee Benefits are Expanding: What Businesses Need to Know for Tax Compliance

To ensure the financial health of your organization, managing spend and guaranteeing your organization stays compliant are key. So, when remote and hybrid work became a reality, organizations sought to quickly evolve their compensation packages to keep up with employee driven demand. Travel costs, for example, used to account for 65% of expense spending in 2019, according to internal SAP Concur customer data. But with outfitting remote offices, the proportions have shifted, and travel now accounts for only 33% while ‘miscellaneous stores’ accounts for almost 24%.

This shift in company expenditures is a clue into how the demands of the workforce have changed. No longer are employees satisfied with free coffee and snacks as incentive to come into the office. Instead, they want the flexibility of working remote, along with other, more self-driven benefits to help them get ahead. So, businesses started offering wider employee benefits packages to include attractive perks, such as free Wi-Fi and monthly allowances for meals, cell phones, fitness, well-being, and so on.

Often, these perks are submitted through their companies’ travel, expense, and invoice processes, making it harder on finance and back-office teams to sort through the difference. For instance, a cross-customer analysis conducted by Blue dot has found that 10-20% of transactions carry potential taxable employee benefits, causing managing tax compliance to become much more convoluted, as it can be difficult to distinguish between what is or isn’t a taxable employee benefit.

So, where exactly do you draw the line? And how is this impacting your organization? First, let’s dive into what exactly makes up a taxable employee benefit.

What Are Taxable Employee Benefits?

Taxable employee benefits are perks an employee receives from their employer, alongside their salary, that the government subjects to taxation, unless the law specifically excludes it. Some examples of taxable employee benefits include:

• Payroll
• Bonuses
• Company provided vehicles
• Employee allowances for meals, car, cell phone, Wi-Fi, childcare, wellness, etc.
• Office supplies or IT materials
• Work from home peripherals

Nontaxable employee benefits:

• On-premise meals
• Health insurance
• Life Insurance
• Educational assistance *Only non-taxable up to a certain amount.

To get reimbursed for these expenses, employees are using company expense and invoice processes for more things, and in more categories. Some of these benefits are taxed at source through payroll and are relatively simple for businesses to track and manage, like healthcare, car allowance, and supplemental life insurance. Then, there are other benefits that are not taxed at source like a personal cell phone plan, IT materials for work from home, or being able to expense home Wi-Fi.

Why is Managing Taxable Employee Benefits Relevant Today?

Now more than ever, the spotlight is on expenses, accompanied by the systems and processes businesses have put in place to capture employee spending, verify it, and report it for tax and compliance. Here are three reasons why it matters now more than ever to stay on top of evolving employee benefits:

• Governments are investing more in digitalizing their processes to maximize tax revenue. This increases the pressure on companies to streamline their compliance and audit processes, so they can respond to authorities’ reporting requests.
• Employees are now able to get reimbursed for even more types of expenses. This creates opportunity for misclassification of expenses, as well as inaccurate handling and reporting of tax information.
• The “Great Resignation” has also put pressure on companies to modify or increase their benefits packages to attract and retain talent. This makes keeping track of the benefits and all their implications an increasingly difficult task.

Three Approaches to Managing Taxable Employee Benefits

Today, most enterprise organizations are typically managing their spend management compliance program through a highly manual auditing effort, including having auditors:

• Complete line-by-line reviews
• Review context for reason to purchase
• Compare it to geographic and regulatory knowledge and expertise

But the challenging part about using a manual auditing approach to detect taxable employee benefits from regular employee expenses is that there are many gray areas and nuances that come with broadening the scope. These nuances, for example, vary state to state, company to company, and even employee to employee.

“With employee benefits, fringe benefits, taxable employee benefits, however you would call them, one of the differences here is that it's not optional,” Dr. Mark Stirling, Sr. VP of Global Channels at Blue dot, comments on our latest episode of SAP Concur Conversations. “Organizations are required to have processes in place to look for and track, and to demonstrate, whether you are ruling them in or ruling them out…”

Businesses typically have three options to help manage their taxable employee benefits:

• Do nothing: the organization is unaware that they are required to report employee taxable benefits.
• In-house: the organization uses an internal auditing team.
• Outsource: the organization outsources manual, contractual services.

With the constant changes to benefits packages and tax regulations across different jurisdictions, all these options entail risk. However, advancements in artificial intelligence (AI) and machine learning (ML) have made easy and consistent compliance achievable.

Easily Comply with Tax Regulations and Streamline Back-Office Processes

Organizations that lag in transforming their spend management processes could find it hard to keep up with the growing demands of employee expectations, expense reports, and rising tax obligations. Having an automated system that helps with financial reporting, can be accessed by various departments, and helps prove your organization is compliant is highly valuable.

It’s your responsibility to make sure you’re not opening your company to risk, as employers are required by law to report all taxable employee benefits. If they don’t, it can lead to audits and costly penalties.

Fortunately, SAP Concur and Blue dot partnered together to develop a solution to help ease the manual lift and mitigate compliance risk. Concur Benefits Assurance by Blue dot can help your business automatically pull hard-to-find benefits out of expense reports and accurately report them. With a customizable, technology-driven platform, you’ll be able to incorporate and update company and country-specific policies, and accurately track, report, and calculate taxable employee benefits. Learn more about Concur Benefits Tax Assurance by visiting us online today.