Is WKR tax-free allowance possible for fixed wages?

Yes, even 'hard wages' can fall under the tax-free allowance of the Work-related Costs Scheme (WKR). The Supreme Court ruled that the nature of the wage component is not decisive: even a purely remuneration component, such as a bonus, may be included in the tax-free allowance, provided that the other conditions – and in particular the customary practice test – are met. Importantly, the burden of proof that a reimbursement or benefit is unusual lies with the Tax and Customs Administration, not with you as the employer. This offers more leeway than many entrepreneurs think, but it is not a free pass.

What are the work-related expenses scheme and the tax-free allowance?

The Work-related Costs Scheme (WKR) governs how you, as an employer, treat reimbursements and benefits provided to employees for tax purposes. You can provide a portion of these tax-free via the so-called free allowance: a percentage of the total taxable payroll. If you stay within this allowance, you do not pay payroll tax on those reimbursements. If you exceed it, a final levy applies to the excess amount, payable by the employer.

The tax-free allowance is calculated on the total payroll and is structured in two brackets: a higher percentage on the first bracket of the payroll and a lower percentage on the portion above that. These percentages are determined annually by the legislature and are subject to change. Therefore, always check the current percentages for the current year with the Tax and Customs Administration before planning.

Examples of what can fall under the discretionary space

• A Christmas hamper or other staff gift;
• A staff party at an external location;
• A reimbursement for home internet costs;
• Certain bonuses or (bonus) shares, such as in the case discussed below.

Please note: a targeted exemption (for example, certain travel expenses). These do not count towards the tax-free allowance. Only when such a reimbursement exceeds the targeted exemption does the excess amount count towards the tax-free allowance.

Designating as final levy wage: a conscious choice

A reimbursement or benefit does not automatically fall within the tax-free allowance. As an employer, you must consciously designate as final levy wages. If you fail to do so, it remains the employee's wages, on which standard payroll tax is withheld. Therefore, record this designation administratively, preferably before you pay out the reimbursement. This documentation is often the crucial proof later on.

The customary practice criterion: the main brake

The WKR is simple on paper, but complicated in practice. This is mainly due to the customary practice test (the customary practice criterion). This test stipulates that you may only designate reimbursements and benefits as final levy wages that do not deviate significantly from what is customary in comparable situations.

In practice, the Tax and Customs Administration applies two well-known rules of thumb in this regard:

• A deviation of more than 30% from what is customary in comparable circumstances is considered unusual;
• An efficiency limit of €2,400 per employee per year. In principle, the Tax and Customs Administration considers reimbursements and benefits up to this amount to be customary.

These limits are policy guidelines of the Tax and Customs Administration and not strict statutory maximums. The amounts and percentages may change; therefore, always consult the current guidelines. The €2,400 amount is a safe lower limit, not an automatic ceiling: higher amounts may also be customary, but in that case, the emphasis lies on the substantiation. Furthermore, the Tax and Customs Administration has clarified that the efficiency limit primarily serves as a safe haven (risk-based enforcement) and not as proof that a higher amount is by definition unusual.

What does the Tax and Customs Administration look at?

Whether an instruction is customary is not measured by a single figure. Case law cites, among other things, a comparison with the discretion granted to other employees of the same employer, with colleagues in the same job category, and with what employers do in comparable situations. The amount and the purpose of the instruction also play a role. The aim is to prevent improper use and extreme situations, not to punish every deviation.

The case: are bonus shares allowed in the tax-free allowance?

In a high-profile case, an employer had set up a share plan under which a group of employees received shares without consideration. Initially, the employer bore the payroll tax due (grossed up). Later, the employer included these shares in the tax-free allowance of the WKR. The amounts involved ran into tens of thousands of euros per person – well above the efficiency threshold of €2,400.

The Tax and Customs Administration refused this: according to the inspector, the customary practice test had not been met. This led to a fundamental discussion regarding two questions: who must prove that something is (un)customary, and is 'hard wages' – a purely remuneration component – ​​allowed in the tax-free allowance at all?

District Court, Court of Appeal, and Supreme Court: three rulings

The District Court found that the mere fact that it involved a substantial value did not mean that the provision fell outside the WKR. The Court of Appeal ruled more strictly: it considered it unusual to place such bonus shares as a wage component in the tax-free allowance and reasoned that pure remuneration components do not belong there.

The Supreme Court overruled the Court of Appeal. The highest court ruled that all allowances and benefits in principle constitute wages, regardless of the nature of the wage component. Consequently, even 'hard wages' can be designated within the tax-free allowance. Furthermore, the Supreme Court emphasized that it is the tax inspector who must demonstrate that a designation is unusual. A mere reference to the efficiency limit of €2,400 is insufficient for this purpose. The case was referred back for further assessment, which shows that a high amount in itself does not make the designation impossible – but it does place the substantiation under a magnifying glass.

What does this mean for you as an employer?

The ruling gives employers more leeway than often thought, but not a free pass. The practical lessons at a glance:

• High and pure wage components can also be included in the tax-free allowance, provided they are not unusual;
• The burden of proof lies with the Tax and Customs Administration, but strong substantiation of your own prevents disputes;
• The 30% standard and the €2,400 limit remain important benchmarks – within those limits, you run the least risk;
• In the case of unusually high amounts, the Tax and Customs Administration may still make corrections, resulting in an additional assessment and final assessment.

Five steps to a defensible indication

1. Determine in advance whether the compensation or bonus fits within the tax-free allowance and what this means for your final tax assessment;
2. Compare the amount to the €2,400 limit and the 30% rule and identify any excess;
3. Substantiate why the indication is customary in your situation (compare with previous years, colleagues, and the market);
4. Administratively designate the compensation as final levy wage and record this in writing;
5. Anchor structural rewards in clear agreements, for example in an employee handbook or terms and conditions of employment.

Since the exact scope of the customary practice test has not yet been fully clarified, it is advisable to assess in advance whether a reimbursement or benefit can be designated as final levy wage. Proper substantiation and clear agreements help prevent hassle with the Tax and Customs Administration afterwards.

Frequently asked questions about WKR and fixed wages

Is a bonus allowed within the tax-free allowance of the WKR?

Yes, a bonus can be designated as final tax wage within the tax-free allowance, provided this is not unusual. The Supreme Court has confirmed that pure remuneration components ('hard wages') also qualify for this. However, proper substantiation is important for high amounts.

What is the difference between hard and soft wages under the WKR?

'Soft wages' generally refers to allowances and benefits that are socially perceived less as pure remuneration, while 'hard wages' refer to pure remuneration components such as a bonus. The Supreme Court ruled that this distinction is not decisive in itself: what is decisive is whether the designation is customary.

Who must prove that a compensation is unusual?

The Tax and Customs Administration (the inspector) must demonstrate that a designation within the discretionary space is unusual. According to the Supreme Court, a mere reference to the efficiency limit of €2,400 per employee per year is insufficient for this purpose.

Up to what amount is reimbursement certainly customary?

The Tax and Customs Administration considers allowances and benefits up to €2,400 per employee per year as customary. This is a policy rule of thumb and not a statutory maximum; higher amounts are possible but require stronger substantiation. Always check the current policy.

What happens if I go over the clear space?

As an employer, you pay a final levy on the amount exceeding the tax-free allowance. While this is permitted in itself, it is a cost. By planning and designating your reimbursements throughout the year, you avoid surprises at the end of the year.

Are you unsure about your WKR designation?

The Work-related Costs Scheme offers opportunities to reward staff in a tax-efficient manner, but the customary practice test makes it risky to do so based on intuition. Have a lawyer review your decision before designating a reimbursement or bonus within the tax-free allowance, so that the Tax Authorities do not have to overrule you afterwards.

Our legal experts are happy to assist you with advice on employment terms, remuneration, and the legal aspects of the WKR. View our employment law expertise or arrange legal assistance. You can also schedule an intake interview and present your situation to us.