Term
Cafeteria benefits
A scheme in which employees receive points or a budget and choose their own benefits from a menu, such as sport, culture, holidays or training. The tax and contribution treatment depends on the benefit chosen.
Updated
What it means
A cafeteria benefits scheme is a system in which the employer does not give all staff the same benefit but a budget, usually in points, from which each employee chooses what they need. One picks a gym membership, another theatre tickets, a holiday, a language course or a pension savings contribution.
The model rests on the idea that people’s needs differ and many do not value a one-size-fits-all benefit. A cafeteria raises the perceived value of employee benefits without the employer spending more. It is run by specialised platforms or set up by the company itself.
For tax and contributions a cafeteria is not one benefit but a bundle of different items. Each is assessed separately: some are exempt from tax and contributions, some up to a limit, others are a benefit in kind taxed like wages.
How it works in practice
When setting up a cafeteria, we help decide what the benefits are funded from: company costs, the social fund or post-tax profit. The source determines whether the cost is deductible for the company and how the benefit is treated for the employee.
For payroll it is crucial that the platform supplies an accurate monthly report of who chose what and for how much. Taxable items are added to pay, and exempt ones are tracked against limits, for example the recreation allowance or the child sports allowance.
Unused points at year end need a rule: they lapse, carry over or are paid out. A cash payout is always taxable pay with all contributions, which employees should be told in advance.
What to watch out for
The most common mistake is assuming everything in the cafeteria is exempt. Platforms readily offer goods or vouchers that are fully taxable, and if the payroll accountant does not know what was chosen, the employer fails to pay tax and contributions. At an audit they are paid with a penalty.
The second risk is platform fees and unspent funds. With a prepaid cafeteria the company may pay for points nobody uses. Comparing costs with actual take-up should be part of the annual review of benefits.
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