Payment in kind

What it means

Payment in kind is the part of a wage provided not in money but in products, work or services. The employer may provide it only with the employee's consent and only as a supplement to cash wages, not instead of them.

The Labour Code expressly prohibits paying wages in kind in the form of alcohol, tobacco or other addictive substances. Typical examples are the company's own products, services the company provides or farm produce for agricultural workers.

For tax and contributions, payment in kind is valued at the price the employer charges other customers for the same products or services. It forms part of gross pay and taxable income, like any other benefit in kind received by the employee.

How it works in practice

The employee's consent should be in writing, ideally in the employment contract or a separate agreement, specifying which products or services are provided and at what value. The employee must be able to withdraw consent and receive money instead.

In payroll records, payment in kind is shown at its monetary value and included in the assessment base for contributions and the tax base. Since the employee receives no cash from which contributions and tax can be withheld, they are deducted from the cash part of the wage, which can significantly reduce the amount paid out.

Payment in kind must be distinguished from employee benefits provided on top of wages and from staff discounts on the company's products. Benefits may have different tax rules, and some are exempt up to a limit, whereas payment in kind is not.

What to watch out for

Even with payment in kind, the employee must receive at least the minimum wage and the minimum wage claim, and the cash part must be sufficient to cover deductions. Replacing money with products on a large scale could amount to circumventing the law and lead to disputes in a labour inspection.

The valuation must reflect the real price charged to other customers. Undervaluation would reduce tax and contributions, and the tax authority or the Social Insurance Agency may assess the difference with penalties in an audit. For internal products not sold to third parties, the valuation must be documented.