Social fund

What it means

The social fund is a mandatory fund built from a percentage of total gross wages. It is not a voluntary perk but a statutory obligation.

It can be spent on meals beyond the mandatory contribution, commuting, recuperation, hardship support, culture and sport. A collective agreement or internal rule sets the detail.

The size of the fund is not set by the mandatory allocation from wages alone. The employer can top it up with a further allocation agreed with the union or laid down in an internal rule, and also from after-tax profit when profit is distributed. These sources are treated differently for tax, so the fund’s records keep them apart.

How it works in practice

Creating the fund is an expense; spending it is posted against the fund rather than to expenses again. So separate records of creation and use are kept and must reconcile at year end.

The spending rules belong in the internal policy. Without one it is hard to show an inspection that a payment matched the fund’s purpose.

When a client wants to help staff with, say, a holiday, the recreation allowance and a payment from the social fund are two different tools with their own conditions. In payroll we therefore decide for each such payment which source it comes from, so the same expense is not paid twice and the fund balance reconciles.

What to watch out for

An unused balance is neither expensed nor returned: it carries into the next year. Paying it out in cash as part of wages is not use of the fund but salary, with all the contributions that entails.

The fund cannot go negative. If the internal rule promises staff more than the fund builds up in a year, the difference can no longer be paid from the fund and has to be covered another way, with different tax treatment. When planning benefits we therefore first estimate how much the fund will receive, and only then is it agreed how much will be drawn.