The regulation which enables you to continue paying an untaxed fixed travel allowance to employees whose commuting habits have changed as a result of the coronavirus pandemic will be revoked on July 1, 2021. What does this mean in terms of an employee’s eligibility to such an allowance? Under which conditions is it still permitted to pay an employee an untaxed fixed travel allowance? This article will list the future possibilities as well as any points of attention for you.
If employees make the same commute to work and back every day, it is rather unpractical to have them claim the costs for each commute separately. Most employers will therefore opt to pay their employees a fixed travel allowance instead. For 2020 and later also for the first few months of 2021, the government implemented a regulation which enabled you to continue paying an untaxed fixed travel allowance to employees even if their commuting habits have changed as a result of the coronavirus pandemic. And although the end date of this regulation has been changed several times, chances are the regulation will definitively be revoked on July 1, 2021.
Days worked from home
The regulation, created by the Ministry of Finance, allows days worked from home (and thus days on which an employee did not commute to work) to be regarded as days on which the employee did commute to work, as was the case before the coronavirus pandemic. This means the employee in question is still eligible for an untaxed fixed travel allowance to cover commuting expenses. The only condition is that the allowance is declared ‘eindheffingsloon’ (wages subject to a final levy). Moreover, the employee in question had to be unconditionally eligible for the allowance on or before March 12, 2020. This is usually the case for periodic allowances.
However, if your organization uses the so-called ‘cafetariamodel’, in which employees can choose to exchange a taxable payroll item – such as an end-of-year bonus – for a higher untaxed fixed travel allowance, then employees must have notified the employer of their choice at the latest on March 12, 2020 in order to have the increase in allowance not subject to taxation. If they instead waited until the end of the year to notify the employer of their choice to have the end-of-year bonus exchanged for a higher fixed travel allowance, then only the portion of the increase which applies to days on which the employee actually commuted to work will be untaxed.
Mandatory by law
It is not mandatory by law, however, for your organization to continue paying such a fixed travel allowance to employees who do not incur commuting expenses. If an employee (partially) works from home or stays home for a long period of time due to illness, it is more than fair to (partially) stop the payment of the allowance. The continuation is only mandatory if the terms of employment, the employee manual, the employment contract, or the collective labor agreement stipulates that employees who are absent must continue to receive a fixed travel allowance.
If not mentioned otherwise, it suffices to notify employees in writing that the payment of their fixed travel allowance will be stopped. It is recommend to give an explanation for why this happens, for example because of necessary cost savings.
Once the regulation has been revoked on July 1, 2021, most employers will probably opt to stop paying their employees a fixed travel allowance. After all, the allowance is now no longer untaxed by law. The employer must inform the employees in question in time of the fact they will no longer receive a fixed travel allowance. Managers or supervisors can tell this on behalf of the employer to employees in their team or the decision can be communicated centrally to all (respective) employees.
What again were the rules for calculating the untaxed fixed travel allowance?
Belastingdienst (the Dutch revenue service) has published two methods you can use to calculate the untaxed fixed travel allowance.
The first method is to be used for employees who make a daily commute to their regular workplace (i.e. office) and is based on the following conditions:
- the untaxed fixed allowance is at most € 0.19 per kilometer;
- a calendar year is made up of 214 workdays (a year has more days of course, but this number of days allows for days worked from home, days an employee is sick at home, on vacation, sabbatical or on leave);
- the employee in question commutes to work and back at least 36 weeks per year.
The height of the untaxed fixed travel allowance per year is then calculated as follows: 214 x the total number of kilometers commuted per day x € 0.19. In order to calculate the monthly or weekly fixed travel allowance, you must then divide the answer by 12 or 52 respectively. The above calculation can thus only be applied if the employee in question commutes to work and back at least 36 weeks per year. Make sure to adjust the calculation appropriately for employees who commute to work and back only a few days a week (for instance because they work part-time).
When an employee works mostly from home, the untaxed fixed travel allowance is based on the following conditions:
- the untaxed fixed allowance is at most € 0.19 per kilometer;
- a calendar year is made up of 214 workdays (a year has more days of course, but this number of days allows for days an employee is sick at home, on vacation, sabbatical or on leave);
- the employee in question commutes to his/her regular workplace (i.e. office) and back at least 128 days per year.
This means an employee can work from home two days per week throughout a calendar year and still be eligible for an untaxed fixed travel allowance. The height of the allowance per year is again calculated as follows: 214 x the total number of kilometers commuted per day x € 0.19.
Last year, many employers decided to continue paying the untaxed fixed travel allowance to employees working from home as compensation for extra costs incurred at home on e.g. coffee, tea, electricity consumption and toilet paper. Some employers have already started to pay employees working from home a special ‘homeworking allowance’ for this. However, such a homeworking allowance is not mandatory by law, unless agreements on it are included in the respective collective labor agreement – as is the case for e.g. government institutions. Nibud, the Netherlands National Institute for Budgetary Advice, calculated that working from home costs employees on average € 2 per day more.
After the regulation is revoked on April 1, 2021, there are three options left for your organization to pay employees an untaxed reimbursement for their commuting expenses. The first option is to accurately establish the new commuting habits of your employees. Under certain conditions, you may continue to pay an employee an untaxed fixed travel allowance if (s)he still commutes to his/her regular workplace (e.g. the office). You can base the amount in allowance on the number of times per year that the employee is expected to commute to work as well as the length of those commutes. You can also use two other methods to determine the amount in allowance. You must then establish per employee whether (s)he still meets the commuting criterion of 36 weeks or 128 days per year in order to be eligible for an untaxed travel allowance (see article ‘what again were the rules for calculating the untaxed fixed travel allowance’ for more information on this).
The second option is to simply reimburse the expenses for each day an employee actually commuted to work. Employees must then be given the opportunity to claim their commuting expenses each month, after which you will reimburse the expenses (reimbursement = number of days x number of kilometers commuted x € 0.19) the next month and declare the reimbursement as untaxed in the payroll tax return. The third and final option is to declare the untaxed fixed travel allowance as ‘eindheffingsloon’ and include it in the ‘vrije ruimte’ (budget for tax-free allowances and benefits for employees). However, this option can turn out to be an expensive one. After all, if the ‘vrije ruimte’ is exceeded you must pay an 80% levy over the excess amount as a penalty.
You’ve worked 128 days on July 1
An interesting interpretation of the verbiage used in the regulation for the continued payment of an untaxed fixed travel allowance is that its impact may still be indirectly in effect even after the regulation has been revoked (provided that an employee had to be unconditionally eligible for the travel allowance on or before March 12, 2020). A quick calculation shows that between January 1 and June 30, there were 128 workable days. This means you could technically continue to pay employees working from home an untaxed fixed travel allowance based on a calendar year of 214 workdays. However, it remains to be seen whether the Belastingdienst also interprets the verbiage in the regulation this way.