Comparative analysis of the reform of employee catering in the Slovak Republic and the Czech Republic

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Providing meals for employees in the form of food vouchers has long been one of the standard tools of corporate benefits. However, this benefit must be understood in the context of the employer’s obligation to provide meals to employees.

It is the provision of meals to staff through the obligation to provide either a hot meal or a meal voucher that has been criticised by a number of organisations. According to these critics, the system as designed has created a group of providers that, until recently, benefited from employers’ obligation to provide meal vouchers.

The main criticism is that the system of providing meals through meal vouchers is burdened by disproportionate charges. On the one hand, these are paid by employers that provide meal vouchers to their employees. On the other hand, charges are also paid by caterers that accept meal vouchers from their customers and then return them to the issuers for redemption. While there is competition between meal voucher providers for the purchase of meal vouchers and employers are able to negotiate terms and conditions (level of charges, services provided) and there is a statutory cap on charges, the situation is different in the case of caterers. In particular, smaller caterers (restaurants) must accept the issuer’s redemption terms if they choose to accept meal vouchers from their customers. In this case, there is no legislative regulation of the amount of the fee, despite the absence of competition on the buy-out side. Only supermarket chains or large restaurant chains are in a slightly more advantageous position in terms of negotiating the amount of the redemption bonus.

The functioning of the meal voucher scheme is illustrated in the following diagram:

The burden of fees on the meal voucher system was also reflected in the profitability of firms in the sector, and the profitability of revenues of meal voucher providers outperformed even the most successful firms in the Slovak economy over the long term.

A similar system of employee catering as was established in Slovakia was also in force in the Czech Republic.

These arguments led regulatory authorities in both countries to change. Subsequently, in 2021, the rules were relaxed and the meal vouchers may be replaced by a financial contribution. However, the move has sparked a wave of criticism in both countries, especially with regard to some tax and levy aspects.

The new Slovak government, which took office in March 2020, committed in its Programme Statement to allow employees to choose between meal vouchers and a financial allowance for meals. This has indeed happened, and as of 1 March 2021, staff have the option of choosing between a meal voucher and a financial contribution towards meals.

At the same time, the maximum brokerage commission for meal voucher suppliers has been reduced to 2%.

Overall, the change could be summarised as follows:

  • The choice of meals for staff has been extended to include a financial contribution.
  • The choice of the form of catering is transferred to the employee if it is not provided directly by the employer. They can choose between a meal voucher or a direct financial contribution.
  • The change may be reviewed by the employee every 12 months.
  • The employer shall contribute to the employee’s meal allowance in the form of meal vouchers. The maximum tax-deductible meal allowance in Slovakia ranges from EUR 2.11 (55% of the minimum value of the meal voucher) to EUR 2.81 (55% of the amount of the meal allowance provided during the business trip).

The first set of arguments made by opponents of the financial contribution to meals points to the potential problems of irregular meals for employees and the possible loss of sales for restaurants and changing consumer preferences. Back in 2010, an issuer pointed to a survey that said most employees preferred hot meals. Opponents also point out that poor catering for employees, influenced by the motive to save money, can lead to a deterioration in health and gradual shortfalls on the part of companies and the state budget (employees will be more unable to work, etc.). However, according to critics of this argument, such an approach does not take into account the possibility of spending the food voucher at the grocery store or the possibility of buying junk food with the meal voucher.

Another set of arguments concerns the tax and levy aspects of the reform. These may in some ways disadvantage the employee in the choice of the financial allowance for meals.  The two options are not exactly equivalent from a tax and levy point of view. A meal voucher provided to an employee at any value is always non-cash income for the employee, which is exempt from income tax, social security and health insurance. If the employer does not reimburse the full value of the meal voucher (whether in excess of the statutory contribution, the social fund contribution or voluntarily), the remaining part of the value of the meal voucher is paid by the employee (in cash, non-cash or by deduction from wages).

The employee’s meal allowance is exempt from taxes and levies only if its amount does not exceed the maximum amount set by the Labour Code (55% of the amount of the meal allowance provided for a business trip of between 5 and 12 hours). In order for this financial contribution not to be subject to income tax, social insurance, health insurance, its amount must not exceed EUR 2.81 or the benefit must be co-financed from the social fund.

The public debate identified weaknesses in the aforementioned reform. One of them is the wording of the law by sections which, on the one hand, recognises the meal voucher as a tax expenditure on the part of the employee in full, but on the part of the financial contribution, such amount is fixed and limited in some cases to only EUR 2.81, which does not create a level playing field for these alternatives.

This tax regime means that if the employer decides to provide the employee with a meal voucher of a higher value (i.e. to contribute in excess of the statutory amount), this amount is taxable on the employer’s side, but on the side of the employee who receives the meal voucher, it is already income exempt from income tax.

If the employer made a financial contribution over and above the compulsory contribution, the amount above EUR 2.81 is taxable income on the employee’s side and would therefore be subject to income tax, health insurance and social security contributions. It is therefore true that an employee benefits more from a meal voucher if his/her employer contributes more than the maximum tax-deductible amount. The exception is if the employer pays this contribution from the social fund.

The need to amend the relevant provision of the law is also recognized by the members of the National Council of the Slovak Republic, who submitted an amendment to the Labour Code to the Parliament, and the proposal passed the first reading (July 2021).

The catering system for employees in the Czech Republic differs in several aspects from the established Slovak system. The first important aspect is the entitlement to meal allowance. The Czech Labour Code states that:

  1. The employer is obliged to provide meals to employees on all shifts, this obligation does not apply to employees who are sent on a business trip.
  2. If the employee and the employer agree in the collective agreement or it is stipulated by an internal regulation, meals shall be provided to employees, at the same time it is possible to agree or stipulate other conditions for the right to such meals and the amount of the employer’s financial contribution, as well as a more detailed definition of the circle of employees to whom the meals are provided, the organisation of the meals, the method of their transfer and the employer’s financing, if these are not regulated for a certain circle of employers by a separate legal regulation. This is without prejudice to the tax regulations.

The relevant change in the law was made through an amendment to the Income Tax Act, when it was stipulated that the following items are exempt from tax:

“the value of meal allowance provided as a non-cash benefit to employees for consumption at the workplace or in the context of meals provided through other entities, or a cash allowance provided by the employer to an employee for meals per shift in accordance with the Labour Code, up to 70% of the upper limit of the meal allowance that may be provided to salaried employees for a business trip lasting between 5 and 12 hours”.

The allowance is also exempt from income tax on the employee’s side. Under the relevant law, this allowance is exempt up to 70% of the upper limit of meal allowance that can be granted to salaried employees for a business trip lasting between 5 and 12 hours. In 2021, this amount is valued at CZK 108 (approx. EUR 4.18), which at 70% means CZK 75.60 (EUR 2.93) per day. Therefore, if the employer provides the employee with a cash allowance of up to this amount for one shift worked, this is income that is exempt from tax and is not subject to social security and health insurance contributions. Despite the fact that it is tax-exempt income of the employee, the employer is obliged to include this income in the gross salary. The amount over and above this income is taxed according to the payroll tax rules. Meal vouchers are not taxable regardless of their amount.

It is the criticism of the tax and levy burden and the unequal status of the so-called meal vouchers and the meal allowance (lump sum) that is the main criticism presented by experts against the adopted reform. It is true that a meal voucher is non-taxable income in any amount on the part of the employee, while a cash lump sum is non-taxable only up to CZK 75.60 (EUR 2.93). Conversely, a meal voucher provided by the employer in excess of CZK 75.60 (EUR 2.93) is not a tax-deductible expense, while a meal lump sum is a tax-deductible expense in any amount. Critics of the meal lump sum accuse it of unequal treatment in terms of income tax.

The two options are not fully equivalent. Different levels of contribution may result in different taxation, either on the employer’s or the employee’s side. The amount of the tax burden depends on the amount of the meal voucher or meal lump sum provided. Critics point out that if employers are willing to contribute more, they prefer a meal voucher instead of a meal lump sum.

Critics also point to the fact that not all employees (e.g. employees working on an agreement or part-time basis) are entitled to a meal lump sum. Complications also arise in the case of the allocation of home office meal allowances. Even sole traders in the Czech Republic are not entitled to meal vouchers or a lump sum.

Another criticism is directed at the budget shortfall. In contrast to Slovakia, the Czech Republic is projected to lose more than CZK 2.3 billion in income tax.

Another criticism appears on the choice side, where the employer and not the employee decides on the possible benefit. Critics point to the fact that the employer decides instead of the employee, while their preferences may be different.

A meal lump sum in the Czech Republic can reduce e.g. sickness benefit. What can happen is that if an employer provides a meal allowance to an employee, the employee has a favourable tax treatment, the funds are exempt from taxes and levies, and the employer can increase the deductible tax expense that can be deducted. Tax and levy exemptions can lead to their optimisation, which in turn can be reflected in the employee’s reduced entitlement to, for example, sickness benefit.

A final set of arguments emerges in response to the deterioration in staff catering. The meal vouchers were intended at their inception as a special-purpose contribution to the staff member to cover meals and are used as a priority for catering.

The introduction of the financial contribution is particularly appreciated by employers in both countries, although there are weaknesses in individual reforms that need to be addressed. In Slovakia, a solution is currently being sought in the National Council of the Slovak Republic, in the Czech Republic some aspects are a challenge for the new government that will emerge from the October elections.