What to do with the costs of commuting?
If employees make the same commute to work each day, it is more practical to pay them a fixed amount in travel allowance for the expenses than to have them claim the costs of each commute separately. Many employees therefore pay their employees such a fixed travel allowance. Since the start of the coronavirus pandemic, a temporary regulation has been put into effect allowing employers to continue paying a fixed travel allowance to employees who work from home and thus commute to work less often or not at all. In the meantime, however, the travel habits of many employees have changed and with the temporary regulation soon to be discontinued, this raises the question what to do with the costs of commuting?
Last year, the cabinet of the Dutch government introduced a package of financial support measures and regulations for organizations to better cope with the impact of the global coronavirus pandemic. One of those regulations was the ‘approval’ to continue the payment of a fixed travel allowance to employees working from home. Although the duration of this temporary regulation has been extended several times now – first planned to end on January 1, then February 1, April 1 and July 1 – it looks like the regulation will now be definitively discontinued on October 1, 2021. This continuous changing of the end date has not made things easy, but nonetheless many employers still pay their employees a fixed travel allowance according to the rules laid down by the temporary regulation.
The regulation is meant to reduce the administrative burden for organizations during the ongoing pandemic. Until October 1, 2021, employers may regard the days on which an employee worked from home (and thus not commuted to work) as days worked in the office/workplace (and thus days on which (s)he did commute to work). This means that despite working from home, these employees may continue to be paid an untaxed fixed amount in travel allowance each month. The only condition is that the employees in question had to be unconditionally eligible for the allowance before March 12, 2020. Eligibility for the allowance is thus based on the situation before the coronavirus outbreak. This is usually the case for a periodic allowance. However, if your organization uses the so-called ‘cafetariamodel’, in which employees can opt to exchange a taxable payroll item – such as an end-of-year bonus – for a higher amount of untaxed fixed travel allowance, then the 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 employees instead wait until the end of the year to notify the employer of their choice to have the end-of-year bonus exchanged for a higher amount of 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.
There is no legal obligation for your organization to continue paying a fixed travel allowance to employees who do not incur commuting expenses. If an employee (partially) works from home or stays home due to sickness for a long period of time, it is more than fair to (partially) stop the payment of the allowance. The continuation is only mandatory if the terms of employment, the staff regulations, 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.
The fact that the temporary regulation will be discontinued on October 1, 2021 means that many employers will decide to no longer pay their employees an untaxed fixed travel allowance from that date on. The loss of this allowance can have an effect on an employee’s financial situation, however. Make sure to inform employees in time, either through a one-on-one meeting (which can be held online of course), by having supervisors inform staff or through a general announcement.
Many employers have already stopped paying a fixed travel allowance
Research by HRM services provider Visma shows that as of January 1, 2021, around 19% of employers stopped paying their employees a fixed travel allowance. Four out of ten organizations currently use a system in which some employees are paid an untaxed fixed travel allowance and others are paid an allowance based on the number of days they actually commute to work. 22% of employers has continued to pay an untaxed fixed travel allowance to those employees who were employed by the organization before March 13, 2020.
As mentioned before, many employers continued paying their employees an untaxed fixed travel allowance during the pandemic. Most did so to give their employees extra money to cover the additional expenses incurred by working from home, such as on coffee, tea, electricity and toilet paper. Other employers started paying employees a special ‘homeworking allowance’ for this purpose. This is not mandatory, unless stipulated so in the collective labor agreement, as is the case for government institutions. Nibud, the Netherlands National Institute for Budgetary Advice, calculated that a day worked from home costs on average € 2 more per person. Although this is an average and the extra expenses incurred by your employees may be higher, employers association AWVN found that most employers paying a homeworking allowance base the allowance on this € 2 per person per day. AWVN also found that more than half of all organizations pay their employees a homeworking allowance, even though the trend has caught on in some industries more than in others. This is in sharp contrast with only 20% of organizations last year. Plans are currently underway to make the homeworking allowance tax-exempt. A so-called where-you-work system (‘waarjewerkt-regeling’ in Dutch) has also gained in popularity, in which case the fixed travel allowance and homeworking allowance are put together into one budget available to the employee.
Practical methods 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 and is based on the following conditions:
- the allowance is at most € 0.19 per kilometer;
- the allowance is based on a calendar year 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, on 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. Make sure to adjust the calculation appropriately for employees who work part-time (i.e. who commute to work fewer days).
When an employee works mostly from home and thus travels to work much less often, the untaxed fixed travel allowance is based on the following, more lenient conditions:
- the allowance is at most € 0.19 per kilometer;
- the allowance is based on a calendar year of 214 workdays (a year has more days of course, but this number of days allows for days an employee is sick and unable to work, on vacation, on sabbatical or on leave);
- the employee in question commutes to his/her regular workplace at least 128 days per year. This number thus permits two days per week for the employee to work from home 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.
After the temporary regulation is discontinued on October 1, 2021 – or on a later date, if the cabinet once again decides to extend the duration – you have three options left to continue paying your employees an untaxed travel allowance, if desired. The first option is to accurately establish the new commuting habits of your employees. Under certain conditions, you may then continue to pay an employee an untaxed fixed travel allowance if (s)he still commutes to his/her regular workplace. 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 ‘practical methods for calculating the untaxed fixed travel allowance’ for more information on this). When commuting habits change, you must in principle also change the height of the allowance. All amounts paid and expenses covered through the allowance must be demonstrable upon request by e.g. Belastingdienst (the Dutch revenue service).
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. However, this is not possible if employees use an NS business card.
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, increased slightly for the duration of 2021). However, this option can turn out to be an expensive one, especially if a lot of costs are made on commuting. After all, if the ‘vrije ruimte’ is exceeded you must pay an 80% levy over the excess amount as a penalty. For the duration of 2021, the ‘vrije ruimte’ is the sum of 3% of the first € 400,000 of your organization’s total wage bill and 1.18% of the remainder.