Should a small business offer employee benefits?

Small business owners often have to balance costs and employee well-being. Offering employee benefits may feel like a significant decision, especially when resources are limited. However, carefully selected employee benefits can offer many advantages for small businesses that outweigh the costs.

Why employee benefits are beneficial for small businesses?

1. The competitive edge in the job market

Small businesses may struggle to compete with the salaries offered by larger companies. Employee benefits such as lunch benefit, sports and culture benefit, as well as commuting benefit, provide ways to improve employer branding and attract skilled employees. Investing in wellbeing and everyday convenience can make the company a more attractive option compared to businesses that offer only basic wages. For a small company, the retention of each employee is critical, as employee turnover can be costly and impede the company's growth.

2. Committed employees that feel well

Employee benefits increase employee satisfaction and well-being. For example, sports and culture and massage benefits support employees' physical health, which in turn can reduce absenteeism and improve productivity. When an employee feels valued by the employer and has the opportunity to take care of their own well-being, they also commit to the company for a longer time.

3. Tax benefits

Many employee benefits have lighter tax implications for both the employer and the employee. For example, the sports and culture benefit is tax-free for the employee up to 400 euros per year (2024). Similarly, the commuting benefit covers public transportation costs and can be a tax-favorable option compared to direct salary increases. The company can deduct these costs in its own taxation, making them financially attractive options.

From the perspective of a small business: How can benefits be offered cost-effectively?

Small business owners may hesitate to offer employee benefits as they seem to increase costs. However, many benefits, such as the sports and culture or massage benefits are tax-free for employees up to a certain amount and are deductible expenses for the company. This means that the costs of the benefits are lower than they initially appear, while also bringing tangible benefits to the company.

Examples of employee benefits and their costs

1. Lunch benefit (Partially tax-free benefit)

The lunch benefit is one of the most popular employee benefits in Finland. It helps employees cover part of their daily meal expenses, and the employer benefits from tax advantages. In 2024, the daily payment limits for the lunch benefit range from 8.50 to 13.50 euros. The benefit can be offered in two different ways:

Lunch benefit on top of salary: Offering the meal benefit on top of the salary is comparable to a salary increase, but its costs are more advantageous for the employer. By providing the meal benefit on top of the salary, the employer can save up to 25% compared to a direct salary increase. The employee does not have to pay full taxes on the benefit, making it an attractive addition to their salary.

Example Calculation:

• Employer's cost: e.g. 200 € per month per employee
• Savings compared to a salary increase: 200 € x 0.25 = 50 €
• Actual cost to the employer: 200 € - 50 € = 150 € per month

Lunch deduction: The employee's meal expenses can also be deducted from their salary, so the employer pays for 25 % of the meal benefit, and the employee pays at least 75 %. This model is cost-effective for the employer and still allows for tax deductions.

2. Commuting benefit (Tax-free public transportation benefit)

The commuter benefit is an excellent way to support employees' daily commuting and make their lives easier. The tax-free commuter benefit covers public transportation costs up to 3,400 euros per year.

Example Calculation:

• Employer's cost: e.g. 1,000 € per year
• Deductible expense: 1,000 € x 0.20 (assuming 20% corporate tax) = 200 €
• Actual cost to the employer: 1,000 € - 200 € = 800 €

3. Massage benefit (Taxable, deductible expense)

The massage benefit supports employees' well-being and reduces work-related tension. The massage benefit is not tax-free, but it is deductible for the company. This means that the massage benefit increases the employee's taxable income, but it can still be deducted from the company's taxes.

Example Calculation:

• Employer's cost: e.g. 400 € per year
• Deductible expense: 400 € x 0.20 = 80 €
• Actual cost to the employer: 400 € - 80 € = 320 €

4. Edenred Wellbeing

An entrepreneur can offer a wellbeing benefit to their employees of up to 3000 euros per year. This amount is tax-deductible for the employer if they have included the framework for the wellbeing benefit in the occupational health action plan. When an employee uses the wellbeing benefit, such as for a physiotherapy session, any potential reimbursement from Kela (the Social Insurance Institution of Finland) is deducted immediately at the checkout – eliminating the need for handling receipts and sending them to Kela.

Example Calculation:

• Price at the checkout for physiotherapy: 80 €
• Kela reimbursement at the checkout: 8 € (automatically deducted)
• Taxable amount from the wellbeing benefit: 72 €

With the wellbeing benefit, you invest in the well-being of your employees and yourself without extra bureaucracy. Edenred's tax-deductible wellbeing benefit is an easy way for small business owners to take care of work capacity, as everything is handled automatically at the checkout – no hassle with receipts, just direct savings and happier employees. You can read more about the possibilities of using the wellbeing benefit on its dedicated page.

Employee benefits and a small business owner's finances: What to consider?

1. Cost management

Small business owners often consider the burden of employee benefits. Tax-free benefits, such as commuter benefits and meal benefits, can be cost-effective ways to provide added value to employees without significant financial impacts on the company. Taxable benefits, such as massages, can enhance employee well-being, but should be tailored to fit within the company's budget.

2. Taxation

The taxation of employee benefits varies depending on the benefit. Tax-free benefits such as commuter and meal benefits do not increase the employee's tax burden and are deductible for the company. Taxable benefits, such as massages, increase the employee's taxable income but can be extremely valuable for employee engagement and well-being. We have compiled a clear tax guide that provides all the essential information regarding the taxation of employee benefits: Download the Tax guide.

3. Easy management of benefits

Edenred's user-friendly ordering tool helps entrepreneurs manage employee benefits quickly and efficiently.

Limitations of a sole proprietor

It is important to note that a sole proprietor cannot take advantage of employee benefits for themselves, but they can offer benefits to their employees. Managing payroll expenses is already a significant investment, and adding employee benefits may seem like a big step, but they can help keep employees motivated and make the company an attractive employer.

Employee benefits support the growth of small businesses

Providing employee benefits may seem challenging for small business owners, but carefully chosen benefits can bring significant advantages. Edenred's range of benefits helps companies offer perks that support employee well-being and job satisfaction, while also reducing employer taxes and expenses. Lunch, commuter benefits and other perks make employees' everyday lives easier and improve their job satisfaction. Small business owners should consider offering employee benefits as part of a comprehensive strategy aimed at company growth and long-term employee wellbeing.

Are you interested in the employee benefits offered by Edenred?