Companies must make Social Security contributions for bus transport and other remuneration in kind

We cannot overemphasize the importance of judgments such as that of the Labor Chamber of the Supreme Court, 684/2020, of July 21, 2020 (App. 4/2018), which remind us of the significance of remuneration in kind and how it sometimes gets wrongly left out of social security contributions.

This judgment is particularly notable as a result of the €481,789.01 fine it imposed on the company for social security issues, as it had not made contributions for the employees’ use of the company bus and had neglected to record that use and the information provided to the Labor and Social Security Inspectorate (ITSS).

This significant ruling includes three warnings of which companies should take heed in this area:

• Do not forget contributions on remuneration in kind

Recently, due to the current economic situation resulting from the health crisis, we are seeing the Labor Administrations examine items or benefits provided to workers and include them in contribution bases.

The difficulty for companies is that contributions for remuneration in kind are not always as certain as cash salaries. This is because many of the items classified as remuneration in kind can go unnoticed in terms of their nature and status as salary paid to the worker. In the case at hand, the issue was the bus service provided (and paid for) by the company to the workers, which generates doubts regarding its salary status.

Therefore, the staff’s use of the company bus as well as providing accident/illness insurance for workers, or products in kind the company gives to its employees, or low-interest loans, daycare services, pension plans, stock options, discounted gym use, etc. are examples of services, benefits or other compensation that companies have in place, many of them stemming from agreements reached under the collective bargaining agreement. We must be conscious that they constitute remuneration in kind and are subject to contributions.

• Establishing a system to individually allocate remuneration in kind to each individual and documenting it

In this judgment, the use of the company bus service is considered remuneration in kind and, therefore, subject to contribution.

We should not forget that contributions must be allocated to each individual worker as salary and, therefore, it is necessary to detail to what extent each individual has used the service on a monthly basis within the four-year limitation period established for claiming social security payments. This is because it will be necessary to tweak their monthly contribution bases, including the appropriate amount as remuneration in kind. For the individual, it will entail an increase in their annual remuneration and their contribution bases for all purposes.

In this case, the ITSS repeatedly requested that the company identify the users and their use of the service but, as you might expect, in this type of services made available to staff, most companies do not keep a specific record.

The fact that it was impossible to produce a breakdown prevented the ITSS from issuing a settlement certificate, with a 20% surcharge. It could not allocate the cost of the service in the contribution bases on a pro rata basis among the whole workforce either, because that would be inconsistent and would have been challenged by those who had not used the service, as their contribution bases would have increased without receiving the remuneration in kind on which the increase was based.

Therefore, the ITSS opted to look for a mechanism that, although legal, is not usual in these proceedings. Specifically, the ITSS applied the sanction mechanism of section 22(3) of the Labor Infringements and Sanctions Act (Ley de Infracciones y Sanciones al Orden Social), which establishes the maximum level of the serious sanction envisaged in that section, when the amount not contributed exceeds 25,000 euros, which entails a fine of 100% of the amount not deposited.

The ITSS therefore ensured that the amounts not collected in settlement proceedings were collected by way of a sanction. This procedure is supported by the aforementioned Supreme Court judgment, as well as the calculation performed by the ITSS based on the company’s declarations on the cost of the service. The social security rates in force were applied to this cost and 20% was added as a surcharge to reach the amount stated in the judgment.

• The labor jurisdiction is competent

Finally, it is well established that the judicial review examines acts of the Administrations in relation to collecting social security and joint collection payments. Challenges against a settlement certificate issued by the ITSS must be examined in that jurisdiction at the end of the administrative proceedings.

However, the Supreme Court clarified that, when the ITSS proceedings establish unsettled social security infringements, even though they relate to social security matters, they must be heard by the labor courts. If they conclude with coordinated settlement and sanction certificates, they must be equated to a settlement certificate and therefore must be examined in the judicial review.

It seems that this position resolves the issue of competence and so it is broadly welcomed by legal practitioners.

Ultimately, the judgment advises us to keep in mind the need to analyze the services and benefits provided to employees in companies to determine their nature as possible remuneration in kind, and to take into account the verification and control procedures of the ITSS, as well as the economic consequences of these situations.