Reminder: ‘Pick-and-mix’ schemes can be a red flag for employers of foreign nationals

IMPACT – MEDIUM

Employers that offer “pick-and-mix” reward structures are reminded that residence permit holders must receive gross wages (not net compensation) that meet applicable minimum salary requirements.

Key Points:

• Dutch employers often use a pick-and-mix reward scheme that allows employees to exchange gross salary for net benefits or a provision. In principle, the tax liability will be reduced by substituting a portion of their wages with other forms of compensation. For example, an employee may be able to exchange a year-end bonus (which is taxable) for a fitness subscription.
• While these reward structures have tax benefits, they can pose problems for employees on residence permits that have a minimum salary requirement. For these employees, gross wages must meet applicable salary minimums. Those whose gross wages do not meet the salary minimum could have their immigration status jeopardized, regardless of their net compensation after non-wage benefits are considered.
• Among the foreign nationals who could be affected are those holding Highly Skilled Migrant permits, EU Blue cards, ICT directive permits, combined permits for residence and work (GVVA permits) and any other residence permit that requires a minimum salary.
  

Analysis & Comments: It is important that any foreign nationals holding one of the residence permits listed above meet the applicable minimum salary threshold before any form of compensation other than gross wages is considered. HR departments should keep this in mind before approving pick-and-mix requests from affected employees. Not meeting the applicable salary threshold will be a ground for the revocation of the residence permit, and employers are encouraged to work with Deloitte to ensure they are satisfying the requirements.

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