The granting of holiday vouchers to private sector employees

Although GEO no. 8/2009 on the granting of holiday vouchers was initially adopted as a temporary solution to support employees and employers in the wake of the financial crisis of 2008, the provisions of this normative act have come back into public attention during the holiday period and in the context of current global events, which have had direct negative effects on small and medium enterprises in Romania.

In exchange for legislating for this employee benefit, the Romanian state waived associated employer tax obligations, excepting corporate income tax. The main goal is to keep as much money as possible within the national economy, meaning that holiday vouchers can only be used in Romania, with corresponding beneficial effects for Romanian businesses. Application of the holiday voucher provisions is not mandatory, but many companies have adopted the regulation, attracted by the aforementioned tax benefits.

While some employers have adopted this mechanism in order to boost employee loyalty, encourage work relations based on trust between employee and employer, boost recovery of work capacity, increase employee productivity and motivate employees to retain their status as employees of the company, it may also help companies remain competitive on the labour market by allowing them to offer these fringe benefits as part of recruitment offers.

Holiday vouchers will be granted by employers pursuant to negotiations and consultations with employee representatives, with the outcome being laid down either in collective labour agreements or a company’s internal regulations, as appropriate. Among the important provisions subject to negotiation between employers and employee representatives are those concerning categories of beneficiary and the value of an individual voucher, which can be up to a maximum of six gross national minimum monthly salaries during one fiscal year.

At the same time, given that this non-salary benefit is the result of collective bargaining and consultation, the exclusion of any employee from a beneficiary category runs contrary to the provisions on equal treatment and the prevention and sanctioning of all forms of discrimination, unless objective and duly justified reasons are provided for refusing to grant an employer a holiday voucher.

By way of example, in the event of their suspension of the individual employment contract for reasons not attributable to the employee, and where the employee has taken several periods of sick leave in the course of a year, the employee still cannot be denied their entitlement to holiday vouchers.

The employee shall be entitled to holiday vouchers in the amount provided for in the collective labour agreement or internal regulations, in accordance with the law, commensurate to the number of days worked in a calendar year. For the employee this fringe benefit thus represents an increase in real income, and for the employer a major tax advantage, as the money used to purchase holiday vouchers constitutes company expenditure and is therefore deductible when calculating corporation tax.

In the event of a termination of employment, the law stipulates that the beneficiary must return any holiday voucher to the employer and, where a voucher has already been used, the employee must repay the value of said voucher to the employer. In other words, this non-salary entitlement will not be granted and cannot be retained as an employee benefit in the absence of an individual employment contract concluded between the parties.

While the employer currently pays the full cost of holiday vouchers, in the future the Romanian state also intends to grant these fringe benefits from the state budget, with the proposal being to grant the same amount from state funds as that enjoyed by public sector employees. This would mean that some private sector employees would benefit from a higher amount of non-salary income. It remains to be seen what the tax policy will be in the case of tax-exempt companies in areas such as IT, agriculture, and construction, as the value of holiday vouchers represents an exemption from the obligation to pay income tax up to the legal limit of RON 1,450 per employee.

Source: GEO no. 8/2009 on the granting of holiday vouchers.