Providing a work phone to employees, how it works
23.10.2019In some cases, as an employer, you understand that your employees just need a work phone. And sometimes for the employees themselves, providing a work phone number is an important additional argument when deciding on a place of work. Fortunately, the tax authorities understand this too. With the introduction of new rules on the costs of doing business, using work mobile phones has become easier. Below we talk about tax rules that will be of interest to employers.
The rules regarding the provision of a work phone number are currently very transparent. In the past, the IRS made a distinction between work and private use of the telephone. The employee had to use his phone for work at least 10%, otherwise the tax break would cease to apply. In addition, the telephone could only be used in the workplace.
After the introduction of new rules regarding the costs of doing business (labor costs scheme), everything has become much easier. The mobile phone provided by the employer is in principle tax-free. This applies both to the device, the cost of the subscription and other costs of using the phone. The IRS no longer makes a distinction between work and private use. Instead, the so-called necessity criterion is now applied.
What it is?
Necessity criterion (noodzakelijkheidscriterium) Is an opportunity for you, as an employer, to decide whether an employee needs a mobile phone to do his job. If you think so, you can provide a telephone. An employee can use it for both business and personal purposes, so he can take the phone home. For the tax office it no longer matters whether the employee uses this phone for personal purposes. The phone is no longer considered part of the salary and, accordingly, there is no need to make insurance contributions on it.
The condition for applying the criterion of necessity is that the employer pays for all telephone charges. You cannot give them to an employee. However, if the employee chooses a more expensive brand or model than is necessary for the job, you can request a personal contribution, that is, part of the payment will be paid by the employee. At the same time, the phone remains the property of the company, which means that the employee will have to return it or pay the residual value if he no longer needs the phone for work. This should be understood as a situation of termination of an employment contract or the receipt of employees of a new position within the company.
What else does the need criterion cover?
The criterion of necessity applies not only to telephones, but also to other equipment such as desktops, laptops and tablets. Work tools also fall under this rule. This way, you can provide an employee with multiple devices to work with without tax consequences.
An example is the work of a remote sales manager who relies on a mobile phone and laptop to do his job. As a rule of thumb for the cost of doing business, you can purchase both devices tax-free. Whether at the same time your employee checks his personal email on this computer or calls friends from his work phone, it does not matter for the tax authorities. The only thing that matters is necessity: without this equipment, your employee will not be able to perform their duties. At the same time, in case of doubt about the need for this or that equipment, the burden of proof to the contrary will fall on the tax authorities, as well as all the costs of such proof.
What else is useful to keep in mind when giving an employee a work phone number?
- Separate contract for use
If you want to give your employee a work phone number, consider concluding a separate agreement and spelling out the basic conditions for using the phone, servicing it, returning after leaving, and the like. Also pay attention to the use of internet packages for this phone, if necessary, and include this in the agreement too. This is important, for example, because the cost of roaming abroad can be very high.
Please note: the telephone is not taxed only if it is required for the job, so do not forget to indicate the employee's title.
- Phone bills
Make sure that your business telephone bills will be in the employer's name. This is necessary in order to be able to recover the VAT that you paid when purchasing the phone and / or subscribing. If the invoice is in the name of the employee, then you as an employer will have to pay 21% VAT on top of the cost of the phone and / or subscription. Given the high prices for some models, this can be a hefty amount.
- Additional working conditions
The cost of doing business policy gives employers the ability to use the issue of a business phone number as an additional incentive for employees. But be realistic, the tax authorities may question the feasibility of spending if you decide to give employees a phone, laptop and tablet at once.
