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Women Choosing From A Cafeteria Menu. An Indicative Image To Clarify Where The Employee Benefits Plan Got It's Name From.

Cafeteria plan: improving wants & needs for your convencience

Last Updated on September 26, 2020 by Mr. FightToFIRE

A cafeteria plan is an excellent way to streamline fringe benefits, also called employee benefits. An employee uses a part of his pre-tax income to choose from a predefined list of benefits. For an employer, it’s an excellent way to improve the take-home salary of its (potential) employees and keep them happy by letting them chose their own benefits.

What is important to know before I continue, is that some benefits cannot be part of the cafeteria plan. These are the ones that are given collectively or have certain laws that prevent them from being used inside a cafeteria plan. In fact, The three most popular benefits for employees in Belgium can’t be part of it:

  1. Meal vouchers
  2. Hospitalization and health insurance
  3. Pension contributions

Why do I want to talk about this? Well, because every year in November, I get to choose how (a part of) my salary is used to get additional benefits before taxes in the form of a cafeteria plan.

Employee benefits in the US

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Interestingly enough, in the U.S. the 4 most given employee benefits aren’t that different:

  1. Health insurance
  2. Life insurance
  3. Dental insurance
  4. Retirement (401(k)s and 403(b)s)

Just like in Belgium, the United States also has quite a few more. Some additional benefits can even be required when the company has, for example, more than 50 employees.

What is a cafeteria plan?

Let me clarify this cafeteria plan. Just as you can make choices in a cafeteria on which food to eat, as an employee you can choose different fringe benefits based on your needs. It’s a win-win situation. It helps the enterprise retain employee satisfaction and gives your employees personal choice in the matter of non-statutory benefits.

What can be in it?

As mentioned earlier, due to legalities (Dutch: [1][2]), or simply because your employer decided, not all benefits are put inside this cafeteria plan.
Benefits that can be part of it are, including but not limited to:

  • Mobility: company car, fuel card, company (e-)bike, First-class rail pass
  • Work-life balance improvements: additional holidays, adjusted schedule
  • IT: laptop, iPad, internet connection
  • Health: fitness subscription, yearly health check-up by a doctor
  • Learning & development: guaranteed training courses

And if any of the options aren’t to your liking, you can always opt for cash.
Opting for cash does mean no pre-tax benefit. It will be considered as regular salary and thus taxed like it.
For me, this means the full 50%, which is a lot.

My preferred benefits

Because of the heavy taxes in Belgium, especially for a single, I find it a good way to get some nice additional perks or to get a better work-life balance.
From all the benefits my employer offers I usually chose the following:

  • First-class public transport
  • Extra holidays (8 days)
  • Extra pension savings through tax optimization

The other benefits offered were of no use to me or were barely any better than what you can get on the (secondhand) market.
for example, with my remaining cash, I could get a new smartphone and even a new salary car. In all honesty, I’d rather get more cash, even if that money gets taxed at 50%. I can use it to deposit it into my trading account.

I’m positive I will get more out of this in the long run. Goods such as a new smartphone or a new car depreciate in price while shares appreciate.

2020 Update: Due to moving with my now wife, I needed a car, luckily I could choose just that with the cafeteria plan!
You can read all about how much it costs and what car I got is in my new post.

Lets talk numbers!

My choices are now clear, but what does it cost me? To clarify that, I should first give the budget I have available.

As you all know, my gross income is 4,284.62 EUR (in September 2018). However, that number is after my benefits are subtracted. The full amount is in fact 4,484.53 EUR. The 204,91 EUR difference is the amount I use for my current (2018) cafeteria plan (+5 EUR BIK for internet paid by my employer, another benefit, separate from the plan).

Of this 4484.53 EUR, 1,057.35 EUR is the cash I have at my disposal for my cafeteria plan. This amount is also used as the basis for next year. How is this amount determined? It depends on the employer.
My employer decided to do salary sacrifice and use my 13th month (something like a fixed Christmas/year-end bonus) as well as my ungraded pay. This is also an additional reason why I prefer not to use all of the cash available to me for my cafeteria plan.

Knowing the above, what do my choices cost me (per month, rounded)?

  • 1-year first-class rail pass: 48 EUR
  • 5 Extra holidays: 75 EUR
  • Extra pension savings: 64 EUR
  • Total: 187 EUR

To summarize, of my gross salary, 187.00 will be deducted as of January 2019.
This will leave me with a gross salary of 4,484.53 – 187.00 = 4297.53 EUR. The final amount will vary due to yearly indexation and the rounding.
So, for a total of 192 EUR (1847+5 BIK for internet), which is less than this year, I have improved my take-home salary and gotten my preferred benefits.

Does your employer offer something similar?

  • If no, would you like to get this option as well?
  • If he does, do you use all of your budget, or not and why?

I'm a developer for a major financial institution in Belgium that is present in over 40 countries. I have over 8 years of working experience in the development of customer applications focussing on all aspects of banking. This helped me gain a deep understanding of the inner workings of a commercial bank. All of this experience in both banking and life culminates in this blog about personal finance and my fight towards FIRE.

1. My remarkable budgeting ways to reach the illusive Financial Independence
2. The Most Important FIRE Ratio: FIRE Savings Rate
3. How I achieve a +80% Savings Rate and is it the Key to Financial Independence?
4. Cafeteria plan: improving wants & needs for your convencience
5. Frugal with a twist
6. My cafeteria plan: like a kid in a candy store
7. My monthly Savings Rate report: October 2019
8. My monthly Savings Rate report: November 2019
9. My monthly Savings Rate report: December 2019
10. My monthly Savings Rate report: January 2020
11. My monthly Savings Rate report: February 2020
12. My monthly Savings Rate report: March 2020
13. My monthly Savings Rate report: April 2020
14. YNAB Vs nYNAB Vs Excel: A Helpful Budgeting Tool reviewed
15. My monthly Savings Rate report: May 2020
16. My monthly Savings Rate report: June 2020
17. My monthly Savings Rate report: July 2020
18. My monthly Savings Rate report: August 2020
19. My monthly Savings Rate report: September 2020
20. My monthly Savings Rate report: October 2020
21. My monthly Savings Rate report: November 2020
22. My monthly Savings Rate report: December 2020
23. My monthly Savings Rate report: January 2021
24. My monthly Savings Rate report: February 2021
25. My monthly Savings Rate report: March 2021
26. My monthly Savings Rate report: April 2021
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