Many corporate finance and bosses have encountered this pitfall: Are work clothes bought for employees and holiday gifts given out considered as labor insurance premiums or welfare expenses? If you choose the wrong subjects, not only will your accounts be messed up, but you may also pay hundreds of thousands more in taxes. Today, I will explain the difference and tax treatment of these two expenses clearly in plain language, so that you can understand them at a glance and never step into any trap again.
Let’s first lay out the core conclusion: labor insurance premiums are “money that must be spent to do work” and are fully deducted before tax; welfare fees are “additional benefits for employees” and there is an upper limit on deductions, and taxes will be paid if they exceed the limit.
1. First, let’s clarify: What is labor insurance premium? What are welfare fees?
1. Labor insurance premiums: necessary expenditures to “ensure safety and production”
The core of labor insurance premiums is "labor protection", which is only related to the work scene. It is the money that companies must spend to allow employees to work safely. for example:
– Safety helmets, protective clothing, and non-slip shoes for frontline workers
– Dust masks and anti-noise earplugs for special positions
– Safety warning signs and first aid equipment in the workshop
– Heatstroke prevention and cooling supplies for high-temperature working positions (such as refreshing drinks, Huoxiang Zhengqi water)
The judgment standard is simple: without this thing, employees cannot complete their work safely, and it must be "uniformly equipped and for work use only" and cannot be issued to employees to take home for private use.
2. Welfare expenses: non-essential expenditures for the purpose of “warming people’s hearts and improving welfare”
The core of welfare fees is "employee care", which is an additional benefit provided by the company to employees and has nothing to do with work safety. for example:
– Holiday gifts, birthday cakes, team building dinners
– Equipment and personnel costs for staff canteens, bathrooms, and hairdressers
– Housing subsidies, transportation subsidies, and communication subsidies for employees (parts not included in the salary system)
– Medical subsidies and hardship subsidies for employees’ families
The judgment criteria are also very straightforward: even if the money is not spent, employees can still work normally, which is an "extra benefit" voluntarily provided by the company.
2. There are many differences in tax treatment: one is full deduction, the other has upper limit.
This is the part that companies are most concerned about, and it directly affects their tax burden. They must keep in mind:
1. Corporate income tax deduction: There is no upper limit for labor insurance premiums, and there is a 14% red line for welfare premiums.
– Labor insurance premiums: According to Article 48 of the "Enterprise Income Tax Law Implementation Regulations", reasonable labor protection expenditures are fully deducted before tax, with no proportional restrictions, and can directly offset profits and help enterprises pay less taxes.
– Welfare expenses: According to Article 40, employee welfare expenses can only be deducted if they do not exceed 14% of total wages and salaries. The excess amount will be subject to a tax increase, which is equivalent to paying more corporate income tax.
To give a straightforward example: the company's annual total salary is 10 million, and the maximum deduction for welfare fees is 1.4 million. It costs 1.5 million. The extra 100,000 will have to pay 25,000 in tax at a 25% tax rate.
2. Value-added tax deduction: labor insurance premiums can be deducted, but welfare fees cannot.
– Labor insurance premiums: These are expenditures related to production and operations. After obtaining special value-added tax invoices, the input tax can be deducted normally, further reducing corporate costs.
– Welfare fees: belong to collective welfare or personal consumption. According to the "Interim Regulations on Value-Added Tax", the input tax cannot be deducted. If it has been deducted, it must be transferred out as input, otherwise it will be punished by tax inspection.
3. Personal income tax: Labor insurance premiums are not involved, but welfare fees may have to be paid
– Labor insurance premium: only for work use, not considered personal income of the employee, and no personal income tax is levied.
– Welfare fees: If they are non-monetary benefits (such as shopping cards, gifts) issued to individual employees, in addition to the statutory tax-free portion (such as hardship subsidies), they must be incorporated into wages and salaries to pay personal income tax; collective benefits (such as canteens, team building) generally do not involve personal income tax.
3. Practical pitfall avoidance: How to judge common confusing scenarios?
Scenario 1: Which work clothes are considered?
– Work clothes for front-line workers and special types of work (such as welders and chemical operators): have protective functions and are only worn for work → labor insurance
– Work clothes for office clerks and managers: mainly for image display, without protective function → Welfare fee
Scenario 2: How to calculate the heatstroke prevention and cooling fee?
– Refreshing drinks and heatstroke prevention medicines distributed in high-temperature working positions: directly used for work protection → labor insurance premiums
– High temperature subsidies and cash benefits to all employees: inclusive benefits → Welfare fees
Scenario 3: How to record employee meal expenses?
– Food materials, equipment and personnel costs in the staff canteen: collective welfare → welfare fee
– Meal expenses and overtime meal expenses for employees on business trips: belong to operating expenses → travel expenses/management expenses, not counting welfare expenses
4. Practical suggestions for enterprises
1. Keep a good ledger: keep separate accounts for labor insurance premiums and welfare fees, keep purchase vouchers and distribution records, prove the purpose and rationality of expenditures, and avoid unclear explanations during tax audits.
2. Prioritize compliance expenditures: Expenditures that can be classified as labor insurance premiums should be accounted as labor insurance premiums as much as possible, so that both full deductions and input deductions can be made, reducing corporate tax burdens; welfare expenses should be controlled within 14% of total wages to avoid tax overspending.
3. Avoid mixing subjects: Don’t tuck welfare fees into labor insurance premiums to “avoid taxes”, and don’t mistakenly record labor insurance premiums as welfare fees. Once detected by the tax, you will not only have to pay taxes, but also pay late fees and fines, which is not worth the loss.
