What is Employees Claim and Its Implication to Taxation?

What are Employee Claims? 

In daily conversation, Claims are often referred to as reimbursement. Reimbursement is a process of reimbursing funds submitted by employees to the company for incurring expenses. This includes both expenses which are the rights of the employees and the expenses for the needs of the company.

Employee claims can also occur when the company requires certain services from a vendor, and employees cover these expenses first and then submit claims for services or products that have been paid previously.

Each company has different regulations regarding employee claims or reimbursement, according to the types of the claims, procedures for submitting claims and the tax policies that will follow.

The procedure for submitting employee claims and the time needed for the funds’ disbursement also depends on each company’s regulation. Such factors that determine the approval of employee claims normally include receipts’ clarity, length of delay after purchase, and categories of the goods or services.

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Types of Employee Claims

Health Claims

As a form of rewards for their employees who have worked for a long time, some companies provide health benefits as a right for their employees. The scope of the benefits covered and its limit will  vary and depend on the policies of each company and the employees’ position.

Health claims can include hospital treatment (inpatient or outpatient), redemption of drugs, claims for eye examinations and getting glasses, claims for dental treatments, claims for childbirth and pregnancy related check ups, claims for medical checkups, up until claims for  Covid-19 swab tests.

Transport Claims

Generally, transport claims are given to employees who have a higher level of mobilization compared to others. These claims are usually present in activities that are closely related to company interests, such as business travel, meetings outside the office, delivering documents, attending certain events and many more.

Other than gas and parking costs, there are several companies that allow their employees to reimburse claims for vehicle repairs as well as purchasing spare parts at the garage.

Entertainment Claims 

There are usually expenses when the employees have meetings with clients or with vendors regarding work issues. They would pay for the consumption during these meetings, and often, the employees will use their personal funds. They can reimburse this expenses under the entertainment claims category.

Gratification Claim

Gratification claims can be applied to expenses made on behalf of the company intended for clients, vendors and partners. These expenses can be in the form of money, goods, commissions, interest-free loans, travel tickets, lodging facilities, tours, treatment and other facilities, as a form of gratification.

Communication Claims

Some Jobs, such as marketing or sales, require more time dealing with clients, vendors and partners and through telecommunications provider services. In return, this will add to their telecommunication bills. The company will provide a communication claim to support this.

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Is Employee Claims Taxable?

According to the Director General of Taxes Circular Letter NO SE-03/PJ.23/1984, facilities in kind or Natura are any remuneration for services not in the form of cash received by employees, or their families from the employer. Health facilities, credit top-up, and transportation facilities can be considered as Natura.

In Law Number 7 of 2021 regarding Harmonization of Tax Regulations  categories that are excluded from tax objects is stated in article 4 paragraph 3 letter d. reimbursement or compensation related to work or services received or obtained in kind and/or enjoyment that is included in this article are:

1. Food, food ingredients, beverage ingredients, and/or drinks for all employees;
2. Natura and/or enjoyment provided in certain areas;
3. Natura and/or enjoyment that must be provided by the employer to carry out work activities;
4. Natura and/or enjoyment that comes from the State Revenue and Expenditure Budget, the Regional Revenue and Expenditure Budget, and/or the Village Revenue and Expenditure Budget; or
5. Nature and/or enjoyment with and/or certain limitations.

However, Article 6 paragraph 1 letter n still within the same Law Number 7 of 2021 about Harmonization of Tax Regulations explains that the amount of Taxable Income for domestic Taxpayers and permanent establishments is determined based on gross income minus costs for obtaining, collecting and maintaining income, including rewards or compensation given in Natura (allowances). 

These two articles seem contradicting each other, where the first article states that Natura is excluded from tax objects so it is not included in PPh 21 deductions. However, in the second article, Natura is still included in taxable income.

Generally, the old regulations is still used in the current implementation, where Natura is not considered as a cost reduction, so that the annual SPT is not affected by positive fiscal.

Because a derivative government law regarding this subject has not yet been issued, it is up to each company’s policies to classify these claims. For example, health claims can be categorized as health benefits which will be deducted for PPh article 21.

To ensure that employee and Natura claims are not misused, it is important for companies to implement a proper claims management system. activities such as marking-up of transaction value, fake receipts, and multiple claims can be detrimental to businesses and companies.

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Manage Employee Claims Easily And Transparently With Aspire

One of the efforts to avoid misuse of employee benefits or claims is by digitizing the claim processing system and ensuring the authenticity of each claim.

To facilitate this, Aspire provides a claims management feature as part of Aspire's all-in-one financial platform. With Aspire claims management, all employee claims are stored neatly in an automated system and can be accessed easily.

Of course, employees can also feel the benefits of submitting claims easily and receive funds faster if claims are in accordance with the company’s policies, which will help to build employees’ loyalty and  trust to the company.

Claims management systems can be applied early to manage finances easier as the company grows. While the time needed to process claims is insignificant when the team members are still few, it will continue to increase as the number of employees grows. Therefore, start your finance management automation now to simplify the company's financial processes in the future and reduce risks of fraud or manual errors.