Staff Welfare Expenses (SW) are the expenses incurred to benefit the entity’s employees.
These expenses are not like direct payments to employees working for the business.
SW expenses can be non-monetary, such as Gifts, Refreshments, reimbursements to employees for incurring expenses like gym membership, arranging for team dinners, and free medical tests.
Generally, the expense type that qualifies for reimbursement depends on the respective entity’s policy.
Estimated reading time: 5 minutes
Examples List:
The listing of Staff Welfare (SW) expenses is below to help get a sense of the nature of this expense.
- Well-being expenses. These days, entities are starting to focus more on the well-being of their employees. As such, they provide employees with various eligible expenses under this category. These expenses are generally provided as reimbursement to employees when they incur them.
How about some examples here?
Expenses incurred towards Gym Equipment, Meditation Classes, Membership for learning Music/Musical Instruments, etc.
- Petty gifts on special occasions (like gift vouchers on successful completion of a project or significant business achievement)
- Employees Gym Membership
- Subsidized meals/snacks (to the extent of subsidy, which qualifies for staff welfare expenses)
- Refreshments like Snacks, beverages
- Employee Team Lunch
- Birthday and Festival Celebrations at the office
- Fitness Challenges among coworkers (For example, Weight loss Challenge, 100 Push-ups Challenge within 15 mins)
- Doctor on Call Facility (Including Medicines)
- Games Facility at Office (Indoor Games like Chess/Table Tennis, Badminton, etc.)
Therefore, all these expenses are not generally covered by cash payments.
Instead of Cash Payment, the Entity provides these facilities through “benefits in kind”.
Said differently, entities/management want to ensure that the end use of these expenses benefits the customer without a direct cash payment.
How about an example here?
For example, the entity has concerns regarding its employees’ health. If the entity gives a cash allowance of $15,000 per year for subscribing to a gym membership, then it’s inconclusive that employees are spending the amount for said purpose.
Instead, if the entity reimburses gym membership only upon submission of bills in the employee’s name, it helps the entity achieve its real objective. So, the second approach proves that the employees are spending the said money for the stated purpose.
Understanding the Staff Welfare Expenses:
What’s the purpose of these Welfare expenses?
The answer to this question is very logical. Let’s understand the background of this first.
Business thrives based on the employees’ efforts. So, the success of a company is dependent on employees’ work. The most significant motivating factor for any employee is the rewards and benefits.
Increases in businesses’ net profits or earnings might not motivate employees unless their benefits are dependent on those (for example, Employee rewards are based on a certain percentage of earnings). Entities’ regular rewards/salary benefits are like this: You work, I pay. Therefore, entities want to show concern for their employees by providing benefits beyond the regular Paychecks/Salaries.
What’s the accounting treatment for SW Expenses?
SW Expense is no different in accounting treatment when compared to other expenses. Debit the SW Expenses GL and credit the Bank GL or Liability GL.
(Being Expenses incurred for Coffee/Tea machines)
You debit the supplier account and credit the bank account in the later entry. So, the subsequent entry is a bank payment journal entry.
Note: It’s also appropriate to treat directly crediting to the Bank instead of hitting the Liability. This recording of Liability GL and then hitting Bank GL is very common in accounting practice.
Frequently Asked Questions:
Are staff welfare expenses personal expenses?
These expenses benefit entity employees and workers beyond the regular salary. As such, they indirectly support business operations. So, SW expenses are not personal expenses.
Is the SW Expense a direct expenditure?
No, Staff Welfare expenses are indirect expenditures. They are not incurred for manufacturing or trading or are not related to primary business operations. Therefore, SW expenses do not fall under the category of direct expenses.
Are Staff Welfare expenses allowable for tax purposes?
SW expenses are appropriate business expenses as the end use of that expenditure is to the advantage of the employees. So, these expenses are allowable for tax purposes.
Are staff welfare expenses fixed or variable?
Employee welfare expenses are not fixed costs. They vary based on the nature of the expense. For example, the company provides employees with free access to Yoga courses. However, this is not mandatory for each employee to utilize.
Well, it depends on person to person. Some employees might not be willing to. So, the company incurs expenses for employees who only choose it.
So there is a high chance that it’s a variable expense.
Conclusion:
Staff Welfare expenses are incurred for the benefit of the entity’s employees. They improve the office culture, Employee health benefits, and Employees’ positive attitude towards the entity or its business. So, these expenses indirectly help to succeed in business operations. As such, they are allowable expenses and not personal expenses.
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