Payment in kind is a method of payment. In this, the satisfaction of the debt, or the payment in exchange for which we acquire a certain good or service that we demand, is done through the delivery of another good or service, and not through cash.
It should be remembered that paying is the act by which a person who must satisfy a debt or acquire a certain good or service delivers money previously agreed upon to another (individual or entity). This must deliver the good or service, or settle said debt. Therefore, when we speak of a payment in kind, we refer to the action of paying. However, as the name suggests, the payment is made in kind. That is, by delivering a good or service of equal or greater value.
In the past, payments used to always be made in kind. Until the appearance of money, exchanges were made through barter. In this sense, we are talking about exchanges in which citizens paid in kind. For this reason, we say that payment in kind is one of the first payment systems known to humans.
Likewise, it should be noted that payment in kind in countries like Spain is only allowed when the person who must receive the payment agrees that said payment is made in kind. If it is not, the debtor cannot force the creditor to accept the payment in kind and, in the same way, consider the debt satisfied.
Origin of the concept of payment in kind
The origin of the concept of payment in kind comes from the sixteenth century, with the appearance and development of trade throughout the planet.
In this sense, "payment in kind" comes from "payment in spices."
This refers to the fact that, in those days, the spices that came from different countries, such as cloves, pepper, cinnamon, among other spices in high demand at that time, were very valuable. Thus, the merchants asked the merchants in those places where these products were grown to pay for their exchanges in spices, instead of giving money.
For this reason, the term "payment in kind" arises.
Salary in kind
In the same way that a person can satisfy a debt, or acquire a good or a service, by paying in kind, bosses can pay the employee part of their salary with some supplements that are delivered in kind.
Thus, the concept of "salary in kind" arises. That is, a part of the ordinary and permanent remuneration that the worker receives, but in services or goods and not in money. And this, as a direct consideration for the service provided.
Among the most frequent wages in kind, we can find the following elements:
- Food or diets.
- Hotels, apartments, as well as any residence.
- Dress code, uniform, guest clothes.
- Nursery and school for children.
- Delivery of shares or participations of the company.
- Company car, transport card, driver.
- Private insurance, dental insurance, life insurance.
- Supplementary pension, savings insurance.
- Christmas basket, gifts, etc.
It is convenient to check if the goods or services accepted and delivered to us are stipulated as qualifying goods to be delivered as payment in kind. Well, in certain regulations, these goods are a right, or cannot be, directly, delivered as payment in kind.
Regulation of payment and salary in kind
In many countries, this payment in kind, as well as the salary that is paid in kind, must be authorized by current legislation.
Countries like Spain, for example, have regulations that limit the possibility of employers paying their employees the full salary in kind. Thus, only the payment of a certain percentage of the salary in kind is allowed, and this depending on the amount that this remuneration entails.
On the other hand, this same economy (Spain) sets regulations for payment in kind. In this sense, it is not possible to satisfy a debt or pay a certain asset in kind if the seller, or the creditor, does not accept the proposed consideration. In this way, we can only pay off the debt, or acquire the good or service, when both people agree that this is done.
In summary, we are talking about a type of payment that is not always included in the law, since it is usually done when the two people have confidence and, therefore, can reach an agreement. However, it is convenient to review the legislation before wanting to make a payment in the manner detailed here.
Example of payment in kind
To finish consolidating the concept, we are going to see clear examples in which a person satisfies a debt in kind, pays his employee part of his salary in kind, at the same time we see a last case in which a good is bought with a payment in kind.
Starting with the first example, let’s imagine a situation in which a person buys a house, takes out a mortgage to pay for said house, and after a while he loses his job, losing the solvency that allowed him to pay the monthly cost of the property. Thus, the bank, ultimately, if it does not collect, will repossess the home, complying with the debt that the debtor previously had with the bank. Thus, the payment of this debt has been made in kind, since it was the bank that seized the house and accepted the house as payment for the debt contracted.
On the other hand, the second example is found in large companies that are present in large cities. These companies, in addition to the company car, give their employees a check that allows them to eat outside the office, while hiring, as in Ikea, for example, teachers with whom the employees’ children are up to that their parents finish their workday. It is a way to achieve work-life balance. All this is a payment in kind.
Likewise, a last example in which we acquire an asset through a payment in kind is found in the automobile sector. In this sense, when we want to acquire a new vehicle, we usually ask the dealer to price our old vehicle, and accept it as part of payment. In this sense, the dealer will offer an amount for the vehicle to its owner, which will be deducted from the price to pay for the new vehicle. An example of how payment in kind, too, is a frequent option on a day-to-day basis.