Strict case law regarding the shift premium and more strict FAQ regarding ⅓ norm urges for action
Night – and shift labour incentive
Companies with employees performing shift or night work can receive a partial exemption from the payment of wage withholding taxes. The ‘discount’ is quite substantial: as an employer you can save up to 22.8% (25% for fully continuous systems) of the taxable remuneration of the employees in the system. There are several conditions but the most important ones are (i) paying a shift premium and (ii) performing qualifying night – or shift labour for at least ⅓ of the labour time.
Although a lot can be said about what is “qualifying night – or shift labour” and a lot of case law is in place, an even bigger “danger” might be coming from the first condition. Although most companies considered this condition to be automatically fulfilled when a premium is paid to night – and shift workers, tax inspectors and courts seem to disagree.
Additionally, the tax authorities published a revised FAQ on 16 November 2021 regarding the calculation of the ⅓ norm, which is quite a lot stricter than the previous version.
Shift premium
Unfortunately, the legislator has failed to clearly define the notion of “shift premium” apart from it being a “premium paid to shift workers”. Also on an industry level, many Joint Committees have not concluded a collective bargaining agreement defining the “shift premium” or its modalities. In absence of any definition or guidelines, many employers are left in the dark and had to come up with their own regime of premiums.
Often, companies granted a premium – which they labelled as “shift premium” – to employees effectively working in a shift labour regime for other reasons than the shift labour itself. For example, some companies awarded their “shift premiums” only insofar as the shift workers started their working day before a certain time, ended it after a certain time or worked for a defined number of consecutive hours. Other shift workers who do not meet these additional conditions (on company level) don’t receive the shift premium.
Even though in the past these “shift premiums” passed the test during tax audits, tax inspectors and courts are now becoming more and more strict. From recent case law it can be concluded that a “shift premium” can only be a true and qualifying shift premium (as defined by Article 275/5 of the Belgian Income Tax Code) insofar as the premium is awarded as a direct result of the shift work. The latter entails that the premium must be awarded to all workers for whom the exemption is requested and solely because they work in successive shifts.The court of Hasselt even specifically states “the premium must be attributed regardless of the time the members of the shift start or end their work”.
If this is not fulfilled, it could be argued that the premium is not a true “shift premium” (even though it is labelled as such) and thus none of the shift workers actually receive a qualifying shift premium. If this conclusion would be reached, the company could be exposed to the risk that the entire tax incentive could be declared void. With an assessment period of up to 5 years, this could have substantial consequences for a company if the entire incentive would be refused (including late payment interests)!
When applying the partial exemption from withholding taxes for night or shift labour, companies must be cautious when paying a premium to their shift workers. Not every premium will indeed be accepted by the authorities or the courts.
In the first instance, companies should check whether a specific shift premium has been provided on a sectoral level by the competent Joint Committee. If the latter is not the case, the company will have to introduce a shift premium on a company level. When doing so, the company must take into account that the premium should be awarded because (and only because) of the shift work itself. Only paying the premium when additional conditions are met (e.g. length of the shift, time of the day when shift starts or ends, etc.) may result in the authorities and courts arguing that the premium is in fact not a true “shift premium” which would result in substantial assessments by the tax authorities.
Calculation ⅓ norm
A second element making the application of the night – and shift labour incentive more strict is the publication of a new FAQ regarding the calculation of the ⅓ norm on 16 November 2021 by the Belgian tax authorities.
The main element in this FAQ is the fact that the ⅓ norm can as from 1 January 2022 only be calculated on an hourly basis. This means that the old option of calculating on a daily basis is no longer allowed. The Belgian tax authorities thereby align with case law from the Court of appeals Bergen from 21 October 2020.
Since in practice the ⅓ norm is often still calculated on a daily basis and in a lot of cases is more beneficial than on an hourly basis, it is time to verify your internal systems to make sure calculations are done correctly.
For more information on this topic, please don’t hesitate to contact Thomas Goemaere.
