A new law adopted on 24 September 2013 will remove exemptions on paying social security for payments made on the termination of employment contracts.
Measures to fight fraud featured heavily in the Government’s recent budget. One such measure includes an amendment to the rules on the definition of payments subject to social security contributions. The change was announced in the Royal Decree of 24 September 2013 which amends Article 19 of the Royal Decree of 28 November 1969 implementing the Law of 27 June 1969 amending the Decree of 28 December 1944 on social security for workers.
The Royal Decree states that any compensation paid directly or indirectly to former employees by their former employers to compensate for any non-competition agreement or non-solicitation agreement entered into in the 12 months following the end of the contract, is now to be considered as a salary payment and thus subject to social security contributions. Payments as part of such agreements have long been contentious with the social security authorities, but they have previously been overruled by the Court of Cassation that deemed these payments to be exempt from social security contributions under certain conditions. This will however no longer be the case.
The Royal Decree furthermore replaces points 2 and 3 of article 19, section 2 and thus also abolishes the exemption from paying social security for amounts due by (former) employers in cases where they fail to fulfill their legal, contractual or statutory obligations as well as the exemptions linked to the payment of the clientele indemnity due to sales representatives. Following the adoption of the Royal Decree, social security contributions will be due on these types of compensatory payments made to (former) employees.
In contrast, the compensation payable in the event of collective redundancies in accordance with the Collective Agreement No. 10 of 8 May 1973 on collective redundancies and the compensation to which blue-collar workers are entitled in case of unfair dismissal (on the condition that this right originated before January 1, 2014) are not consi dered to be included in the definition of a salary. In other words, no social security contributions are due on these payments.
The Government’s view is that these measures, by making all payments relating to the termination of an employment contract subject to social security, will close loopholes that had allowed some to abuse the system of exemptions. Nevertheless, the bodies representing employers expressed their regret via the National Labour Council that these anti-fraud measures will increase labour costs for employers.
The Royal Decree of 24 September was published in the Belgian Official Gazette of 27 September and enters into force on the 1 October 2013.