Within the framework of the combat against social fraud, the council of ministers recently approved a royal decree subjecting indemnities paid at employment contracts’ termination to social security contributions. Subject to the advice of the Council of State, the entry into force of these provisions is expected to be 1 October 2013.
Reason for change
Currently, indemnities due when an employment contract is terminated (hereinafter referred to as ‘termination indemnities’) are, in principle, excluded from the calculation basis for social security contributions. There was one important exception: the ordinary indemnity in lieu of notice.
The new royal decree introduces social security contributions on all termination indemnities, not only on the indemnity in lieu.
These modifications are intended to put a stop to social security contributions’ evasion as from time to time indemnities in lieu of notice (subject to contributions) were “replaced” by other indemnities, such as non-compete indemnities (not-subject to contributions).
Exact scope of the modifications
In essence, the modifications come down to a reversal of the current situation.
All termination indemnities will therefore become, in principle, subject to social security contributions, such as, indemnities for protected employees (maternity leave, time credit, etc.), clientele indemnity and non-compete indemnities (even if they are concluded after the termination).
Indemnities granted when a non-compete or non-enticement agreement is signed will expressly be included in the calculation basis for social security contributions regardless of whether they were directly or indirectly granted by the employer and provided that they were agreed upon during a 12-months’ term after termination.
Only certain well-defined indemnities will not be subject to social security contributions: indemnity due upon closure of an undertaking (which was already exempt), collective dismissal indemnity and indemnity in case of arbitrary dismissal of blue-collar workers (provided that the right to this indemnity is acquired before 1 January 2014).
Concrete impact of the modifications
These measures will undoubtedly raise salary costs for the employer, which counters the objective of strengthening Belgian companies’ competitiveness. Employers should consider booking the necessary provisions for future additional social security charges.
Regarding the entry into force of the above measures, the draft royal decree merely provides that it will enter into force on 1 October 2013. It makes no mention of any transitory measures but, instead, creates legal uncertainty.
What will be the social security treatment of non-compete indemnities resulting from agreements concluded before 1 October 2013? Since, in principle, new legislation only applies to new situations and to the effects of old situations arising after the entry into force, social security treatment of a non-compete indemnity which has been agreed prior to the entry into force will have to be assessed in accordance with provisions which currently still apply. New legislation does not indeed apply to old situations.
Since the royal decree has been submitted to the Council of State for review, a definitive answer on the temporal scope of application of the provisions might be expected.
We will follow-up on the developments in this area and keep you informed. In the meantime we recommend no longer assuming that granting termination indemnities is social security contributions free.
