Upcoming tightening of conditions for the wage tax exemption for night and shift workers

Over the past few years, an increasing number of employers have been faced with tax audits in relation to the wage tax exemption for night and shift workers. This led to lengthy and difficult discussions with the Tax Administration, often resulting in important additional tax assessments.

A Draft Bill approved last week by the Council of Ministers (which is yet to be submitted to Parliament), tightens the conditions of this regime. The new rules would enter into force on 1 April 2022. We summarise the most important changes below.

Introduction of minimum amount of team premium

To apply the exemption, employers must pay a “team premium” to all night and shift workers. Under the current legislation, there are no minimum requirements for this premium in terms of amount.

This would change going forward:

• As of 1 April 2022, the premiums must be at least 2% above the normal hourly wage for shift workers (“shift premiums”) and 12% for night workers (“night premiums”).
• As of 1 April 2024, the premiums must be fixed in a collective labour agreement, employment regulations or an individual employment agreement.

Codification of administrative position regarding calculation of the “1/3 rule”

Employees must perform night or shift work for at least “1/3” of their total working time during the month for which the wage tax exemption is applied (the “1/3 rule”).

In the past, there was some uncertainty regarding the calculation of the 1/3 rule (see our previous newsletter of 18 November 2021). According to the Draft Bill, only the hours “effectively performed in shift work, for which the employee also received a team premium” can be taken into account for the purpose of the calculation.

In addition, the 1/3 rule would be assessed separately for shift work and night work. This would mean that the exemption only applies if the employee works at least 1/3 of his or her working time in shift work, or at least 1/3 of his or her time in night work. Hence, it would no longer suffice that the employee works more than 1/3 of his or her working time in shift work and night work combined.

Codification administrative tolerance of 15-minute break between shifts

Under current legislation, employees working in shifts must succeed each other during the day “without interruption”. The Draft Bill confirms the previously introduced administrative tolerance that a short break of maximum 15 minutes between the shifts is allowed.

Introduction of specific rules for temporary employment agencies

Under current legislation, temporary employment agencies (interim offices) can also benefit from the exemption with respect to employees who are employed at the premises of their clients in night and shift work.

As of 1 October 2022, clients of temporary employment agencies will have to explicitly agree that the latter may apply the exemption regime. The legislator wants to avoid that employment agencies apply the exemption without their clients being aware of it.

Introduction of new reporting obligations and sanctions

The Draft Bill indicates that new reporting obligations may be determined by Royal Decree. These could include, among others, the obligation for employers to submit more detailed yearly salary slips and summary statements on which e.g. the number of employees, the individual salaries, the amount of payroll taxes etc. would have to be mentioned.

These new reporting obligations would apply to salaries paid as of 1 January 2023 (at the earliest). As these salary slips relate to the exemption applied on the salaries paid during the previous year, the first special salary slips would only be submitted in the course of 2024 (at the earliest).

Sanctions

The Draft Bill provides that a tax increase of 10% (or more) could be applied by the Tax Administration if the wage tax exemption is applied incorrectly. This sanction would, however, only apply if the employer did not act “in good faith”.

Conclusion

Employers must carefully reassess whether the manner in which the wage tax exemption is applied could be affected by the proposed rules, and if so, whether any changes should be made to ensure the exemption can continue to apply.

We are closely monitoring these developments and would, of course, be delighted to assist you with any questions you may have in this respect.