Update regarding social security contributions on remuneration granted by (foreign) entities to employees of a subsidiary or third party: decision by the Supreme Court
Update regarding social security contributIn September 2018, the National Social Security Administration (“NSSO”) reopened the debate on the definition of “remuneration”, which serves as a basis for the levy of social security contributions. According to the NSSO, remuneration is every benefit (in cash or in kind) which the employer grants to its employee as a result of the work performed in the execution of the employment contract, as well as to which the employee is entitled by virtue of his/her employment chargeable to the employer. The NSSO considers that it suffices for “the granting of remuneration to be the result of work performed in the execution of the employment contract with the employer”, in order to be “chargeable to the employer”.
The NSSO took the view that the above position was in line with a decision from the Brussels Labour Court of Appeals of 7 March 2018. The Labour Court of Appeals had decided that individual commissions directly paid by a third party to employees qualify as remuneration notwithstanding the fact that the employee would not be entitled to claim the granting of these commissions directly from his employer. The simple fact that these commissions were granted to the employees “in consideration for the work performed in the execution of the employment contract” justified social security contributions to be paid for (see our Alert of September 2018 in this respect).
An appeal with the Supreme Court was lodged against this decision. On 20 May 2019, the Supreme Court has rendered a decision confirming the decision of the Brussels Labour Court of Appeals of 7 March 2018.
Decision by the Supreme Court: definition of remuneration
According to the Supreme Court, Belgian employment law knows different “remuneration” concepts.
- Based on the general definition of the employment contract, remuneration is the counterpart for the work performed.
- Article 2 of the Remuneration Protection Act applies a much broader “remuneration” concept: all salary or benefits – in cash or in kind – to which the employee is entitled by virtue of his/her employment (execution, suspension, termination, etc.) chargeable to the employer. Belgian social security law explicitly refers to this Article 2 of the Remuneration Protection Act. Hence, it is the latter broad remuneration concept that applies in order to analyse on which benefits social security contributions are due.
In this case, the Supreme Court had to rule on whether social security contributions are due on benefits that an employee received as a result of work performed in the execution of his contract - but from a third party and not from his/her employer. A majority of legal scholars had argued that such benefit does not qualify as “remuneration” as it is not “chargeable to the employer”, which is one of the conditions as provided by Belgian social security law (referring to Article 2 of the Remuneration Protection Act).
The Supreme Court has now decided that if an employee receives a benefit that is “the quid pro quo” for work, the benefit is chargeable to the employer - even if it is at the expense of a third party. Hence, the employer's obligation to pay the salary is not a separate element of the general concept of remuneration, but a necessary consequence of the execution of the employment contract.
In other words, it is sufficient that remuneration is granted as a result of work performed to be subject to social security contributions. It is not necessary to separately analyse whether the benefit is “chargeable to the employer”. The concept of remuneration provided by Article 2 of the Remuneration Protection Act does therefore not affect the general concept of remuneration, but extends it to benefits that are not necessarily the result of work performed (e.g. severance pay in case of a dismissal or guaranteed pay during illness, etc.).
The Supreme Court decision has an impact on benefits granted by a (foreign parent) company to employees of a third party (Belgian group) entity (such as stock option/share plans). Indeed, benefits granted by a parent company to the employees of a Belgian subsidiary, if the sole consideration for such a grant is the work performed by the employee (e.g. when being linked to performance thresholds), will be subject to the payment of social security contributions (+/- 28% employer’s contributions and 13.7% employee’s contributions) – even when the Belgian employer does not intervene in any way whatsoever. In addition, vacation pay (+/- 15.67%) will be due on these benefits.
Legal scholars argue that benefits granted to third-party employees for another cause than the work performance itself are not in scope of the definition of “remuneration” as indicated above. The NSSO has not yet taken a position on this view. It can thus not be excluded that such interpretation will – also – give rise to disputes (and litigations) with the NSSO.