Court of Cassation dots the i’s on the notion of salary
26 Jun 2019
In a judgment of 20 May, which was recently published, the Court of Cassation reiterated its standing case law on the fact that social security contributions are due on any amount or benefit that is awarded to an employee as a counterpart for carrying out the work agreed between employer and employee. The Court ruled that this is the case, even if the employee doesn’t receive the amount or benefit from his employer, but from a third party.
Facts and proceedings
In the case at hand, employees of a chain of perfumeries who sold a certain volume of products from one of the suppliers received premiums from this supplier. The National Social Security Office (NSSO) claimed that these premiums constituted salary on which social security contributions had to be paid.
The ensuing lawsuit came before the Brussels Labour Court, which sided with the NSSO and determined that the premiums in question constituted salary on which social security contributions were due. In its line of argument, the Labour Court refers to the Court of Cassation’s standing case law, in which it held that - if a premium constitutes the counterpart for work performed in execution of the employment agreement between employer and employee - such premium will be considered salary on which social security contributions are due.
When examining the case at hand, the Labour Court found that the employees in question received premiums from a supplier for merely executing the work agreed between these employees and their employers, namely selling the perfumeries’ stocked products. If, during the execution of the work agreed with their employers, these employees sold a certain volume of products from the supplier in question, the supplier granted them a premium. As such, the Labour Court concluded that the employees received the premiums as a counterpart for the work they performed in execution of their employment agreement with the perfumeries and that these premiums consequently constituted salary on which social security contributions were due.
Judgment by the Court of Cassation
An appeal was brought before the Court of Cassation, which confirmed the ruling of the Labour Court and the line of argument contained in it. In its judgment, the Court reiterated the general principles on the notion of “salary” on which social security contributions are due and its case law in this respect, which can be summarised as follows:
Any amount or benefit that is awarded to an employee as the counterpart for work performed in execution of his employment agreement with his employer, is salary on which social security contributions are due;
This strict notion of salary - as the counterpart for work - is expanded by article 2 of the Salary Protection Act to also include any benefit in cash or measurable in cash to which the employee is entitled as a result of his employment and that is borne by his employer.
This means that, if a benefit is not awarded as a counterpart for the work agreed to in the employment agreement, it can still constitute salary on which social security contributions are due, if the employee is entitled to the benefit as a result of his employment and the benefit is borne by the employer. Conversely, if a benefit is awarded as a counterpart for the work agreed to in the employment agreement, whether or not the benefit is directly or indirectly borne by the employer in the sense of article 2 of the Salary Protection Act is irrelevant and doesn't even have to be examined.
Analysis and impact
As mentioned above, the fact that a benefit - that is awarded as the counterpart for the work agreed to in the employment agreement - constitutes salary on which social security contributions are due, is standing case law by the Court of Cassation. However, this seems to be the first time the Court applied its case law in a situation whereby the benefit is not paid by the employer, but by a third party.
Based on the Court’s case law, when determining whether or not a certain premium is subject to social security contributions, a 2-step assessment is in order.
First, it should be determined whether the premium constitutes salary as the counterpart for the work agreed to in the employment agreement. If this question is answered in the positive, social security contributions will be due. If this question is answered in the negative, the second step enters into play: is the employee entitled to the premium as a result of his employment and borne by his employer? If these conditions are met, social security conditions will be due, but if they aren’t - for example because the premium is not borne by the employer - no social security contributions will in principle be due.
Whether or not a certain premium or benefit is awarded as the counterpart for the work agreed between employer and employee is a factual assessment, but it’s clear from the Court’s case law that not every amount, premium or benefit awarded to an employee would automatically fit this description.
An answer to a different question
In their Administrative Instructions for the third quarter of 2018, the NSSO changed their position on this notion of “borne by the employer”. As we reported at that time, the NSSO adopted a very broad interpretation of this notion and we believe that there are arguments to claim that this adjusted interpretation is no longer in keeping with the legal definition thereof, adopted in article 2 of the Salary Protection Act. It will be interesting to see how the courts will handle the NSSO’s new position.
It is however important to point out that, although we would have liked it to have shed some light on the NSSO’s new position, the present judgement by the Court of Cassation does not relate to this discussion. As explained above, this judgement only concerns the first step of the 2-step assessment process we outlined.
Application - benefits granted directly by parent company
In the event of benefits granted directly by a (foreign) parent company to the employees of a Belgian company, our above mentioned 2-step assessment will be fully applicable, even though the benefit is awarded by a third party instead of the employer.
If we apply this 2-step assessment to such benefit, the first step will thus be to examine the intricacies of this grant in order to determine whether it is awarded as a counterpart for work performed by the employee in the execution of the employment agreement with the employer. This will of course heavily depend on the underlying indicators of the grant. If the parent company grants the benefit based on individual performance parameters, it will more likely be considered as a counterpart of work than a benefit solely based on e.g. group performance parameters.
If the first step results in the conclusion that the benefit is granted as a counterpart for work, social security contributions will in any case be due. If the conclusion is that the benefit does not constitute a counterpart for work performed in execution of the employee’s employment agreement with his employer, the second step of the assessment has to be executed. This will in practise mean that it should be examined whether the benefit is directly or indirectly borne by the Belgian employer. For this second step, we are currently still confronted with the NSSO’s adjusted, stringent, interpretation of “borne by the employer”, which doesn't seem to leave any room to assert that a benefit attributed by a foreign parent company to the employees of a Belgian subsidiary could be considered not borne by said Belgian subsidiary and therefore exempt from social security contributions because it does not constitute salary. However, as mentioned above and contrary to some other publications we have seen in the meantime, we believe there are arguments to dispute the NSSO’s interpretation. It will remain to be seen whether the Belgian courts, if presented with the NSSO’s adjusted interpretation, would agree with said interpretation or would rather reject it as not being in line with the text of the Salary Protection Act.
Conclusion
Although the Court of Cassation’s judgment doesn’t settle the discussion on whether the NSSO’s adjusted interpretation of the notion “borne by the employer” is or isn’t valid, it does focus this discussion on the larger picture of what constitutes salary on which social security contributions are due.
To determine if a certain benefit constitutes salary, the above explained 2-step assessment can serve as a guideline. In order to fully assess this, it will be paramount to make a detailed analysis of the conditions for the grant of the benefit, the way the benefit is awarded or paid out and whether it is directly or indirectly borne by the employer.
In the case of a bonus directly awarded by a foreign parent company (e.g. equity-based LTIPs), this means that the underlying bonus plan should be carefully examined. PwC Legal can of course assist you in this respect.
Contact us
