27 Oct 2022
In a judgement of 5 September 2022, the Court of Cassation overturned a Ghent Labour Court ruling of 20 April 2020 in a case that dealt with the notion of salary on which social security contributions are due, specifically where the benefit is awarded by a third party. In this respect, the Court of Cassation confirmed that, if a benefit doesn’t constitute the counterpart for the work performed in execution of the employment agreement, it will only be subject to social security contributions if it’s borne by the employer.
In the case at hand, several employees of a Belgian company were awarded restricted stock units (RSUs) by the US parent company, the latter of which also bore the financial cost of the RSUs. Following an inspection, the National Social Security Office (NSSO) argued that these RSUs constituted ‘salary’, on which social security contributions were due, claiming they were in fact indirectly borne by the Belgian employer.
As a reminder, according to Belgian law, social security contributions are due on an employee’s ‘salary’, which first of all constitutes every benefit that an employee receives as the counterpart for the work performed in execution of the employment agreement. In addition, article 2 of the Wage Protection Act expands on this by also considering salary in this respect as; every other benefit that cumulatively meets the following criteria:
in cash, or measurable in cash;
to which the employee is entitled as a result of their employment and;
that is borne by the employer.
This case revolved around the third element; whether or not the RSUs were borne by the Belgian employer. Note in this respect that, based on the Court of Cassation’s case-law on this topic, even when a third party bears the financial cost of a benefit, the benefit is still considered to be borne by the employer if the latter has made the legal commitment to grant the benefit.
Both the Ghent Labour Tribunal and the Ghent Labour Court, in appeal, sided with the NSSO, ruling that, although the financial cost was borne by the parent company, the RSUs were still to be considered as borne by the Belgian employer and that, as a result, social security contributions were due. Citing two provisions of the RSU bonus plan, the Ghent Labour Court argued that the RSUs had to be considered as being awarded by the Belgian employer to the employees in question and that the Belgian company was the only one the employees could turn to with respect to the grant. This argumentation, however, didn’t convince the Court of Cassation, which overturned the decision of the Ghent Labour Court, ruling that the latter failed to legally justify that the RSUs were to be considered as salary on which social security contributions were due.
The Court of Cassation judgement is the next iteration of the Court’s standing body of case-law on how to determine whether a given benefit is to be considered as salary on which social security contributions are due. In its judgment, the Court clearly differentiates between a benefit that constitutes the counterpart for work performed in the execution of the employment agreement, which is always subject to social security contributions, and a benefit that doesn't. The latter benefit, to which an employee is entitled as a result of their employment, only constitutes salary on which social security contributions are due if it’s borne by the employer. By making this distinction, the Court confirms that it’s possible for a benefit to be awarded to an employee by a third party, not as the counterpart for work, but for a separate reason. If that’s the case and the benefit is not directly or indirectly borne by the employer – meaning i.a. that the third party bears the financial cost and is the one that made the legal commitment to grant the benefit –, no social security contributions will in principle be due.
It’s important that the Court again makes this distinction because, in the aftermath of one of their previous judgements on this topic – the 2019 Sisley case – some confusion arose in this respect, with some commentaries making the case that the Court had sidelined the requirement of ‘borne by the employer’ altogether. In this respect, we refer to our 2019 newsletter on the Sisley case, in which we analysed the case in light of the earlier Court of Cassation case-law and came to the conclusion that the judgement fully fit the distinction between benefits that constitute the counterpart for the work agreed to in the employment agreement (which are always subject to social security contributions) and benefits that don’t constitute the counterpart for that work, which will only be subject to social security contributions if they’re borne by the employer.
The Court of Cassation judgement brings about some more clarity on the topic at hand, however, whether or not a given benefit constitutes the counterpart for the work agreed in the employment agreement or – if not – whether or not these three criteria are met, is still a highly factual assessment. When e.g. talking about equity-based compensation awarded by the parent company, the details of the bonus plan will have to be carefully considered in this respect.
If you have any question regarding the latest Court of Cassation judgement or regarding the notion of salary in general, don’t hesitate to reach out; we’d love to hear from you.