The NSSO challenges supplementary child benefits granted in a flexible reward context
24 Jan 2020
The NSSO recently seems to have adjusted its position on whether or not supplementary child benefits can be awarded free from social security contributions if they form part of a flexible reward scheme. Whereas the NSSO used to state that such supplementary child benefits were not subject to social security contributions provided some conditions were met, it now argues that the exemption from subjection is not applicable if the supplementary child benefits are awarded as part of a flexible reward scheme.
General principles
Social security contributions are due on the salary of employees, and, in order to define the notion of salary, the social security legislation refers to the Wage Protection Act. Article 2 of this Act defines salary in this respect as any benefit in cash - or quantifiable in cash - an employee is entitled to as a result of employment and for which the employer is liable.
Article 2 of the Wage Protection Act not only contains the general definition of what must be considered as salary and is thus subject to social security contributions, it also sets forth a number of exemptions in this respect, including supplements to benefits awarded in various social security branches (statutory pension, child benefits, unemployment or incapacity for work). Consequently, such amounts are not subject to social security contributions.
According to a well-established body of case-law at the level of the Court of Cassation, a certain payment can be considered as a supplement to a social security benefit if it’s aimed at compensating for the loss of income, or the increase in costs, resulting from the actual occurrence of one of the risks covered by the various social security branches.
Taking into account the above, supplementary child benefits that are awarded by an employer to employees with children can in principle be exempt from social security contributions.
NSSO position - old versus new
In their administrative instructions, the NSSO confirms that supplementary child benefits are in principle exempt from social security contributions. Not included in their administrative instructions, but apparent from previous litigation and confirmed via e-mail by the NSSO, is the fact that the NSSO added additional requirements in order for supplementary child benefits to be exempt from social security contributions:
The value of the supplementary child benefits should be limited. In this respect, the NSSO sets forth a maximum amount of EUR 50 per month per child at charge;
It should be the employer’s sole intention to award supplementary child benefits, aimed at alleviating the cost of raising children. The NSSO is of the opinion that this condition is not met if the employer differentiates between employees when awarding the supplementary child benefits (e.g. if only specific categories of employees are awarded the benefit or if the amount of the benefit depends on the position of the employee).
It’s important to note that these additional conditions are not included in the text of article 2 of the Wage Protection Act and have as such been rejected by the Court of Cassation in the past. Even so, the NSSO keeps applying them when analysing whether or not a supplementary child benefit awarded by an employer is exempt from social security contributions.
Up until recently, the NSSO stated that - as long as the above conditions were met - it took the view that supplementary child benefits were also exempt from social security contributions if they formed part of a flexible income plan, i.e. if supplementary child benefits constituted one of the possible choices of flexible income employees could opt for.
However, based on our latest contacts with the NSSO, the latter’s view is now that, where supplementary child benefits are awarded to employees as part of a flex income plan, these supplements cannot be considered as inherently aimed at compensating for the additional cost of raising children, because employees with children have a choice to opt for supplementary child benefits or another benefit altogether. According to the NSSO, the supplementary child benefits are - in the above scenario - rather aimed at compensating for the reduction in remuneration that was used as a budget creator in the flex income plan.
Consequently, the NSSO takes the position that supplementary child benefits that are awarded as part of a flexible income plan fall outside the scope of application of the exemption from social security contributions for supplements to benefits awarded in one of the social security branches, and that social security contributions are therefore due on these amounts.
Analysis
The above seems to leave little room for including supplementary child benefits in a flexible income plan.
There are, however, legal arguments to challenge the NSSO’s position, and it will be interesting to see how the Belgian courts will deal with it. Historically, case-law on supplements to benefits awarded in one of the various social security branches has given a broad interpretation to the exemption from social security contributions concerned here. This seems at odds with the above latest, more restrictive, interpretation of these principles, and it remains to be seen whether the latter will hold up in court.
Conclusion
As mentioned above, the NSSO’s interpretation is an indicator of what companies will likely be confronted with if the NSSO’s inspectorate services examine their flexible income plans. For this reason, we believe it’s opportune for companies having a flexible income plan that includes supplementary child benefits to consider whether they still want this type of benefit to be part of their plan.
Feel free to reach out to your PwC Legal contact to further discuss this matter, allowing you to make a fully informed decision in this respect.
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