In its recent administrative instructions, the National Social Security Office ("NSSO") broadened the concept of remuneration for social security purposes compared to the interpretation that has been accepted until recently.
The salary concept for social security purposes
The Social Security Act – which refers to the Wage Protection Act – and several administrative instructions issued by the National Social Security Office define the concept of salary for social security purposes as follows:
- the benefit must be paid or be valuable in money;
- the employee is entitled to the benefit;
- the benefit is awarded to the employee by virtue of his/her employment; and
- the benefit is borne by the employer.
The labour courts have interpreted the fourth condition. However, the NSSO's administrative instructions issued for the third quarter of 2018 broaden the NSSO's interpretation of this condition.
A benefit "borne by the employer"
Until recently, the NSSO and the labour courts interpreted the condition that the benefit must be borne by the employer in similar ways. The Court of Cassation recently ruled, in line with its previous judgments, that a benefit which is not financially borne by the employer can still be deemed to be remuneration. This will be the case when the employee can claim the benefit from his employer. The benefit must then be borne by the employer, at least as a matter of law. Until recently, this interpretation could also be found in the NSSO's administrative practice and instructions.
However, the NSSO has now broadened the interpretation of this condition in its administrative instructions. The NSSO considers benefits as being borne by the employer if (i) the benefit is granted by virtue of the employment agreement, or (ii) the grant of the benefit relates to the function of the employee.
According to this interpretation, the NSSO is now of the opinion that the condition is fulfilled if – in line with the tax administration's taxable income concept – a (causal) link can be made between the awarding of the benefit on the one hand and the employment agreement on the other hand, regardless of any intervention in the grant by the employer. In this way, the NSSO seems to combine the third condition (award by virtue of the employment) and the fourth condition (benefit borne by the employer), thereby undermining the usefulness of the fourth condition.
This interpretation entails that benefits granted to employees by third parties, with or without the employer's awareness, could qualify as remuneration subject to social security contributions. Such an interpretation seems not only to be unreasonable, but also to go beyond the existing (published) court rulings. It is debatable whether the NSSO's broadened interpretation will pass the test of judicial review.
Potential practical impact of the broadened salary concept
The broadened interpretation of the salary concept, when applied by the NSSO, could put an end to the existing corporate practice where a parent company grants (in particular stock-related) benefits, exempted from social security contributions, to the employees of a subsidiary. Until recently, the grant of such benefits was free of any social security contributions provided that the subsidiary did not intervene in the grant in any way. From now on, such benefits could be made subject to social security by the NSSO as a direct result of the NSSO's broadened interpretation.
Based on the NSSO's broadened interpretation of the salary concept, benefits granted by a third party to employees are considered to be salary as soon as a (causal) link with the employment agreement can be established. The NSSO's interpretation is very similar to the tax administration's taxable income concept.
However, this interpretation goes beyond the existing (published) court rulings interpreting the condition that a benefit must be borne by the employer in order to qualify as salary subject to social security contributions. Whether this interpretation by the NSSO is compatible with the legal salary concept, as set out in the Wage Protection Act, will have to be decided by the courts.