Changes to non-recurrent result-linked bonuses for 2013!

The Programme Act of 27 December 2012 modified the existing legal framework for non-recurrent result-linked bonuses as of 1 January 2013

A Belgian employer may grant a benefit to his employees in the form of a non-recurrent result-linked bonus, which qualifies for beneficial tax, labour and social security law treatment: up to a certain maximum amount, the benefit is exempt from income tax and, next to a new 13.07% employee solidarity contribution, only a special (final) social security contribution of 33% is due by the employer.

The Programme Act of 27 December 2012 modified the existing legal framework for non-recurrent result-linked bonuses as of 1 January 2013 by:

• first, increasing the maximum amount qualifying for beneficial treatment for social security and an exemption for labour law purposes to €3,100 per employee per annum (the amount of the benefit in excess of the maximum is considered salary and is subject to regular tax withholdings and social security contributions), and
• second, introducing an employee solidarity contribution of 13.07% (i.e. equal to the regular employee social security contributions).

The NSSO (RSZ/ONSS) considers that this new solidarity contribution of 13.07% is due on all benefits paid as of 1 January 2013, including those resulting from a non-recurrent result-linked bonus scheme which was set up before that date.

For the time being, the tax legislation has not yet been amended. This means that the exemption from income tax remains limited to €2,488 per employee (i.e. €2,200 after indexation). Thus, currently, the new maximum base amount of €3,100 only applies for labour and social security law purposes. It is expected that the tax legislation will soon be changed to the same amount (possibly retroactively, for all income received as of 1 January 2013).

To recap, to qualify for this beneficial tax and social law treatment, the most important conditions (there are others) are:

• the bonus applies to all employees of the company or a defined group of employees;
• the benefits are linked to collective results, on the basis of objective criteria;
• attainment of the collective target(s) is assessed over a defined period of time (reference period – at least 3 months).

As the examples below illustrate (at the top end of the benefit), the beneficial treatment of a non-recurrent result-linked bonus gives employers an important cost saving compared to awarding a regular cash bonus.

Sample calculations:

Comparison between cash bonus and non-recurrent bonus (for white collar workers) (same net based on the maximum amount for non-recurrent bonuses in 2013:

1) Current state of legislation

	Cash Bonus		Non-recurrent Bonus
	Cash bonus	Vacation pay*	Beneficial social security & tax	Remainder of 3,100€**
Gross employer cost	€ 7,456	€1,020	€ 3,807	€316
Employer social security contributions	-€1,933 35%	-€155	-€944 33%	-€79 33%
gross salary/benefit	€5,523	€865	€2,862	€238 (=€3,100-€2,862)
Employee social security contributions	-€722 13.07%	-€109 13.07%	-€374 13.07%	-€31 13.07%
Taxable income	€4,801	€757	€2,488	€207
Taxes***	-€2,568 53.50%	-€405 53.50%	€0 0%	-€111 53.50%
Net	€2,232	€352	€2,488.00	€96
Total net	€2,584		€2,584
Total employer cost	€8,476		€4,123
Ratio net/cost	30.49%		62.68%
Savings gross employer cost compared to cash bonus			€4,353

 

2) Expected change : extension of tax exemption (no bill before parliament yet!)

	Cash Bonus		Non-recurrent Bonus
	Cash bonus	Vacation pay*
Gross employer cost	€ 7,775	€1,064	€4,123
Employer social security contributions	-€2,016 35%	-€161	-€1,023 33%
gross salary/benefit	€5,759	€902	€3,100
Employee social security contributions	-753 13.07%	-€114 13.07%	-€405 13.07%
Taxable income	€5,006	€789	€2,695
Taxes***	-€2,678 53.50%	-€422 53.50%	€0 0%
Net	€2,328	€367	€2,695
Total net	€2,695		€2,695
Total employer cost	€8,839		€4,123
Ratio net/cost	30.49%		65.36%
Savings gross employer cost compared to cash bonus			€4,716

 

*estimated vacation pay on variable salary

**not tax exempted yet

***assuming a rate of 53.5%