Belgian social security contributions for employees are calculated on the gross salary of the employee.

For the correct calculation of the contributions, it is important to have a good understanding of the definition of an employee’s gross salary for social security purposes. The Belgian social security authorities have recently published new interpretations of old laws on their website.

The Belgian legislation (article 2 law of 12 April 1965 and article 19 of Royal Decree 28 November 1969) provides the following general definition of salary for social security purposes:

salary is each cash benefit as well as each other benefit, which can be valued in cash,

• which the employer grants to the employee in exchange for work, performed on the basis of the employment agreement
• as well as any benefit to which the employee is entitled at the expense of his employer, either directly or indirectly (such as tips or payments by external funds).

The interpretation of the law is rather easy for those payments and benefits, which are directly provided by an employer to an employee. It is much more difficult to determine the boundaries of the salary concept for benefits, which are indirectly at the expense of the employer.

As the legislation goes back to the sixties of the prior century, difficulties arise when this outdated salary concept is to be applied for remuneration forms, which are current these days. It is indeed possible that benefits are granted:

•  by third parties, who are independent from the employer (for example a client, supplier or independent fund)
• by other legal entities of a Belgian or international group of companies to which the Belgian employer is related. This can, for example, be a foreign parent company, a subsidiary company or any other entity which is part of the group or which has been appointed by the group to provide the benefits.

For many years, interpretation difficulties exist for those benefits, which are indirectly at the expense of an employer, who employs staff under Belgian social security. Recently, the Belgian social security authorities have amended their interpretation of the Belgian legislation. This new interpretation is to be seen as part of an overall effort of the Belgian authorities (both social security and income tax) to extend their grasp on employee remuneration in order to increase public revenues.

According to the Belgian social security authorities, in the first instance those situations are meant, where a benefit is granted by a third party, and where this party charges the expense for the benefit to the legal employer (i.e. employer, mentioned in the employment contract). As an example, reference is made to a year-end premium, paid out by an external fund (and cross -charged to the employer). This can also be the case for holiday pay, which is paid out by an external fund (which has been funded through employer social security contributions).

Also other situations can arise, however. In the past, reference was made by the social security authorities to cases, where the legal employer did not bear any financial cost of the benefits, but where the employee can claim the distribution of the benefits from his legal employer. As an example, reference was made to a cash bonus, which was received by a Belgian group company from a foreign parent company, and which is to be distributed by the Belgian company to her employees.

Recently, the social security authorities have removed this last example and have replaced this by a much larger salary concept. In the new concept, situations would be covered where the granting of the benefit is the result of work performed within the scope of the employment agreement with the legal employer or which is related to the function, exercised by the employee with the employer.

Apparently the new definition was invented by the Belgian social security authorities to cover several benefits, which in the past were not or not sufficiently clearly defined as benefits, subject to social security. This can then, for example, be:

•  stock options (outside the law of 26 March 1999) or other benefits, granted to employees of a Belgian group company, and where the Belgian company in no way intervenes in the execution of the plan
• any other payment in cash or any other benefit, provided to employees, subject to Belgian social security, irrespective of the source of payment, where the payment or benefit has any relation to the Belgian employment.

With the new definition, several questions can be raised:

• the interpretation is even farther away from the letter of the law, where reference is made to an expense for the (legal ) employer. The new interpretation is a unilateral action by the social security authorities, but these authorities do not have any power to create or change Belgian legislation. They are likely to have exceeded the scope of their own authority in this matter.
• In actual cases, it may be difficult to determine the actual relationship between a benefit and an employment contract under Belgian social security. This is will give rise to new uncertainties.
• Timing differences: a stock option or restricted stock unit can be granted in a certain year and the vesting or exercise may only occur many years later. How to administer the social security when such timing differences arise? What to do if the employee in the meanwhile has moved to another employer (within or outside the group) or if the employee has deceased in the meanwhile (where the heirs collect the benefits)?
•  The Belgian legal employer may be fully unaware of payments/benefits, made by other group entities. How can it be held accountable?
• How to administer this social security: does the Belgian employer have to take care of all compliance in Belgium or must foreign companies register with the Belgian social security authorities. Who will be accountable for any penalties? What to do if there is insufficient cash salary for the employee in the pay period when significant benefits are granted abroad?

An important question, which also remains unanswered relates to the other condition of the law, which states that one must be able to properly valuate non-cash benefits. For certain benefits (for example restricted stock units or conditional stock options) there can be a significant risk factor for the employee between the moment on which shares are granted to an employee and the moment on which the employee is allowed to sell these shares. It is not so easy to properly valuate such benefits as a result of which they still would fall outside the scope of the salary concept.

We can conclude that the recent action by the Belgian social security authorities may rather increase the scope for discussions instead of creating clarity on the interpretation and implementation of the law. In any case, new challenges have been created for multinational employers with staff, working under Belgian social security.