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Don’t delay recruiting your first employee

Friday 23/10/2020
Eerste werknemer

Employers in Belgium can benefit from an almost complete exemption from social security contributions with respect to the recruitment of a first employee between 1 January 2016 and 31 December 2020.

This measure aims to encourage 'new' employers to recruit staff. We are now approaching the end date of this favourable arrangement. Does this mean that it would be best to recruit a first employee without delay? Or will the scheme be extended beyond 2020?

Extension beyond 2020?

To date, there is no legislation extending the exemption from employers' social security contributions beyond 2020. However, the recent coalition agreement of our new government does state that the scheme will be extended beyond 2020. The intention is to evaluate the scheme over the course of 2021, in consultation with social partners, which could potentially result in an amendment. The aim is to simplify and automate the system, but also to prevent abuse.

A legislative proposal is currently on the table to continue the measures beyond 2020. It is therefore likely that the extension will come in good time. However, there is no absolute certainty. If you intend to recruit your first employee, it is advisable to do so preferably this year.

What is the actual content of the regulation?

Start-up employers were granted a lump-sum reduction in social security contributions for the recruitment of their first 6 employees. This target group reduction has been in existence since 2004 for the first 3 new employees, but over the years it has been extended to the first 6 new employees. A reduction in employer contributions for a period of 13 quarters applies for the second to sixth recruited employee.

Remarkably, the recruitment of a first employee in theperiod from 1 January 2016 to 31 December 2020 is completely exempt from employer contributions for an indefinite period. The exemption relates to the basic rate, which is currently 25%. In addition to this basic rate, specific special and/or sectoral contributions have to be paid. When a white-collar employee is employedthese are just a few percentage points. When a blue-collar worker is employed, depending on the sector in which they work, this can be a lot more. In any case, it represents a significant cost saving for the employer.

Tip: each quarter employers can choose for which employee they want to benefit from the full exemption. If, for example, six months after having recruited a part-time 'low cost' employee, you decide to employ a full-time 'high cost' employee, you can opt to apply the full exemption for the first recruitment to the 'high cost second' employee, and apply the reduction for the second recruitment to the 'cheaper first' employee.

To which 'new' employers does this apply?

In order to be considered a "new" employer, employers should never have been subject to Belgian social security, or no longer have been subject to it for a minimum of 4 consecutive quarters.

Remember: if an existing employer wishes to establish a new venture, in which this new enterprise is part of the same technical business unit together with other existing enterprise(s), the employment growth of the entire technical business unit will be taken into account.

A single technical unit is deemed toexist if the social and economic criteria show that the companies belong to the same economic group, are located at the same address, are engaged in the same or complementary activities, have the same management, and the employees as a whole show a degree of togetherness.

Even if this involves initial employment with a 'new' employer, i.e. with a newly established company, it will still have to be confirmed whether this is actually a case of real job creation within the group. This measure will only apply if additional employees are recruited within the technical business unit as a whole. It will not apply if employees are 'transferred' from an already existing company to a 'new' company.

Conclusion

Although it is highly likely that the scheme will be extended from 2021, we do not yet have absolute certainty about this. If you are planning to hire a first employee, it would be advisable to do so preferably this year. If not, you run the risk of missing out on a significant cost saving.

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Saskia Lombaerts
Saskia Lombaerts
Director Tax & Legal