Changes to the exemption from the payment of withholding tax for shift and night work

The law on the reduction of charges on labour, published on 31 March 2022 in the State Gazette, significantly restricts the scope of the application of the partial exemption from the payment of the withholding tax for shift or night work.

What is this about?

Companies where shift or night work is performed and which pay a shift premium for this work can benefit from a partial exemption from payment of the withholding tax. Although the withholding tax must be deducted from the salary paid by the employer to the employee, the employer is exempted from paying to the Treasury an amount of withholding tax corresponding to 22.8% of the overall taxable remuneration of all employees working in shifts or during the night.

In order to benefit from this exemption, several conditions must be cumulatively met:

• the employer is an organisation where shift or night work is carried out;
• the employer pays or allocates a shift or night premium;
• the employer in question is liable for the withholding tax;
• the employer withholds the full amount of the withholding tax on the remuneration and the shift premium of the employees concerned.

If these conditions are met, the exemption can be applied to the wages of workers who have worked at least one third of their hours in shifts or during the night in a given month.

Shift work requires that:

• the work is carried out in at least two shifts comprising at least two workers;
• the shifts carry out the same work in terms of both its purpose and its scope;
• the shifts follow each other without interruption; and
• there is no overlap of more than one quarter of the daily tasks between successive shifts.

Night work is defined as work performed between 8 p.m. and 6 a.m., but excluding work performed by workers who only work between 6 a.m. and midnight and those who usually start work as from 5 a.m.

Stronger tax inspections

For some time now, the tax authorities have been carrying out stricter controls to check compliance with the conditions for granting the exemption. During these audits, many uncertainties have been raised about the interpretation of the conditions for the application of this exemption. Today, this still results in numerous discussions between the tax authorities and taxpayers.

Main changes introduced by the law of 28 March 2022

Several changes have been made to the scope of application of the partial exemption from payment of the withholding tax for shift and night work in order to resolve the legal uncertainty resulting from the difficulties of interpretation of certain conditions of this exemption.

Indeed, while previously the definitions of shift work and shift premium were independent of each other, from now on, in order to be considered as shift work, it is necessary that a shift premium is granted for each hour worked in shift.

In addition, the shift premium must necessarily result in an increase of at least 2% in the remuneration paid to the worker for one hour of shift work. On the other hand, the night premium must result in an increase of at least 12% in the remuneration awarded for an hour worked during the night. Although the calculation of the amount of the exemption is made on the basis of the overall remuneration of the workers concerned, it should be noted that this calculation must be made separately for shift work on the one hand and night work on the other.

These changes – effective from 1 April 2022 – have been introduced in order to prevent a purely “symbolic” premium from being awarded for the sole purpose of falling within the scope of the exemption from the payment of withholding tax.

Moreover, as of 1 April 2024, the shift or night premium will have to be provided for in the work regulations or in a CBA declared applicable to the company or in an employment contract concluded between the employer and the worker.

Finally, the administrative tolerance allowing a limited break between two successive shifts is now included in the Income Tax Code. Similarly, the rule laid down in a tax circular of 16 November 2021 (applicable to the “old regime” from 1 January 2022) under which the calculation of the “one-third rule” must be made in hours is also included in the Income Tax Code.

Action point

With this law, the legislator has chosen to strengthen the conditions of application of the exemption from payment of the withholding tax. Employers wishing to benefit from this exemption will now have to ensure that the shift premium is set out in an objective labour document and that the shift or night premium awarded has some substance.