Granting warrants to employees whose employment contracts have been terminated and to former employees - The Ruling Commission brings clarity

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Granting warrants to employees whose employment contracts have been terminated and to former employees - The Ruling Commission brings clarity
Categories
Newsflash
Topics
Tax
Date:
16 Jan 2017

According to the Ruling Commission, improper use of a warrant plan could constitute simulation, barring the warrants from the scope of the Act of 26 March 1999 and resulting in the exemption of social security contributions being forfeited. This could in particular be the case when warrants have been given to a person that has received a notice of dismissal. The Ruling Commission clarifies its position in a ruling of 10 January 2017.  

The Ruling Commission first reiterates that the initial intention of the legislator was to further strengthen the connection of the employee with the company and to stimulate them both to contribute to the company’s growth. However, this objective has no sense with regard to employees whose employment contract is being terminated.

The Ruling Commission therefore does not deem it to be possible to grant warrants (or stock options) governed by the Act of 26 March 1999, which are exempted from social security contributions, to employees who were dismissed, even if those warrants supplement the legal severance payment in cash, which is subject to social security contributions.

This also applies to the termination of an employment contract by mutual agreement, resignation, early retirement and the termination of the employment contract because of force majeure.

Nonetheless, the Ruling Commission – keeping in mind the equality with other staff members – deems that it is possible to grant warrants in the following two situations:

  • After having received a notice of dismissal or after having given notice to resign, an employee who is still entitled to a variable remuneration due to his/her former employment could receive this variable remuneration in the form of warrants under the same conditions as applicable to other employees.
  • In the context of a deferred bonus system, an employee could receive a bonus after the termination of his/her employment in the form of warrants under the same conditions as applicable to other employees.

> Action point 
Do not grant warrants to an employee at the termination of his/her employment contract or to a former employee unless the warrants compensate actual work duties and are granted under the same terms and conditions as to other employees. Otherwise, there would be a real risk that the warrants will be excluded from the scope of the Act of 26 March 1999 and might therefore be subject to social security contributions.