NOSS expands the concept of salary - New Instructions from the NOSS are open to criticism

26 Sep 2018

Social security contributions are calculated on “salary”. For this purpose, the applicable social security legislation refers to the concept of salary as defined by the Act of 12 April 1965 concerning the protection of employees’ salary.

In its most recent Instructions, the NOSS has substantially expanded its interpretation of the concept of salary.

According to the legal provisions, a benefit only qualifies as salary, and so is subject to social security contributions, if the following four legal criteria are fulfilled:

  • the benefit can be valued financially;
  • the employee has a right to the benefit;
  • the benefit must be borne by the employer;
  • the benefit is granted because of the employment relationship.

If one or more of the legal criteria is not fulfilled, the benefit in principle is not considered as salary, which means that no social security contributions are due.

Until recently, a benefit was not “borne by the employer” to the extent that the benefit was not financially or legally (the employee could not judicially enforce the granting of the benefit by the employer if he did not receive the  benefit) borne by the employer.

According to the NOSS’s new Instructions, from now on, a benefit will be “borne by the employer” as soon as “the granting is an effect of the services rendered in the framework of the employment agreement which has been concluded with that employer or is connected to the function which the employee occupies with that employer”. The NOSS hereby comes very close to the exceptionally broad tax concept of “remuneration”.

It would appear that these Instructions are not in accordance with the legal definition which provides for four cumulative criteria. One clearly distinctive criterion is that the benefit has to be “borne by the employer”. As a result of the new Instructions, there is now confusion between the third criterion (“borne by the employer”) and the fourth criterion (“because of the employment relationship”). The causal link with the employment relationship does not suffice: the benefit also has to be “borne by the employer” to be regarded as salary.

This expansion of the concept of salary could, among other things, have consequences for shares granted by a parent company to employees of subsidiaries (even though they are not financially or legally borne by those subsidiaries). Following the new Instructions, the chance is real that the NOSS – in our view in breach of the legislation – will claim social security contributions on these benefits.

> Action point

Even though the NOSS’s new Instructions are open to criticism, one has to bear in mind that these may be subject to discussion. Time will tell whether the tribunals and courts will continue to apply the legal criteria as they have been interpreted until now.