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Belgium – the synergy between pension contributions and the severance indemnity


Should you terminate an worker in Belgium you’ll typically have to pay a severance indemnity.  That is calculated partially by reference to the worker’s pay for his discover interval.  It’s calculated on the “full wage”, together with not simply base wage, 13th month and trip pay, but in addition all different advantages loved by the worker within the framework of their employment. This contains the employer’s contributions to the pension scheme over the course of the 12 months previous to termination.

In observe, this seemingly small component can generally trigger disagreeable surprises: typically, on the time when the primary tough severance computation is finished, the quantity of the pension contributions will not be recognized, or is even missed totally. When this element is added in a later stage, it will probably materially inflate the severance indemnity if the pension plan is beneficiant, which is commonly the case for older plans and/or plans for senior managers, the place employer contributions of as much as 10-15 % will not be unusual.

This indemnity is taxed fairly closely:

  • the employer pays social safety contributions on the severance fee (no cap), at roughly 29%. The worker pays a private social safety contribution of 13.07%; and
  • the severance fee is taxed on the common earnings tax fee of the worker’s final 12 months of standard employment (typically the 12 months previous to the termination).

There’s a extra tax environment friendly method to cope with this fee, and that’s to make a lump sum fee into the pension scheme equal to the quantity of the employer’s pension contributions for the indemnity interval (further elements of the indemnity can’t be handled on this identical tax-advantageous method). That possibility exists for each outlined contribution and outlined profit plans. The tax advantages are appreciable:

  • as an alternative of approx. 29% social safety contributions, the employer solely pays a particular social safety contribution of 8,86% and a premium tax of 4%; and
  • the worker doesn’t pay taxes or social contributions instantly however solely at retirement, when the pension capital is paid out: at this level, a social contribution of three,55%, a so-called “solidarity” social contribution of as much as 2%, and tax ranging between 10 and 16,5% shall be due, however all in all nonetheless far lower than the typical tax fee in any other case making use of to the severance indemnity.

Feels like a no brainer, however as all the time there are a few ifs and buts:

  1. Paying the pension contributions into the pension plan as an alternative of as a part of the severance fee is feasible provided that the pension plan guidelines enable it. In case your plan guidelines don’t present this feature but, an modification of the foundations shall be required to permit this feature. That may be a easy sufficient process, nevertheless it takes a while (see paragraph 3 beneath), so it’s suggested to look into this matter proactively, nicely earlier than you’re planning any redundancies with hefty severance funds.
  1. If the choice is included within the plan guidelines, it can apply to all staff who’re made redundant. It isn’t a selection that the worker will get to make – staff can’t decide out and take the severance fee route.  If the pension plan guidelines allow this form of fee, it’s in impact really then required.
  1. If this weblog evokes you to discover this feature and alter the corporate plan guidelines, please additionally contemplate that each change to the plan guidelines must be the subject of prior session with the worker representatives in your organization.  In Belgium that is the Works Council, or if there’s none, the Well being & Security Committee, or within the absence of that too, the union delegation. The session permits the worker representatives to tender their non-binding recommendation on the proposed change, however no extra: they’ll opine that it’s the worst concept that was ever dropped at them, and you may nonetheless energy by way of, however you could have obtained this (written) enter from them earlier than doing so.

    If you don’t request this recommendation, the choice to alter the plan guidelines could also be nullified by worker problem throughout the 12 months after it was taken.

    In corporations with out worker illustration, the session is changed by an obligation to inform the staff prior to creating the change.

If you’re tempted by the choice of adjusting your plan guidelines, this may increasingly even be the time to offer them a wider scan-through to make sure that they’re nonetheless updated and proceed to fulfill the wants of the corporate when it comes to its remuneration coverage. We’ll in fact be glad to help you on this train.

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