Tax Shift: alleviation of your payroll starting from 2016!

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The Federal Government recently adopted a series of decisions in its bid to reduce employer's tax and social security contributions over labour, referred to as the so-called tax shift.

The tax shift accord contains a number of specific measures in favour of new employers and SMEs in general intended to result in a significant alleviation of the employers' payroll bill starting from 2016.

Below we will explain the the principal measures that are of direct interest to employers, indicating what is new and what stayed unchanged.

I. What is new for hirings starting from 1 January 2016?

The initial hirings reduction is slashed in two ways:

  1. (nearly) full exemption for the first hiring, unlimited in duration.
  2. exemption for six hirings instead of the previous five;

As from 1/1/2016, ‘new’ employers can get as good as total exemption from employer's contributions when hiring their first employee. If the first employee is hired between 1 January 2016 and 31 December 2020, it qualifies for the “new”, more extensive exemption:

  • the sum of the basic contributions and wage moderation is fully exempt (32.4% on 1 January 2016);
  • the exemption is applied in each quarter throughout the full duration of the employment.

Please note that the first hiring is not completely “free” and that some contributions continue to be due,( p.e. fringe contributions, …).

For the second to sixth employees, greater reductions in employers' social security contributions are to be awarded:

  • the exemption is a lump sum depending on the sequential order of the employee;
  • the exemption applies in a maximum number of quarters during a limited application period.

No new procedures are introduced. What is certainly new about this is that, from now on a reduction is awarded for the sixth recruitment to boot. The second to fifth hirings are “upgraded” to a more favourable exemption.

II. What about hirings prior to 1 January 2016?

Parliament also wants to include 2015’s hirings (and only them) in the slashed reduction. As a result, the situation of some employers seems to have become especially complex. The crucial factor is the date of hiring of the employees qualifying for the right to the reduction.

For hirings up till 31 December 2014 (limited to five), the situation remains relatively simple. The attendant reduction is used up under the previous conditions.

Employers who already had the benefit of social security/tax reductions before 2016 for their first recruitment, will also qualify for the new reduced contributions/taxes for employees who joined their business in 2015, albeit for the remaining number of quarters they were still entitled to prior to 1/1/2016.

These measures are still in the draft phase and may yet undergo further amendment. Changes in social security contributions and social security reductions, fiscal measures, as well as possible secondary effects are insufficiently clear at this stage. We advise you to contact your professional service provider regarding this complex matter.