Belgium: Benefits Paid to the Employees by Third Parties: Remuneration or Not?

Article 2 of the Act on the protection of wages defines a wage as the benefits which can be valued in money, and to which the employee is entitled pursuant to his employment at the expense of the employer. The RSU plan of the American mother company included a very broad definition of employee, meaning all the employees of the American company, but also all the employees of its subsidiary companies. The lower courts used this equation to state that the American mother company should be considered as the employer who is granting the shares to the Belgian employees. The Supreme Court disagrees and states that this internal equation in the RSU plan does not turn the American mother company into the employer of the Belgian employee. Therefore, the American mother company remains a third party. According to the previous case law of the Supreme Court, benefits awarded by a third party can only be considered remuneration if the benefits form a compensation in return for the actual performance of labour by the employee in execution of the employment contract.

This new case and the previous case law of the Supreme Court lead to the conclusion that in order to escape the qualification of remuneration (for social security contributions), the following 3 conditions should be fulfilled (together):

1. The benefit is awarded by a third party, not by the employer;
2. The benefit is actually paid for by the third party and not by the employer; and
3. The benefit is awarded for another reason than for the performance of labour under the employment contract.

This last condition should not be interpreted in a broad sense that every benefit which is awarded in the framework of the company or group of companies, or which is linked to the function of the employee should be considered as a compensation for the performed labour under the employment contract. Therefore, awarding stocks because the mother company wishes employees of the subsidiary companies to participate in a share plan does not necessarily constitute a counterpart of the performance of labour under the employment contract. In the case at hand, the RSU’s were not included in the employment contracts of the employers and there was no legal connection to the Belgian employers or any link with their employment contract.  Moreover, the employees could also recommend other parties to the mother company as  potential participants. The RSU were thus not a compensation for the execution of the employment contract.

Take aways:

• The Belgian Office of social security has a strict view on the qualification of remuneration, but it will be forced to adapt its views
• In certain participation schemes like RSU’s awarded by mother companies or other third parties, it is possible to avoid the qualification of remuneration if certain conditions are fulfilled.