Covid-19: payment of an additional indemnity for temporary unemployed employees

7 Apr 2020
Subject Tax alert
Categories Covid-19
Jurisdictions Belgium

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As part of the economic measures to tackle the Covid-19 pandemic, the government introduced a new simplified regime of temporary unemployment. Until 30 June 2020, all requests for temporary unemployment can be considered as demands for “force majeure/overmacht(see our previous alert on the topic here) if the request is linked to the pandemic.

When applied, employees under this regime of temporary unemployment can benefit from an unemployment benefit of 70 % of their average previous salary (with a maximum of 2.754,76 EUR).

Payment by the employer of a supplement on top of the temporary unemployment benefit

Many companies, who have the necessary treasury, are wondering if they can support their temporary unemployed workers by adding a supplementary indemnity to the temporary unemployment benefit that employees may receive. The answer is yes and hereafter you can find the social security/tax treatment of this special indemnity.

Social security treatment

The supplement paid on top of the temporary unemployment benefit can be considered as a complement to a social security benefit and is therefore exempted from social security contributions.

However, to benefit from such exemption, there is one condition imposed by the National Social Security Office (“NSSO”): the addition of the unemployment benefit and the supplement paid by the employer cannot result in a higher amount than the net salary that the worker used to receive.

The NSSO has specified very recently what it intends by “net”:

  • All additional indemnities received by the employee in the context of the temporary unemployment must be taken into account when evaluating the “total net” of the employee (in some circumstances, employees can receive additional indemnities by a sectoral fund, as well as compulsory additional indemnities by the employer);
  • Equality of treatment must be observed for all employees that belong to the same personnel category, either by applying a compensation up to a certain percentage of the previous salary or by giving all concerned employees the same fixed amount of additional indemnity;
  • If the remuneration is variable, an average of the previous months’ salary must be considered;
  • In the net evaluation, only the remuneration used as a basis for the social security contributions can be taken into account. Exempted elements such as meal vouchers cannot be included;
  • The net amount considered is basically the gross taxable amount, i.e. gross salary minus the employee’s social security contributions.

The NSSO went so far as to indicate a certain flexibility in its evaluation of the application of those principle. It specifies that it will be ok if, given the urgency of the crisis, the additional indemnities awarded for the month of March were too high and that, therefore, the employer evens out the too much perceived in March by reducing the amounts paid in April.

That situation may very well occur as it takes some time for the unemployment benefits to be calculated definitively by the paying organisms and that shouldn’t discourage employers to support their employees with the additional indemnity.

Tax treatment

A professional withholding tax of 26.75% will have to be applied to the supplement paid on top of the temporary unemployment benefit. This fixed rate could be insufficient for some workers and would likely result in a tax supplement on the personal income tax.

There are several solutions considerable to avoid this additional income tax. Don’t hesitate to contact EY and we can review the options for you.