Situation prior to 1 October 2013 – exemption from social security contributions
Prior to 1 October 2013, compensation that was due by the employer to the employee by reason of the employer’s failure to comply with legal, contractual or statuary obligations was not considered as salary. This primarily concerned so-called compensation for protected employees, for example compensation in case of a dismissal of an employee who had filed a complaint relating to harassment or in case of a dismissal of a pregnant employee.
In addition, the clientele indemnity (or goodwill compensation) for sales representatives was also explicitly excluded from the salary definition, as a result of which social security contributions were not deducted from this payment either.
However, the following payments did explicitly qualify as salary, on which social security contributions had to be paid:
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the severance payment;
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the protective compensation for the (candidate) employee representatives;
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the protective compensation for trade union representatives; and,
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the compensation agreed upon termination of the employment contract by mutual consent.
Situation since 1 October 2013 – social security contributions charged
By means of the Royal Decree of 24 September 2013 (BS 27 September 2013) the legislator reversed the situation and designated as salary all payments that are due by the employer as a result of the termination of the employment contract.
The only payments that have not been subject to social contributions since 1 October 2013, are those explicitly referred to in Art. 19 of the Implementation Royal Decree under the Social Security Act:
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the payment in case of closure of the company and the compensation due in the event of collective dismissal in conformance with CLA no. 10;
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the compensation due to unfair dismissal for blue-collar workers, on the condition that the right arose prior to 1 January 2014. In light of the steps taken to unify the status of blue- and white-collar workers, this compensation is almost certainly to be abolished as from 1 January 2014.
Additionally, the compensation that is paid directly or indirectly to a former employee as a result of an agreement entered into within a period of 12 months after the end of the employment contract, on which grounds a former employee agrees not to recruit the employer’s personnel or independent contract partners and/or not to engage in competition is now explicitly regarded as salary.
From now on you will, therefore, be required to pay social security contributions on the clientele indemnity, on any non-compete compensation agreed within a period of 12 months after the end of the employment contract and on most payments based on the termination of the employment contract. The payment in case of closure of the company and the compensation for collective dismissal are (for the time being) not affected. In many situations these new rules will therefore increase the cost of dismissing an employee.