On January 25, 2018 a Royal Decree was published, which introduces an exemption from social security contributions for the compensatory indemnity granted to older employees who reduce their workload.

As of January 1, 2018, it is now possible for the employer to reduce the workload of older employees and to provide for a compensatory indemnity for the wage loss that these employees suffer as a result of the relief of their workload. This compensatory indemnity is exempted from social security contributions.

This can be the case e.g. if the working hours of an older employee are reduced from a full time to 80% and he therefore suffers a wage loss or if an employee switches from night shifts to day shifts and therefore suffers a wage loss.

For the indemnity to be exempted from social security contributions certain conditions will have to be met cumulatively:

  • The employee has to be at least 58 years old (or at least 60 years old if the employee changes from a full-time employment to a 80% employment);
  • The indemnity must be determined in a sectoral collective labour agreement or, in the absence thereof, in a collective labour agreement at company level or an amendment of the work regulations;
  • The indemnity has to be paid by the employer or a social security fund;
  • Employers with an employment plan for employees older than 45 years must introduce the collective labour agreement or the amendment of the work regulations in accordance with the collective labour agreement of the National Employment Council which regulates the employment plan (collective labour agreement no 104);
  • The collective labour agreement or the work regulations have to determine the measures to reduce the workload that may cause compensations. These measures must in any case lead to a reduction of the employee’s income. In addition, the employee must retain a job with, at least, an effective employment of 80% of a full-time employee;
  • The indemnity may not be higher than the employee’s wage loss and the employee’s new net salary may not be higher than his net salary before the relief of the workload; and
  • The indemnity is to be indexed in the same way as the wages in the company.It opens door for effective demotion policies beneficial for employers and employees.

The new provisions provide for an alternative to the already existing regulations which can contribute to keeping employees longer at work.

It opens doors for effective demotion policies beneficial for employers and employees.