Payroll tax in Belgium: what do employers think? - AG Employee Benefits

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Payroll tax in Belgium: Xavier Baeten explains the details

Published on 02/02/2021

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Payroll tax in Belgium has few fans among employers

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What do employers in Belgium think about the way the various remuneration options are taxed? The Centre for Excellence in Strategic Rewards at Vlerick Business School researched the subject in detail. We had a video call with Xavier Baeten, Professor of Reward & Sustainability. As one of the masterminds behind the survey, he gave us a big-picture view of the findings. He also provided some interesting food for thought for the federal government.​​​​​


​​Can you tell us more about the purpose of the research on payroll tax?

The heavy wage bill in Belgium - the high taxes and social security contributions our companies have to pay - has long been a sore spot. We were especially interested in gaining more insight into what could and should be changed. That's why we went straight to the source. We asked companies about the kinds of fringe benefits they offer, and how satisfied they are with the way they are taxed. 293 companies participated in our survey, from small businesses to big corporations.


How satisfied are Belgian companies with the current payroll tax system?​

​If we look at general satisfaction with the tax system as it stands, only 6% claimed to be satisfied. An alarmingly low figure, mainly due to the high tax on cash and variable compensation. If we delve deeper into the figures and compare the use of, and satisfaction with, the way the various benefits are taxed, we see major differences.

For example, some fringe benefits were given a use and satisfaction score of 70% or more, such as hospitalisation insurance, income protection insurance, meal vouchers and company bicycles.

Access to an employer-sponsored supplementary pension plan is also a fairly common and regular occurrence (+90%). Satisfaction with the tax treatment, however, is only around 65%.

As for mobility solutions, company bicycles get top marks while satisfaction with the tax treatment of company cars is much lower. And it's difficult to determine the underlying reason: not favourable enough, or too favourable? Or are the rules too complicated?

Did the research reveal any striking differences between large companies and SMEs?​

When it comes to satisfaction, not really. But in terms of use, we see - and this is a pity - that small and medium-sized businesses are far less likely to make use of these tax-friendly reward techniques. Large companies tend to have their own in-house HR department, so they are more aware of the available options and can also invest more in getting the most out of them. 


What are the main reasons behind this dissatisfaction?

The complexity! There are no less than 35 different tax regimes that apply to all kinds of fringe benefits. Employers can no longer see the wood for the trees.

The historical backdrop also plays a role. In Belgium, there is a lot of creative tax engineering going on, and always as a means to circumvent the high tax pressure on salaries. People then look for loopholes, in the form of tax benefits, often as incentives that reflect what's happening in society. But that context changes over time, of course. Take, for example, the tax treatment of company cars, which started back in the days when Belgium had the world's highest per capita manufacturing figures for cars. At the time, it made sense for the government to offer tax benefits for company cars given the importance for the economy.

But today, the context is completely different. So we make adjustments in the present to rewards that were set up in the past. The result is a typically Belgian phenomenon: added perks on existing fringe benefits. This is because it's often politically difficult to get rid of existing benefits even if they no longer make a lot of sense in the current context.

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Mainstays such supplementary pension plans (second pillar group insurance) and hospitalisation insurance are among the most highly valued benefits.

Supplementary pension and healthcare plans have a very high societal value, as they provide staff members with a sense of financial wellbeing. Not surprisingly, they're at the top the list of fringe benefits, both in terms of use and satisfaction. I think that Belgium is doing rather well in both. That being said, there’s always room for improvement.

Such as?​

When it comes to building up supplementary pension savings, we immediately see a difference between the employer and employee contributions. Satisfaction with the way employee contributions are taxed is much lower, and this option is also less frequently used. There is not enough flexibility, and I would really like to see an improvement in this area. I'm in favour of a "Core Plus" approach, where you start from a solid base second pillar plan, but with the flexibility to make additional contributions.

“There is not enough flexibility. I'm in favour of having a solid base second pillar plan, but with the flexibility to make additional contributions."

Imagine that you're 55, with 12 years to go before you retire. You've paid off your mortgage, your children have left home... so theoretically, you could invest close to half of your salary in your supplementary pension. But that's not currently possible. You can make additional contributions through your employer, but they will come out of your net salary. In my opinion, we should have a second pillar option #2. Should it be as favourable as the current second pillar? Not necessarily, but the benefits should still be clear. People are living longer, so the capital we need once we retire also has to be bigger to cover those extra years. After all, we'll need to pay for our rising medical expenses, or maybe there's a long(er) stay in an assisted living facility or nursing home in our future. We really will need to have a sizeable nest egg that we can dip into. So why not provide the opportunity to build up that buffer in a tax-efficient way? 

Getting back to our research, we see that little use is currently made of the deduction for contributions to the third pension pillar. I have a bit of trouble with that myself. Instead of having the employer claim the deduction on contributions to such savings, why doesn't the government make it more interesting and allow employees to contribute to their group insurance plan from their salary?

How do health insurance plans score?

It's the same story as with supplementary pension plans: the situation is rather good, but that doesn't mean that more can’t be done.

Hospitalisation insurance is used a lot and there is a high level of satisfaction, so this is really something that needs to be further pursued. Again, with my Core Plus approach, we could provide more flexibility and include hospitalisation insurance in a cafeteria plan. For example, good base coverage for everyone, plus the option to use the cafeteria plan to pay for extras like a single room.

What about other kinds of healthcare coverage such as income protection and disability?

Satisfaction with the tax treatment of these covers is high. But, oddly enough, they are a lot less popular. Just under 35% of companies use them. I see this as a major point of concern

I'd like to refer to a survey on income protection that we did together with AG a few years ago. We saw that many people expect to be on long-term sick leave at some point in their career, and that they correctly estimated their incapacity benefit at 60% of their salary. But at the same time, they don't realise that there's a maximum cap on those benefits, and that many of them would have to get by on less than 60%. I see that as a warning light. Satisfaction with these covers is very high, but far too few companies currently offer them.

"Too few companies currently offer income protection coverage. 
I see this as a major point of concern."


What can be done to create a sense of urgency?

The government already provides favourable tax treatment. I don't think the solution is to offer even more tax relief. I think companies need to be aware that there is immediate compensation, such as a base salary and bonus payments, but also the philosophy of deferred compensation, such as a supplementary pension plan or income protection coverage. And both feed into each other. As a company, you can't have the highest salaries in the sector as well as the most generous pension plan, because that's just not sustainable.

It would be naïve to assume that demand for deferred compensation will come from the employees. In my opinion, it should be a shared responsibility for companies but also for trade unions. From what I've seen, trade unions are often too focused on short-term compensation, on salary increases, on cash. In some sector-wide pension plans, only 0.5 to 1% of the salary is used to build up supplementary pension savings. It's better than nothing, but it's still far too little.

What do you personally see as the most striking and important findings from this survey?

Only 3% want the tax system to more or less stay as it is. A clear sign that something has to change. I see this survey as a reflection of a growing trend that I'll call... "responsible reward". By this I mean a move away from the traditional model of direct, immediate compensation and towards a more long-term mindset that embraces deferred compensation. 

And the incredibly complex tax system for fringe benefits is in dire need of an overhaul. Employers have been clamouring for a simple system that includes a lower base tax for salaries and bonuses. But - and this is a new development - they are also ready to pay a price for this by saying goodbye to some existing fringe benefits. That might very well be the most significant finding from this survey. I urge the government to think about this carefully. Not so much about which of the 35 benefits should be kept, but more about the steps we should be taking in the current social context.

Which areas do you think the government should focus on?

​One important area is staff members' financial wellbeing, with more attention paid to deferred compensation. The need for more flexibility in saving towards a supplementary pension, with additional contributions from the employee's gross salary. But also further promotion of income protection coverage. In our society, we also need to take care of people's financial wellbeing, and not only their general welfare.

Then there’s the issue of mobility. Sustainable mobility solutions must continue to be promoted. Because once the coronavirus threat is behind us, we'll all be stuck in traffic jams again.

The third area for me is further efforts to boost people's vitality, through training and personal development. Both are currently tax deductible. 

I believe that these three areas are the most important issues in society today. Of course, 10 years from now, we may have a very different top three. The government should also have the courage to go back and review its decisions. We should actually put all 35 regimes that we have today under the magnifying glass of financial wellbeing, sustainable mobility and vitality.


“Staff members' financial wellbeing, sustainable mobility and efforts to boost vitality. These three areas are the most important issues in society today."​ 


Do you feel that these elements have been reflected in the coalition agreement?

Fortunately, we see that the issues employers have brought up and what we recommend are actually consistent with the coalition agreement. It states that a shift is needed from alternative forms of remuneration to more basic taxation. So there is a desire to reduce the huge range of fringe benefits in exchange for a lower base tax system.

There are, of course, some challenges to making that happen. The budget will need a certain amount of wiggle room to get rid of certain benefits and make major reforms. And which benefits will be eliminated? We hope the three priority areas that we have identified will serve as a guideline to better structure the fringe benefit offer and phase out others that are less relevant.

To what extent could the coronavirus crisis throw a spanner in the works?

The coronavirus crisis has given employers much to think about in the past few months. The issue of vitality had already been on many companies' radar for some time, and the coronavirus crisis has only accentuated the need. But now sustainability and financial and mental wellbeing have since also climbed the agenda. You can sense that we are gradually transitioning to another type of reward system. The question is whether this mindset will be permanent. Because in a post-covid era, we'll probably experience a period of economic growth, where economic interests may once again take centre stage.

In addition, in the wake of the current crisis, there are also budgetary concerns, which makes it more difficult to dismantle the base tax system. I really hope that the outcome won't be to get rid of certain less popular benefits without changing the way base salaries and variable compensation are taxed. Because that would be nothing more than a thinly veiled tax increase.

So it's not easy for the government. But coronavirus has put us in a very difficult situation and maybe that's exactly why it's a good starting point for change.​


Who is Xavier Baeten?

  • Professor in Reward & Sustainability
  • Associated with Vlerick Business School
  • LinkedIn​



    ​Want to find out more about the research on taxation and social security charges for various reward instruments carried out by the Centre for Excellence in Strategic Rewards at Vlerick Business School?

    Download the​ paper​