Wage tax exemption for night & shift work

Lately we have seen a sharp increase in tax audits relating to the wage tax exemption for night and shift workers. Uncertainties often arise, among others regarding the calculation of the so called “1/3 rule”. The Belgian Tax Authorities have now updated their administrative guidance in this respect following recent caselaw of the Court of Appeals of Mons (Circular Letter 2021/C/99 dd. 16 November 2021, see text in Dutch/French – the “Circular Letter”).

Background

Subject to certain conditions, employers employing shift or night workers, and granting a shift premium for that purpose, do not have to remit part of the wage withholding tax levied on wages of these employees to the Belgian treasury. This benefit currently amounts to 22,8% of the taxable remuneration of the relevant employees.

One of the conditions is that the relevant employees must perform night or shift work for at least “1/3” of their total working time during the month for which the above wage tax exemption is applied (the “1/3 rule”).

Calculation

Until recently, the Belgian Tax Authorities took the position that employers could freely choose to calculate the 1/3 rule either (i) on the basis of the number of hours during which their employees carried out night or shift work vs. the total hours worked, or (ii) on the basis of the number of days during which night or shift work was carried out by the relevant employees vs. the total days worked.

As a consequence, in some cases, the wage tax exemption could be applied in respect of employees who did not spend 1/3 of their working hours in night or shift work.

Example: in November, employees work 10 hours/day from Monday to Wednesday, while not working in shifts. On Thursday and Friday, they work 5 hours/day while working in shifts.

November has 22 workdays, i.e. 4 weeks of 5 workdays plus 2 additional workdays on Monday and Tuesday at the end of November. This results in the below calculation:

• Calculation per day: over the course of 22 workdays in November, the employees work 8 days in shifts (i.e. each Thursday and Friday for 4 weeks in a row).
  The employees spend 36,36% of their total workdays in shifts (i.e. 8 workdays out of the total of 22 workdays).
  In this case, the 1/3 rule is met; or,
• Calculation per hour: the employees work in total 180 hours in November, i.e. the sum of (i) 10 hours/day from Monday to Wednesday during 4 weeks as well as on the last Monday and Tuesday of November [= 140 hours], and (ii) 5 hours/day shift work from Thursday to Friday during 4 weeks [= 40 hours].
  The employees spend 22,22% of their working hours in shifts (i.e. 40 hours / 180 hours).
  In this case, the 1/3 rule is not met.

Court of Appeals of Mons

The Court of Appeals of Mons (21 October 2020) rejected the above interpretation. According to the Court, only the number of “hours” worked per month in night or shift work could be taken into account (and hence not the number of days on which night or shift work was carried out). The Court stated that the text of the law is clear and leaves no room for interpretation. It concluded that the administrative guidance/tolerance was contra legem in this respect.

New position of the Belgian Tax Authorities

A Circular Letter was published earlier this week by the Belgian Tax Authorities stating that the 1/3 rule can only be calculated based on the number of hours worked in night or shift work and not on the basis of days. An individual calculation is required in respect of each employee.

Entry into force

The new position enters into force as of 1 January 2022. This provides employers some time to adapt their IT systems.

Uncertainty remains

Although we welcome the legal certainty provided by the Circular Letter to employers in relation to the calculation of the 1/3 rule, other conditions may still lead to uncertainties in practice, e.g. the relevant criteria in order for a workforce to qualify as a ‘shift’ in the context of shift work, whether a short break between shifts is allowed, the scope of the work carried out by each shift, etc.

These questions require careful analysis on a case-by-case basis, taking into account all relevant facts and circumstances.

We would of course be delighted to assist you with any questions you may have in order to avoid unnecessary and time-consuming discussions with the Belgian Tax Authorities.