First appointments: changes to target group deductions
If you are an employer taking on new staff, you benefit from social security deductions for your first one to six employees. The legislation around these deductions was updated with effect 1 January 2022 – in particular, the terms ‘new employer’ and ‘technical business unit’ (‘Technische bedrijfseenheid’ in the legislation, abbreviated as TBE) have been redefined so that the deductions are more closely linked to the objective: to support new employers hiring their first personnel.
Up to the end of December 2021, there were just two conditions that an employer had to fulfil to benefit from the social security deductions for first employees:
- +The employer had either never to have had any employees before, or to have had no employees subject to the social security legislation within the preceding four quarters;
- +If the employer was a member of a TBE, the new appointment had to create an additional job.
As of 1 January 2022, you are considered a ‘new employer of a first employee’ if
- +You, as the employer, have never had employees for which the social security legislation applied (with the exception of certain categories), or have had no employees subject to this legislation within the preceding twelve months;
- +You are a member of a simultaneous TBE where there is already an employee working.
The same system applies for each of the first six employees.
The concept ‘simultaneous TBE’ is an important addition to the regulations. The term refers to two or more enterprises that, at the date the new employee starts work, are linked both for social security purposes and at a socio-economic level (in other words, they are closely linked entities and to a large extent function as a single unit). Under the updated legislation, classification will be determined at TBE level. In practice, what this means is that if you have no employees, but are a member of a simultaneous TBE that is already employing six employees, you cannot apply for target group deductions for your first employees. This is a change from the former legislation, in which a new employer who was a member of a TBE could still benefit from the social security deductions for their first six employees, providing the new appointments created new jobs in the TBE. A ‘historical TBE’ comprises legal entities that succeed one another and/or are the result of demergers, but are no longer associated with each other at the time the new employee starts work. In such cases, the classification is still determined on the basis of the legal entity. This means that in a historical TBE, it will be possible to apply the target group deduction for, say, a third employee twice, providing new jobs are created and the other conditions are met.
The social security deduction for the first employee has also been updated: up until 31 December 2021 it was possible to benefit from complete exemption from the basic social security contributions (25%), with no time limit. As of 1 January 2022, the deduction for first appointments is capped at 4,000 euros per quarter. In practice this means that for a monthly salary of 5,330 euros (or an hourly wage of 32.29 euros), the employer still benefits from complete exemption, but for salaries higher than this, the basic social security contributions exceed the 4,000 euro cap and will therefore have to be adjusted. This applies both for new employees starting in 2022 and for new employees engaged prior to 2022.
We base our advice on current legislation, interpretations and legal doctrine. This does not prevent the administration from being able to challenge it or to change existing interpretations.