Target Group Reduction for first hires

By offering reductions of social security contributions, the Belgian legislator has tried to support smaller companies since 1982 in hiring their first employees. The system of these so-called “target group reduction for first hires” is one out of several other target group reductions that are in place to reduce the social security contributions and hence the wage cost for Belgian employers and has experienced a long evolution since the 1980s.

Since 2016, the system was extended and employers can benefit from a reduction of the employer’s social security contributions for the 6 first hires. The number of quarters for which the reduction applies and the amount of the reduction vary depending on whether it is the first, second, third, fourth, fifth or sixth employee hired.

The Act of 16 October 2023 containing various provisions on social matters (published in the Belgian State Gazette on 31 October 2023) brings new changes which restrict the target group reduction regime for first hires as of 1 January 2024.

(i) Conditions

To benefit from target group reductions for first hires, employers must fulfil a number of conditions that are listed below and that differ depending on whether the employee is hired as a first or as a second to sixth employee:

• for the employment of a first employee: the employer hires an employee for the first time and must hence be considered to be a new employer, or alternatively may not have employed any employees for at least 12 consecutive months prior to the hiring; and

• for the employment of a n^th employee (n = 2, 3, 4, 5 or 6): at the time of hiring, the employer may never have employed more than (n - 1) employees subject to the Belgian social security of workers at the same time for at least 12 consecutive months prior to the hiring.

Whether an employee is considered to be a first or a second to sixth employee is determined at the level of the so-called technical business unit (the TBU), as defined below.

The first, second, third, fourth, fifth and sixth employee may not replace an employee who has been employed in the same TBU during the 12 months prior to hiring. It must therefore be an additional hiring within the same TBU.

Categories of employees excluded from the regime – Certain categories of employees are not taken into account to:

• grant a target group reduction for first hires;

• determine the rank of an employee (reduction for the first, second, third, fourth, fifth or sixth employee); and

• asses whether an employee can be considered as an additional hiring within a TBU.

These excluded categories are the following:

• employees until 31 December of the year in which they reach the age of 18;

• apprentices in work-linked training who are linked to an employer by a contract, other than an employment contract;

• domestic employees;

• occasional employees in the agricultural and horticultural sectors;

• occasional employees in the horeca sector;

• flexi-job employees; and

• all employees not subject to the Belgian social security of workers (e.g. students, volunteers, certain trainees, etc.).

(ii) Evolution

The target group reduction system for first hires has undergone a long evolution since 1982, divided into several phases. After initially being extended, the system has experienced rather restrictive changes since 2022.

From 1 January 2016 to 31 December 2021 – From 1 January 2016 until 31 December 2021, the system was as follows:

• a complete exoneration of the employer’s social security contributions for an unlimited period of time for the first employee hired; and

• a flat-rate reduction for a fixed number of quarters (13 quarters) for the second, third, fourth, fifth and sixth employee hired.

From 1 January 2022 to 31 December 2023 – The Programme Act of 27 December 2021 and the royal decree of 27 January 2022 introduced changes to the target group reduction system for first hires.

The Programme Act limited the reduction of social security contributions for the first employee to EUR 4,000 per quarter compared to the complete exemption from employer’s social security contributions that applied before, however still for an unlimited period of time.

The flat-rate reduction for a fixed number of quarters for the second, third, fourth, fifth and sixth employee hired remained unchanged.

The Programme Act also defined a number of concepts relevant for the target group reduction regime such as the concepts of “new employer of a first employee” and “new employer of a n^th employee”, which are referred to in the conditions mentioned above under (i).

Additionally, the Programme Act defined the notion of TBU, which was undefined by law before and was therefore left to be defined by case law.

Pursuant to the Programme Act, a TBU is defined as the unit consisting of several legal entities:

• with an identifiable social link through the existence of at least one person jointly involved, irrespective of their function within the entities (e.g. a company director who works in the different legal entities); and

• through the existence of a community reflected by simultaneous or historical socio-economic interdependence, referred to respectively as simultaneous or historical TBU (e.g. the buildings of the legal entities in which the activities are carried out are located in the same place or close to each other).

Please note that the concept of a TBU in this context differs from the notion of TBU in the context of the social elections.

As of 1 January 2024 – Pursuant to the Act of 16 October 2023 containing various provisions on social matters new changes to the target group reduction system for first hires will apply as of 1 January 2024.

The target group reduction for the first employee will be further limited to EUR 3,100 per quarter (compared to the current limit of EUR 4,000) whilst the reduction remains applicable for an unlimited period of time. Please note that this limit will also be applied to reductions for first hires that were initiated before 1 January 2024.

In addition, no target group reduction will be available anymore, at all, for the fourth, fifth or sixth employee. Therefore, only the first 3 hires will allow the employer to benefit from a reduction of the employer’s social security contributions.

The target group reductions for the second and third employee will remain unchanged.

Transitional measures are however being prepared for target group reductions that were already applied for employers’ fourth, fifth and sixth employees prior to 1 January 2024. Although these transitional measures still need to be defined, it is expected that employers will be able to continue to benefit from these target group reductions for its foreseen remaining duration.

(iii) Take-away points

New employers have to keep in mind that as of 1 January 2024, a potential reduction of the employer’s social security contributions for the first employee will be lowered and will be completely abolished for the fourth, fifth and sixth employee.

Taking into consideration the transitional measures that are expected, employers who fulfil the required conditions today but have not yet applied for a target group reduction for their fourth, fifth and/or sixth employee, should do so for the first time for the last quarter of 2023 to be able to continue to benefit from these target group reductions for their foreseen remaining duration (a fixed number of quarters) after 1 January 2024.

Our Employment & Benefits team would be delighted to address any queries you may have in relation to the target group reduction regime for first hires or to the other target group reductions that are in place in Belgium to reduce employers’ wage costs.