Night – and shift labor incentive

Companies performing night – and/or shift labor, can obtain a substantial wage cost reduction for their employees through the wage withholding taxes. For companies in sectors such as logistics, distribution, warehousing, production, chemistry, etc. this results in a substantially lower wage cost. But of course, no exemption without conditions and tax audits. The time is now to prepare yourself for a tax audit!

And although “performing night – or shift labor”, sounds simple enough, the opposite is true. In practice and based on strict case law and tax audits, there is an extensive list of criteria to comply with before the exemption can rightfully be applied.

So while the majority of companies applies this exemption as a “tick the box”, this actually creates a substantial risk without a thorough preparation for a tax audit that can happen up to 5 years later. In practice, the payroll office is often instructed to “tick the box”. This without checking conditions such as the content of the work and which departments are performing similar work, the magnitude of the work regarding how many employees are working per shift, the wording of the shift premium, etc. 

This lack of awareness and preparation by companies has in the past already resulted in significant reimbursements in case of tax audits. When the tax audit commences, an answering term of 1 month is usually granted for a very extensive questionnaire, which always includes a list of quite tricky questions. Answering one or more questions incomplete or not in line with the view of the tax inspector, could quickly result in having to pay back a significant amount of the incentive, or even the full amount in a lot of cases. 

One example of one of those tricky conditions, is the condition that a night – or shift premium has to be granted to the eligible employees. Although again this sounds quite straight forward – and it used to be in the past – very strict case law has made this a crucial condition. The shift premium should thereby only be granted to employees performing shift working and vice versa not granted to employees not performing shift labor. But what with employees being requested to work in a day regime and maintaining their shift premium? And what about employees approaching retirement who stop working in shifts but maintain their shift premium for a certain period of time?

Furthermore, a legislative change in 2022 already introduced additional requirements for the shift premium. Part of these extra requirements were already implemented in 2022, being the introduction of a minimum shift premium of 2% and a minimum night premium of 12%. For the second part of the additional requirements, the 1^st of April 2024 was given as a due date. Companies now have until that date to make sure that their shift premium is clearly written down in a collective labor agreement, in the labor regulations or in the employment agreement. If this is not the case, the premium no longer qualifies as a shift premium and consequently the company is no longer entitled to the incentive as from 1 April 2024! 

So therefore, given the strict case law and tax audits regarding the shift premium and the deadline of the 1^st of April 2024, the time is now to analyze, if necessary, amend and include in writing your shift premium! Not acting could result in losing the entire incentive and thus substantially increasing the wage cost for those employees!

Next to the shift premium, there is still a long list of other conditions to comply with. Do you for example have a monitoring tool to prove in case of a tax audit that your teams are equal or comparable in terms of number of employees? Do you know how to present the content of different teams and departments towards a tax inspector? 

At KPMG we have a dedicated team with extensive experience on this matter, both from a tax – and a labor law perspective. Feel free to contact us for specific changes to for example your shift premium, an audit readiness analysis, tax audit assistance, a risk analysis, implementing monitoring tools, etc.