On 31 December 2024, an important Royal Decree was published providing additional clarifications on the regulations concerning the wage withholding tax exemption for night and shift work. This decree specifically focuses on the calculation method of the so-called "bis-variant," introduced through the law of 12 May 2024. Additionally, the Royal Decree provides more clarity on the previously published Royal Decree of 16 September 2024, which established conditions for the agreement between companies and temporary employment agencies regarding the application of the exemption.

Background

The bis-variant was introduced following a case of the Constitutional Court on 8 February 2024, which adopted a very restrictive interpretation concerning the condition of “equal size of shifts”.

This strict interpretation created uncertainty for companies utilizing the exemption. Even small deviations in shift size, for example due to illness or absence, threatened to lead to a complete exclusion from the exemption. To eliminate this uncertainty, the legislator introduced the "bis-variant." Here, the requirement for equal shift size is replaced by a proportional correction factor that accounts for deviations in shift size.

The bis-variant remains in effect until the end of 2026, pending a thorough reform of the regime. Importantly, this measure is retroactively applicable from the income year 2021 and all subsequent years.

Key Clarifications

Since the publication of this legislation on 29 May 2024, several uncertainties regarding its practical implementation have persisted. A circular letter was eagerly awaited for, but its publication was delayed pending this Royal Decree. Below you will find an overview of the key clarifications.

1. One correction factor per company

Employers applying the bis-variant are required to calculate a correction factor applicable to the entire company (No further details were provided on whether this is per company number or per establishment unit, for example). This may mean that, regardless of the presence of different departments or sites, one global percentage must be calculated for all departments and sites combined. Although deviations per department/site can be calculated separately, they must ultimately be combined to determine one deviation percentage. As a result, significant deviations in one department/site can impact other departments/sites with minimal deviations. In many cases, a separate internal cost calculation will be necessary to correctly allocate the impact of the bis-variant to the different groups within the company.

2. Impact of the correction factor

The Royal Decree imposes a limitation on the calculation of the exemption amount (although this is not legally provided in the law). Both the amount to be exempted (22,8% or 25% of taxable wages) and the withholding taxes must be reduced by the correction factor. The lower of these two amounts is eligible for exemption.

An example from the Royal Decree clarifies this: Suppose a correction factor of 5% applies. Both the amount equal to 22,8% of taxable wages (e.g., €100) and the withheld withholding tax (e.g., €80) must be reduced by 5%. The resulting exemption amount in this case is €76.

This ensures that the bis-variant will always have an impact on the applied exemption, even if there is an excess of exemption due to a shortage of available withholding tax.

3. Calculation of the correction factor

The Royal Decree provides an example of how the correction factor should be calculated. In a full continuous shift regime, size differences per day are calculated, comparing morning, afternoon, and night shifts of the same day. Weekend shifts are assessed separately, so deviations on the weekend do not affect the calculations of weekday shifts.

4. Additional explanation from the administration

The administration will provide additional guidelines through a circular and/or an FAQ. These will contain concrete examples of calculation methods. Since the publication date of this circular is not yet known, companies must already develop a methodology to correctly apply the bis-variant from January 2025.

5. Agreement between companies and temporary employment agencies (Royal Decree 16/09/2024)

The Royal Decree of 16 September 2024, states that temporary employment agencies and companies must agree on the application of the exemption for night and shift work. For the bis-variant, the Royal Decree stipulates that the deviation percentage must be calculated monthly by the company and shared with the temporary employment agency.

The company agrees on a procedure with the temporary employment agency on when and how this percentage is communicated. This percentage must be provided no later than the month following the performance month (in February for the first time). Furthermore, agreements must be made on cooperation in providing evidence that the temporary worker qualifies for the exemption, as well as on liability if corrections are needed after an audit.

It is therefore essential that companies establish internal processes to calculate and document the deviation percentage in a timely manner. Preparing a "defense file" is advisable to substantiate the exemption during an audit.

How can KPMG help?

At KPMG, we have a dedicated team with extensive experience in this area, both from a tax and labor law perspective. We can assist you with:

  • Analyzing and updating existing agreements;
  • Implementing monitoring tools;
  • Interpreting the bis-variant and calculation methods;
  • Conducting an audit readiness analysis;
  • Assisting with tax audits;
  • Conducting a risk analysis.

Feel free to contact us for more information or specific questions.