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What is a target group reduction for initial recruitment?
The target group reduction for first hires, better known as the "NSSO rebate" on employer contributions for the first employees a new employer hires, proved in recent years to be a much-needed measure for many start-up employers to effectively engage with staff.
For a period of thirteen quarters, employers who qualify for this target group reduction pay no employer social security contributions on the first six employees they hire. For a first employee, the exemption even applies indefinitely. In practice, a starting employer can easily save tens of thousands of euros in personnel costs on an annual basis by means of this reduction.
However, the target group reduction for first hires has not been free from criticism in recent years, casting doubt on its sustainability in recent months.
In the latest budget agreement from early October, however, the federal government decided to maintain the measure and to extend it in its current form for an indefinite period, albeit that the NSSO discount for the first employee is capped at an exemption of EUR 4,000.00 in NSSO contributions per quarter.
But what about when you transfer your business? Or in case of a change of legal form?
When a company-employer ceases to exist or no longer acts as an employer for its employees, the right to target group reduction is in principle irrevocably lost. This is the case, for example, when an employer sells his company (including his staff) to another employer, but it can also happen when an employer changes his legal form. If, for example, as an employer of one person, you wish to legally reorganize and continue your activities under a company form, then the target group reduction will be lost. When the personnel is transferred to a new legal entity (in this case the company), the target group reduction is generally lost.
Moreover, the new company-employer will not have a 'own' right to target group reduction since he will be considered as one and the same technical business unit together with the sole proprietorship employer. In other words, from a social law point of view, they will be regarded as one and the same employer, and therefore cannot activate a new target group reduction.
There is fortunately an exception to this: If one complies with a set of strict conditions, the target group reduction can still be retained after the transfer, both in the case of a transfer of business and a change of legal form:
(1) Firstly, the transfer of the enterprise must take place in accordance with the rules of the Companies Code and the Associations Code. In concrete terms: only the companies that are the beneficiary of a merger, demerger, contribution or transfer of a sector of activity/general entity within the meaning of the aforementioned articles can continue to benefit from the right to target group reduction. In the event of a sale of the company or a change in the legal structure, these rules must be strictly complied with.
The first consequence of this is that the strict and cumbersome procedure for mergers, demergers, transfer of sector/general entity, etc. must be respected. For example, at least 6 weeks must elapse between the publication of the proposal and the actual act of transfer.
Moreover, this procedure also has a price tag that should not be underestimated. Not only will there be costs for the preparation and publication of the compulsory report, but there will also be notary fees due, since the transfer must be recorded in an authentic deed.
(2) Secondly, the new employer must also obtain the prior consent of the Inspectorate of the NSSO in order to retain the target group reduction. For this purpose, the NSSO provides a model application form in which it is stated, among other things, that the transfer of the company takes place in compliance with the aforementioned articles of the Companies Code.
Moral of the story: as a starting employer it can certainly pay off to think thoroughly about the legal structure of the organisation before you start recruiting staff. By first transforming your company into a company and developing its activities before you start recruiting staff, you avoid the risk of losing the right to target group reduction, or having to go through the complicated procedure mentioned above. If you are planning to restructure your company and you already apply the target group reduction, or if you are considering taking over a company which already applies a target group reduction, then be sure to obtain advice about the procedure to follow.
If you have further questions about target group reductions for initial hires or would like assistance with the transfer of target group reductions, please feel free to here contact us.