Supreme Court rules on classification of starting employer in respect of contribution to return to work fund
Based on the expected income assessable for social insurance, a starting employer for which as yet no wage details are available over the year t-2, can still be considered to be a large employer in terms of contributions to the return to work fund.
17 May 2018
Employee insurance contributions
One of the employee insurance contributions is used to finance of the Work and Income (Capacity for Work) Act. This contribution comprises a basic contribution with a fixed percentage and a differentiated contribution, the contribution for the return to work fund. The related proceedings dealt with the latter contribution. The contribution for the return to work fund is differentiated in proportion to the employer’s income assessable for social insurance and the invalidity benefits paid to (former) employees of the employer by the Employee Insurance Agency. Depending on the amount of income assessable for social insurance employers pay an individual contribution (large employers), a sector contribution (small employers) or a combination of these two (medium sized employers). Whether employers are classified as large employers is based on the income assessable for social insurance in the year t-2. In 2014, the limit distinguishing a medium sized from a large employer was an income assessable for social insurance of some EUR 3 million.
The employer involved was incorporated in late 2013. It employed staff as from 1 January 2014. The employer expected to have an income assessable for social insurance of some EUR 4 million in 2014. Obviously, no wage details were known for 2012, the year t-2. So, the question was whether a starting employer whose income assessable for social insurance is expected to be “large”, can be a large employer solely based on this expectation. If so, the employer would pay an average contribution (the break-even contribution) and an individually differentiated contribution as from the third year. According to the State Secretary, a starting employer cannot classify as a large employer until in the third year, as this is the year in which wage details over the first year are available. These can subsequently be tested against the wage threshold. The State Secretary’s position would mean that a starting employer would always be a small employer. Small employers pay a sector-related contribution. The difference between the break-even contribution and the sector contribution was some 4% for this employer.
Supreme Court judgment
Neither the Social Insurance (Funding) Act nor the Decree on the Social Insurance (Funding) Act include a definition of starting employer. The Supreme Court thus points out that the content of the related provisions in the Decree on the Social Insurance (Funding) Act matches that of their predecessors in the Decree on the Invalidity Insurance Act contribution differentiation. The explanation to that Decree shows that it had been intended to distinguish between large and small employers in the first year, also for starting employers. The explanation to the Decree on the Social Insurance (Funding) Act does not show that the legislator had decided to deviate from the Decree on the Invalidity Insurance Act contribution differentiation. Hence, for the Decree on the Social Insurance (Funding) Act, too, it should be assumed that a starting employer can likewise be a large employer. The Court of Appeal had thus rightly classified the interested party as a large employer based on the expected income assessable for social insurance.
Tax Administration policy
This Supreme Court judgment is at odds with the policy the Tax Administration has conducted so far and as published in the Payroll Taxes Manual. You can invoke this judgment for contributions to the return to work fund for which the objection period has not yet expired or against which an objection or appeal is still pending.
Source: Supreme Court 4 May 2018, no. 17/02450, ECLI:NL:HR:2018:670