Recovery of pay in lieu of notice:
who pays the withholding tax?
April 2021 – Let's imagine that you pay an employee compensation in lieu of notice. Later, it turns out that this pay was miscalculated, so you ask for a partial refund of the amount paid. What do you claim: the gross amount (including withholding tax) or the net amount?
Withholding tax on pay in lieu of notice
When you pay pay in lieu of notice, you must pay - in addition to the social security contributions - a wage tax (Pr.P.). The rate of the wage tax depends on the level of the reference pay. This reference pay is in principle the pay on which the pay in lieu of notice is based. If your employee's reference pay is EUR 50,000, you must deduct a wage tax of about 37% from the pay in lieu of notice.
Compensation that is too high
Sometimes it turns out later that the compensation paid was too high. In this case, the employee must pay back part of the compensation to the employer. But the question is whether the employee must repay the amount he or she has received (i.e. without withholding tax) or whether the employee must also repay the withholding tax on this part of the allowance.
The Labour Court of Liège was confronted with such a situation and decided that the employee only had to pay back the net amount. According to the court, the wage tax (just like the social security contributions) had to be recovered by the employer from the competent authorities.
The Supreme Court
On 16 September 2019, the Court of Cassation was also called upon to consider this case.
The Court of Cassation considers that the withholding tax is in fact part of the employee's remuneration. The withholding tax is an advance on the personal income tax payable by the recipient of the remuneration. If, therefore, an action is brought to recover this remuneration (in this case, pay in lieu of notice), the wage tax forms part of it. Moreover, since 2008 the tax authorities have taken the view that an employer claiming reimbursement of undue remuneration must include the wage tax in the amount claimed.
But many courts and tribunals do not share this view of the tax administration. This case law considers the employer to be the legal debtor of the wage tax. It is therefore up to the employer to claim back the amounts wrongly paid from the administration. The employee cannot claim them back as they have never been paid to him.
The Court of Cassation has already been called upon to examine this case law in 2015. At that time, it came to the conclusion that the system of tax law does not prevent the legal debtor (the employer) from recovering the withholding tax from the tax authorities.
The choice
The employer therefore seems to have a choice: either he claims the reimbursement of the remuneration from the employee and the withholding tax from the tax authorities, or he claims the gross remuneration from the employee. The employee will then have to take the necessary steps personally to recover the wage tax, either by means of a claim or by means of an automatic rebate.
The NSSO
The Court of Cassation is much clearer on the subject of NSSO contributions: contributions that have been withheld by the employer can only be recovered from the NSSO administration by the employer. The employer cannot therefore reclaim these amounts from the employee.
