Social security contributions on a termination indemnity converted into a training budget

At a glance

• The Act of 3 October 2022 stipulates that if a notice period or indemnity in lieu equals at least 30 weeks, 1/3 must be used for measures to improve the worker’s job market chances.
• This system only applies where the employer terminates the employment contract and the notice period or indemnity in lieu equals at least 30 weeks.
• The training budget was initially planned to equal the employer’s social security contributions on 1/3 of the notice period or the indemnity in lieu, but it is now a lump sum of EUR1,800, indexed annually.
• Employers should continue to pay the same social security contributions on either remuneration paid during the notice period or on the indemnity in lieu of notice.

Where an employer terminates an employment contract by paying an indemnity in lieu of notice, in the short-term this results in extra revenue for the social security administration. For white collar workers, an indemnity in lieu is subject to an employee social security contribution of 13.07% and an employer social security contribution of approximately 27%. The legislator has previously proposed converting this termination cost into a measure to assist the terminated worker, in particular funding for professional training.

The Act of 26 December 2013, which unified notice periods and sick leave entitlements for blue-collar and white-collar workers, stipulated that by 2019 the joint committees should sign a collective bargaining agreement providing that if an indemnity in lieu of notice equalled at least 30 weeks, 1/3 of the indemnity should be converted into funding for training or extra outplacement assistance, rather than simply being paid out. No such collective bargaining agreement was reached, so this part of the Act of 26 December 2013 never came into force.

The Act of 3 October 2022 introduced a similar system, but with more limited scope. From 1 January 2023, the amended provisions of Article 39 of the Act of 3 July 1978 on Employment Contracts stipulates that if a notice period / indemnity in lieu equals at least 30 weeks, 1/3 of the notice period / indemnity in lieu must be used for measures to improve the chances of the worker in the job market. The main difference between the new system under the Act of 3 October 2022 and the system in the Act of 26 December 2013, is that the requirement only relates to the employer's social security contributions. The net indemnity in lieu remains unaffected meaning that the worker continues to receive the full amount of the indemnity in lieu.

This system only applies where the employer terminates the employment contract and the notice period / indemnity in lieu equals at least 30 weeks. While the initial plan was that the budget for training would equal the employer social security contributions on 1/3 of the notice period / the indemnity in lieu, the government then announced that the training budget would now be a lump sum amount of EUR1,800. This amount is indexed on an annual basis.

These revisions to not require any change to be made by an employer, who should continue to pay the same social security contributions on either remuneration paid during the notice period or on the indemnity in lieu of notice. The contributions are still paid to the National Office for Social Security.   

The dismissed worker can obtain reimbursement of the cost of training or extra outplacement assistance from the National Office for Employment up to the maximum amount of EUR1,800. This right should be used within 3/4 following termination of employment. As the entitlement is to be reimbursed, the dismissed worker must pay for the training or outplacement assistance personally in the first instance.

A Royal Decree of 12 June 2024 stipulates that the National Office for Social Security will transfer part of the social security contributions it receives to the National Office for Employment in order to finance training or extra outplacement assistance. The new system will enter into force on 1 April 2025.