Are social security contributions due if a company gives its own products away for free?

The general rule is that social security contributions are due on any benefit an employee gets from the employer under the employment contract. That is unless legislation stipulates differently.

One of the benefits that’s subject to a specific regime is when an employer gives its staff members a discount on its own products. This discount is in principle a benefit in kind, subject to the normal social security contributions, but the discount becomes exempt if it meets a number of cumulative conditions:

• The quantity of the goods or services on which a discount is granted should not exceed a normal use for the family of the worker.
• The discount should not exceed 30% of the normal price, which is defined as the price the employee would have to pay if the employment relationship didn’t exist. For companies not selling to end-users, the normal price is defined as the price a comparable consumer would have to pay in a normal retail store.
• The discounted price should still be at least equal to the cost of the product.
• The employer bears the burden of proof in relation to the fact all these conditions have been met. If the employer cannot establish one or several of these conditions have been met, social security contributions are due on the discount.

The Employment Appeal Tribunal of Brussels concluded in a judgement of 22 November 2023 that we have to distinguish between an employer giving a discount on its products and an employer giving away products that don’t cost anything.

The case concerned a movie theatre. Its staff members were given a card that they could use to watch movies under very strict conditions. Staff could only use their card when the sale of tickets to clients had ended and there were still empty seats. The free tickets could not be booked in advance and had to be used by the worker personally. The employer only granted free tickets, so the employee had to buy any drinks or snacks themselves.

The National Office for Social Security considered this was granting a discount on the products of the company exceeding 30% of the normal price. It claimed all tickets granted to staff members should have been made subject to the payment of social security contributions.

The Employment Appeal Tribunal cancelled the National Office for Social Security’s decision. It argued the free tickets weren’t a benefit in kind with a value, as the tickets could only be used when the sale to paying clients had ended and there were still empty seats. The Employment Appeal Tribunal said the tickets became worthless, as there would never be a client paying for the seats involved. The free tickets were not a monetary benefit so the National Office for Social Security wrongly applied the rule for employers granting reductions on their products.

The Employment Appeal Tribunal added the rule for reductions could not be applied, as it was impossible to determine the normal market price for the ticket (the system only applied to seats the company was unable to sell) or the cost of the ticket (which was nothing, as the seat would have remained empty if no employee used the free ticket).

This judgement creates an argument for challenging claims by the National Office for Social Security against companies giving away products that don’t have a monetary value and cost.

But this reasoning only applies if the product genuinely has no cost. The Supreme Court held in its judgment of 9 November 2015 that social security contributions were due on a publishing company granting a free subscription to its own magazines to its staff member. While the cost for the publishing company to print some extra magazines was negligible, the free magazines were considered a benefit in kind as they had a cost and their value could easily be determined (the price a normal reader would have to pay for a subscription).