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2 ways to reduce labor costs in Belgium

Despite the labor market reforms initiated by the Michel Government, the persistently high cost of labor in Belgium remains an impediment to economic growth and job creation. To be internationally competitive, the government must continue its efforts to drive down the cost of doing business. Here are two of our recommendations to further reduce labor costs, drawn from our 2017 Priorities for a Prosperous Belgium.

The 2015 tax shift gradually decreased employer social security contributions from a statutory rate of 33% to 25%, in line with AmCham Belgium’s longstanding recommendation. Because of various incentives and sector-specific schemes, the effective rate can vary widely, from a low of 0.29% to a high of 53.42%. On average, however, social charges were reduced from 30.75% in 2014 to 28.96% in 2016 as a result of the tax shift, in line with the envisaged results and a clear success.

These positive results are welcomed by the international business community, but they are not sufficient.

In today’s world, talent is key. Belgium struggles to attract senior management and other high-profile positions, because employer social security contributions are uncapped, contrary to most neighboring countries. Social charges in Belgium increase – without limit – in proportion to the salary. For example, according to a recent study by Deloitte, employers in Belgium pay approximately €30,000 in social security contributions for an employee with an annual gross salary of €100,000, whereas employers in the Netherlands pay less than €10,000 in social charges for a similarly salaried employee.

Without a cap on social security contributions, Belgium is at a competitive disadvantage vis-à-vis its neighbors. AmCham Belgium recommends introducing a ceiling of €75,000 for the calculation of employer social security contributions, which would affect about 120,000 employees in Belgium, representing 3.6% of the total workforce. Capping social charges would stimulate job creation at all levels and place the country on more equal footing with Germany and the Netherlands.

Also in 2015, the Michel Government attempted to moderate wages with the so-called index jump, a temporary freeze on automatic wage indexation. But the fact remains that Belgium has one of the most pervasive systems of wage indexation. It is largely responsible for the historic wage gap, and it undermines companies’ ability to motivate and reward employees with performance-based compensation. In order to fulfill its original purpose of protecting lower-income households, AmCham Belgium recommends only applying the index up to an agreed salary level and easing the indexation mechanism.

AmCham Belgium is pleased to see the success of the substantial efforts already undertaken to reform the labor market, but stresses that further steps, in line with our 2017 Priorities for a Prosperous Belgium, will be necessary to unlock the full potential of Belgium’s labor market.

Throughout the month of November, we will cover different aspects of the labor market, as presented in our 2017 Priorities for a Prosperous Belgium. 

Download our 2017 Priorities for a Prosperous Belgium